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The Role of Digital in Shopping

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1 The Role of Digital in Shopping
Nikhil Sharma VP, Consumer & Shopper Analytics, Nielsen Good afternoon everyone – I have the pleasure of discussing a very exciting topic today ‘Digital’s role in how people are shopping and buying’. Digital is one of the hottest topics in the industry – how will it impact you? If you are a marketer you may be afraid of the competition getting ahead or missing out on opportunity If you are a media company you may be trying to develop a strategy to capitalize on the limitless potential At Nielsen we decided to do a little reality check…we surveyed 30 thousand consumers across the U.S. and today I’m going to share… How they are engaging with technology How that engage influences their purchasing And what it should mean to each of you…

2 Today’s Agenda 1 Fundamental Truths About Shopping
Unlocking The Power Of Digital Implications And Guidelines For Success 2 The agenda we will follow includes: Fundamental Truths about Shopping Unlocking the Power of Digital Implications and Guidelines for Success 3

3 Multiple forces are influencing the way people shop
Consumer Trends Retail Evolution Technology Innovation Meet the digital shopper—connected, savvy and actively seeking choice, convenience and value for money. The world has never been more complicated so let’s start the conversation thinking about all the variables impacting shopping behaviors. There are several macro forces influencing the way people shop. We believe the most important forces are consumer trends, retail evolution, technology innovation. These forces are creating an evolution in shopper needs and giving way to new ‘digital shopping behaviors’.

4 And has important implications on the future …
The face of the American consumer is changing Urbanization & Industrialization foster … Declining birth rates … Which lead to an aging population And has important implications on the future … Immigration & Growth in Ethnic Families Older Consumers with with New Needs Declining % of HHs with Children Changes in Per HH Spending The first force that we see relates to shifts in consumer demographics. The demographic shifts we will see over the next 10 years are the result of a cycle of economic growth, followed by decreased fertility and household size, and finally an aging population. As a result of this cycle, we see 5 implication areas emerge: Uneven Population Growth by Economic Status Declining % of Households with Children Older Consumers With New Needs Changes in Per Household Spending Immigration & Growth in Ethnic Families Uneven Population Growth

5 Retailers are experimenting to keep up with the trends
Winners will align formats, assortment, promotions & communications with shopper demand Food retailers sell more non-food & non-food retailers expand food Big-box add smaller formats & smaller formats add larger Growth in extreme value & premium channels… middle suffers Furthermore, retailers are experimenting to keep up with the trends: Growth in Extreme Value and Premium Channels– Middle is being squeezed Format Blurring– Big box adding smaller formats and smaller formats adding larger formats Format Shifts in Mix– Food retailers sell more non-food and non-food retailers expand food Winners will align formats, assortment, promotions and communication with Shopper Demand.

6 Rapid growth in new devices, ushering in the ‘Post PC’ era
2000 US USERS 2012 US USERS Digital is all the rage Digital technology is widely pervasive today and will only continue to grow at a rapid pace into the future. A couple of other facts from our Digital report to help dimensionalize this digital explosion Today, 274 million Americans have internet access. That’s more than doubled since 2000 81 billion minutes spent on social networks and blogs and blogs, In 2009 they became the top online destination surpassing even 60% of mobile time is spent on mobile apps Source: Nielsen NetView

7 Shoppers have found a use for mobile devices in shopping fairly quickly
Mobile Shopper Universe Have Done Mobile Shopping on Smartphone Mobile Shopping Activities Among All Smartphone Owners Most importantly shoppers are using their mobile phones for shopping! Roughly 80% of them are using smart-phones for shopping activities like finding stores, making lists, checking prices, researching products, sharing content and purchasing. ¾ for store location 2/3 for checking prices 60% for researching a product 40% for shopping lists But only I in 3 people use their phones for buying a product

8 Amidst these changes, three core shopper needs always have and continue to remain paramount…
Hypermarkets / Mass Merchandisers Natural /Specialty food stores Choice Warehouse Club Stores Price-Value Pharmacies Amidst all these activities, people continue to want to satisfy three fundamental needs when they shop: convenience, choice and value for their money. Convenience is the ability to deliver a shopping solution that requires less time and effort. Choice is simply more variety to cater to a broader set of consumer needs. Price-value is the level of quality delivered at a certain price point. For nearly two centuries now, retail formats have evolved to better address these needs Ample evidence exists to suggest that these needs have been responsible for retail evolution Dollar Stores Supermarkets Convenience Convenience Stores

9 Online Store Advantages Brick & Mortar Store Advantages
… and unlike other industries like travel, books or music, ‘clicks’ will not replace ‘bricks’ in CPG Need Online Store Advantages Brick & Mortar Store Advantages Convenience Shopping solutions that requires less time and effort No travel Available 24 x 7 Features like automatic replenishment Avoid crowded stores / checkout lines No waiting for delivery Easy to address immediate or special needs Value for Money Higher quality for a certain price Easy price comparison Access to deals and coupons No shipping fees or stringent return policies Ability to inspect products for quality Exposure to promotions, sampling and signage Choice Variety to address more consumer needs Broader product range Access to more retailers Ease of research Ability to seek help or give advice Easy to interact with, evaluate and select products Experience through tailored assortment, layout or prices Interaction with store associates ecommerce does offer many benefits and has enjoyed some success in CPG, however, brick and mortar stores also enjoy key advantages over ecommerce, and have prevented ecommerce from gaining widespread adoption in CPG. On the convenience front, shopping online does eliminate the need to travel. People can shop any time and from practically anywhere. Online shopping also affords features like automatic replenishment, and the ability to bypass check-out lines and crowded store aisles entirely. Conventional stores, on the other hand can deliver convenience as well, eliminating the wait for product delivery and fulfilling special preparation requests like an unusual cut of meat or customized birthday cake. The same can be said for the price-value relationship. Shoppers can easily compare prices, and find coupon offers when they are shopping online. Conversely, brick and mortar stores can also leverage promotions effectively to deliver low prices to shoppers, and shoppers don’t need to worry about shipping fees or stringent return policies. Lastly on choice, when purchasing online, shoppers have a much broader array of products to choose from and places to purchase them, along with concise information on features, benefits and comparisons. Conversely, in a physical store, shoppers can evaluate and select products by touching and interacting with them, providing a more satisfying shopping experience that engages the senses. They can interact with an employee in-store or retail stores can tailor assortment, layout or prices to suit the local community.

10 However, a battleground has definitely emerged in CPG as digital engagement and purchase flourish
High Diapers Diet Aids Vitamins Skin Care Small Appliances Baby Food Hair Care Oral Hygiene Pain Remedies Cereal Candy Digital Engagement Carbonated Beverages Cheese Beer / Liquor Frozen Pizza Fresh Produce Detergents Here’s an interesting fact: the mix of product sales in ecommerce is 60 percent non-food to 40 percent food, the exact reverse of the CPG picture in total, which is 60 percent food and 40 percent non-food. Looking ahead, we expect that the acceleration will greatly differ by product category. If CPG marketers want to influence shopper’s decisions on where to buy, the reality is that category matters. Some categories are better candidates for selling online than others. Categories in the lead are diapers, diet aids, vitamins and skin care, with online sales significantly above the average for CPG products. Many of these categories are relatively expensive non-food products with a steady usage rate. In contrast, categories like carbonated beverages, dairy, liquor, beer, produce and frozen food have a very small proportion of sales online. These categories encounter physical barriers to ecommerce due to factors like refrigeration, perishable concerns and weights that are cost-prohibitive for shipping. Minimal Online Sales High

11 Understand your Category Leverage the Right Touch points
Nielsen believes that three things are critical in order for CPG marketers to succeed with digital Know your shopper (Who) In Q2 2012, Nielsen conducted extensive research across 36,000 shoppers of CPG products spanning 18 categories, including both food and non-food items We learned three very important principles: First, the category matters. Digital will transform some categories faster than others because the benefits that digital offers in terms of increasing choices and improving convenience are going to be more relevant to some category than others. Second, touch point matters: There are interesting difference across categories & people in terms of whether or blog or websites works best (which we have research results to show). Therefore, going after every single touch point isn’t going to be a smart play in the personalized digital era. Last but not least., the Shopper & Consumer matters. This relates back to the demo trends we discussed earlier. Digital use differ by demo and the trend is definitely evolving. Let’s review some facts… Understand your Category (What) Leverage the Right Touch points (How)

12 Today’s Agenda 1 Fundamental Truths About Shopping
Unlocking The Power Of Digital Implications And Guidelines For Success 2 So far digital shopping has been more modest in the consumer packaged goods (CPG) world. ecommerce has undoubtedly shown an impressive growth trajectory, but in 2011 it accounted for just two percent of total consumer packaged goods sales. So how can you unlock the potential. 3

13 Marketers can impact two aspects of shopping with digital: ‘Where People Buy’ & ‘How People Shop’
OPPORTUNITY Ecommerce Opportunity Marketing Opportunity While ecommerce may not replace traditional grocery shopping in the immediate future, the reality is that in an industry with modest growth like packaged goods, ecommerce will likely grow at the expense of more traditional channels. More broadly, digital also provides an opportunity for marketers to engage with shoppers ‘everywhere and exactly where’ in order to influence shopping decisions in their favor. Let’s evaluate how you can unlock this opportunity in CPG through the lens of where people buy and how people shop. Role that category plays in e-Commerce Importance of touchpoints in digital shopper marketing KEY CONSIDERATION FOR SUCCESS

14 Unlock the link to Ecommerce success
Where People Buy Unlock the link to Ecommerce success Which category has what it takes to unlock barriers and succeed online? So what will help categories unlock digital or E-commerce success? We can summarize it into 4 areas – first 2 are barriers to digital shopping, the other 2 are drivers.

15 Convenience High Immediacy URGENCY BARRIER Urgent needs
Where People Buy Convenience High Immediacy Urgent needs Immediate consumption Low delay tolerance URGENCY BARRIER First barrier is Immediacy of Needs. There are some things that shoppers want to get in their hands once they decide to buy them, instead of waiting for the evening / next day delivery guy. Snacks, and frozen dinner items are good example – these immediate consumption categories are often picked up at the grocery store on the way home or at the C-store. Online doesn’t deliver well on the Convenience that shopper want in getting the products right away. Medicine is another example. If you run out of medicine and someone is not well…it’s the nearby Drug store who will better serve your needs.

Where People Buy Choice High inspection Check quality in store Difficult to return Sensory product choice (e.g. smell) URGENCY BARRIER INSPECTION BARRIER 2nd is an Inspection barrier. Many still want to touch and feel something before putting it in their basket. Meat, Produce are perfect examples. The concern on spoilage and return make shopper hesitate to buy these online. Products that are chosen with sensory stimulus (e.g. smell of the new air freshener) will make online purchase less likely as well.

Where People Buy Convenience Need update High Stock Up Steady Use-Up Rate Willing to stock up URGENCY BARRIER INSPECTION BARRIER STOCK-UP ENABLER For categories that aren’t blocked by the barriers, there are 2 drivers that gives some categories more opportunities in e-commerce than others. First is the stock up drivers. Products with steady use up rate and long shelf life has greater e-commerce potential. Moms have realized the convenience of having Diapers shipped to the door. After all, it will be really convenient if these regular items like Diapers or paper products can be delivered right to your door to keep your supplies stocked.

18 Price-Value High ‘cube’ benefits URGENCY BARRIER INSPECTION BARRIER
Where People Buy Price-Value High ‘cube’ benefits Price to Weight ratio Product margin (room for discounting) URGENCY BARRIER INSPECTION BARRIER STOCK-UP ENABLER PRICE ADVANTAGE Last is the Economics Driver. One big consideration of online purchase is delivery charge, and such charges are usually lower with “high cube” products (products with a high price to weight ratio).

19 Where People Buy Example: Moms research baby food and diapers digitally, but only purchase the latter online More/Better Choices More/Better Choices Special product/pack size Access to reviews / info High involvement decisions Specialty items / size Access to reviews / info High involvement decisions Convenience Convenience Shippable / Storable Concerns on spoilage / expiry So let’s compare and contrast two categories with similar shoppers to understand why one sells well online and the other less so: Baby food (esp. liquid formula and jar baby food) have expiry concerns, and the weight of the product made them expensive to ship. Thus manufacturers are providing info and coupons online, but directing shoppers to stores to get the product. Superior Value Superior Value High “cube” Online retailer use diaper as loss leader (e.g. Low “cube” No price advantage vs. offline

20 Where People Buy Which categories have what it takes to unlock barriers and succeed in ecommerce? URGENCY BARRIER INSPECTION BARRIER STOCK-UP ENABLER PRICE ADVANTAGE Skin Care Oral Care Body Wash Hair Care Vitamins Small appliances Keeping the barriers and drivers in mind, we expect success from: personal care categories like skin care, hair care, vitamins and feminine care; pantry staples like coffee and cereal; paper products like bath tissue and kitchen towels to win in ecommerce if manufacturers and retailers collaborate to deliver value, choice and convenience. Conversely, ecommerce growth in snacks, frozen foods, condiments, and beverage will be relatively slow. Diapers Lotion Medication Coffee Feminine Care

21 How People Shop Media need to influence shopping by targeting key ‘decision points’ along the Path to Purchase Access deals / bargains Plan shopping trip Access feedback/reviews Gather product information Make purchase Obtain ideas on usage Ecommerce in the CPG industry is in its evolutionary stages. Fewer than 4% of Americans actually buy CPG products online in a given month4. Less than 3% of smart-phone owners actually purchase CPG products using their smart-phones5. However, digital technology does present significant potential for timely and personalized marketing. Shoppers do engage in other activities like checking prices and researching products online. Moreover, rapid proliferation of technology certainly provides marketers with a myriad of ways to interact with shoppers. Amidst this increasingly complicated marketing landscape, where should you invest in digital? Are websites more effective than coupon sites? Should you prioritize social media engagement over developing mobile apps? These are indeed difficult questions to answer. Nielsen’s recent research in Q set out to answer these questions in the CPG industry. Our results illuminated the role that various digital touch points [websites, social media sites, blogs, and coupon sites] play in influencing shoppers’ purchase decisions for various CPG products. We discovered that shoppers often default to only using certain touch points depending on what they are shopping for. It is important for marketers to understand what the relevant touch points are for their products, and the specific shopping decisions they influence. So let’s turn our attention to How people shop to uncover opportunities to engage shoppers in the shopping process. Discover a new brand or product / Reconfirm prior purchase

22 Digital touch points preference vary by shopper types
How People Shop Digital touch points preference vary by shopper types Ranking of Digital Touch points Most Used Digital Touch points All Shoppers Hispanic Shoppers African American Shoppers Coupon Website 1 2 Social Network Brand 3 4 Store Website 5 Store 6 Blogs 8 Brand Website 7 9 Mobile Apps Media Website Online Retailers 10 There are interesting differences across categories and people in terms of whether s, blogs or websites work best. Based upon our analysis, several key principles emerged: People utilize a variety of media and sources of information and these vary by category and shopper. An integrated approach leveraging traditional and digital touch points is most effective. Focusing solely on a social or mobile strategy is not prudent. Strategies must recognize which digital touch points are effective. Using them judiciously in concert with traditional marketing efforts is key to success.

23 Shoppers prefer to use different touch points for different categories
How People Shop Shoppers prefer to use different touch points for different categories % shoppers utilizing online info for category shopping Top 3 Digital Touch points Diapers Coupon Sites Brand s Blogs Baby Food Brand s Coupon Sites Social Net. Marketing Diet Aids Brand s Brand Website Social Net. Marketing Today, some CPG categories are more successful than others in expanding its digital audience (see categories highlighted in green). But again, the touchpoints that shoppers most commonly rely on to get info is different across categories. E.g. Diapers rely more on coupon sites. Baby food & Diet Aid manufacturers have a more direct connection to shopper via its brand s. And look at small appliances – its touchpoints are much more retailer centric…very distinct from other categories. Small Appliances Store Website Online Retailers Search Engines

24 Path to Purchase Decision Points
How People Shop More shoppers use digital when shopping for diapers, but baby food utilizes multiple digital touch points more effectively Diapers Baby Food 62% of shoppers use digital 54% of shoppers use digital Websites Social Network Blogs Path to Purchase Decision Points Discover new brand/product Reconfirm prior purchase Obtain ideas on usage Gather product information Access feedback/reviews Plan shopping trip Access deals/bargains An examination of the ‘path to purchase’ for trips where shoppers purchase diapers versus baby food provides an interesting perspective into the different role of digital technology for two seemingly related categories. At first glance, more shoppers use digital media when shopping for diapers [62 percent] compared to baby food [54 percent]. This suggests that diapers are more successful in digital shopper marketing. However, a closer look reveals that in the case of baby food, a greater number of digital touch points actually influence shopping decisions compared to diapers. It suggests that marketers of diapers have room to further optimize their digital strategy, either by trying to make certain touch points [e.g. websites, social networks] ‘work’ better for their products, or by focusing on a smaller set of more influential touch points [e.g. blogs]. Similarly, baby food marketers that have evidently enjoyed some success in digital shopper marketing might have even more opportunity to influence certain decisions or activities along the ‘path to purchase’ [e.g. planning trips, accessing deals]. 1Shoppers acknowledge the role of a digital media in the helping them on a specific path to purchase decision points (index vs. other CPG categories) ▼ ▼ Index <50, ▼ Index , ▲ Index , ▲ ▲ Index 150+

25 Today’s Agenda 1 Fundamental Truths About Shopping
Unlocking The Power Of Digital Implications And Guidelines For Success 2 Marketers that are able to prioritize the right touch points across digital platforms to reach, engage and influence shoppers have significant upside. Effective digital shopper marketing requires that marketers identify decisions shoppers make along the ‘path to purchase’ when they intend to buy specific products, and then determine the right mix of digital touch points to influence those decisions. 3

26 CPG marketing will be significantly different in 10 years
Driven by traditional mass marketing efforts. ‘Typical’ American families More Rural / Physical Locations Concentrated / Target Many / At Home & In-store Today Who Where How Diverse, multi-cultural families More Urban / Virtually Multi-platform / Personalized / On-the-Go Future Marketing is changing and becoming increasingly more complicated. Three core elements of marketing will be fundamentally different in 10 years… “Who”: The typical American family will be in the minority, replaced by more diverse, smaller and multi-cultural families “Where”: Urbanization as a trend will continue, and more people will be shopping virtually “How”: People will access more devices while shopping, and also be making shopping decisions in response to personalized communication and increasingly “on the go” Ultimately, marketers that adapt their business model to deliver on the core needs of choice, value and convenience, while harnessing digital as a marketing medium effectively will succeed. Driven by Shoppers’ demand for more Choice, Value & Convenience.

27 The Call To Action Understand Shopper Needs
Shoppers seek new ways to achieve convenience, choice and value for money. Leverage digital to personalize and shape offers to be aligned with shopper needs and preferences. Recognize The Role of Categories II Leverage online opportunities to target specific segments, offer niche products and innovate. However, recognize that ecommerce may not be viable for every category. Optimize Digital Touch Points III Leverage digital to tackle the most important issues for retailers, improve the shopping experience and eliminate unnecessary subsidies.

28 Potential Ways To Engage With Nielsen
White Paper Know your shopper (Who) A Understand the digital shopping landscape and implications/opportunities in more detail Available immediately (complimentary) Syndicated Report B High level assessment of best digital touch points on the ‘path to purchase’ for 18 CPG categories Available immediately ($5K) Custom Study C Detailed assessment of best digital touch points along ‘path to purchase’ Opportunity to customize for specific brands, products, channels, retailers or shopper segments 6-8 weeks / $60K+ Understand your Category (What) Leverage the Right Touch points (How)

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