How is the Internet Changing Innovation for CPG Companies?

Cyber Monday 2022 has passed, and consumers have spent a record $11B via the Internet on a single day. Cyber Monday began just 17 years ago when the National Retail Federation coined the term, and sales in the first “official” year were just $486M. Cyber Monday sales, however, have slowed since the pandemic due to product shortages and changing consumer habits, which have driven consumers to more consistent year-round spending via the Internet.

The pandemic accelerated Internet purchasing for the Consumer Packaged Goods (CPG) industry, and we saw the rise in touchless environments such as AmazonGO stores and delivery services such as Instacart and GoPuff. The increased acceptance of e-commerce has also allowed smaller companies to compete with much larger players without needing established relationships with retailers. The evolution of technology and data has also led Internet-based apps to deliver localized and personalized experiences to consumers, and the pandemic breathed new life into the QR code. CPG companies have leveraged QR codes on their packaging to create digital interactions such as an offer, a survey, a game, or other content or digital experiences related to the brand.

These CPG Internet innovations that are the most obvious, however, are channel or marketing innovations, not product innovation. There are more subtle ways that technology is changing not only the way consumer products are being delivered and marketed to consumers, but also the way that new products are being developed and tested before they even come to market.

One of the more simple ways that consumer brands are using the Internet to develop and test new products is through virtual market research. Today, we can do focus groups or in-depth customer interviews over Zoom or other video platforms. It is now so easy for a consumer to let you inside her home virtually and show video of the pantry with purchased products and how they are used in the home. Consumers can also interact with each other and the moderator in a virtual focus group. Video has become so high quality now that a virtual conversation is almost as good as a live one.

As the Internet has evolved from commerce and communications to the Internet of Things (IoT), there are some newer opportunities for CPG companies. Despite chip shortages and supply chain disruptions, the number of global IoT connections is expected to grow to a staggering 27 billion by 2025.  Today, there are inexpensive sensors that allow consumer products companies to track their products from the factory all the way through the retail environment and into to the hands of the consumer. For example, Diageo trialed a smart bottle that could tell when a bottle of Johnnie Walker was opened or send marketing messages to a nearby smartphone. While these technologies may still be too expensive for every retail item under $5, these sensors could be used strategically for smaller-scale product innovation testing. They could track products through the supply chain to monitor location, transit time, and temperature. They could also be used in the retail environment for inventory and in the home to tell a brand when, where, and how much of a product is being used or consumed in real time. This type of autonomous usage data versus reported data could provide CPG companies with more accurate ways of tracking in home usage of products for testing.

Big Data and digital twins are another way that the Internet is changing the way CPG companies can innovate. A digital twin is a virtual representation of an actual, physical product or process. Foodpairing, a Belgium-based company, has developed Digital Twin of a Consumer (DToC) technology, which aims to improve food and beverage innovation by predicting winning flavor combinations and product formulations. This Artificial Intelligence (AI) model can help food companies find unique and preferred flavors in hours, rather months of consumer testing. Their clients’ new product teams can then refine the concepts and products through more traditional research.

All of these technologies are based on Web 2.0, which is characterized by centralized data stored on servers run by massive corporations. Web 3.0 is emerging, albeit with a bit of a rocky start – just ask Sam Bankman-Fried. Decentralization is the centerpiece of Web 3.0, and while cryptocurrency often comes to mind first, there are many other ways that Web 3.0 has the potential to change innovation for CPG companies beyond simply using Bitcoin for purchases. For example, CPG companies could collect consumer insights in the Metaverse by looking at what products consumers interact with virtually. Consumer data and loyalty programs could become decentralized (perhaps redistributing retailer power) and give consumers more control over what they do with their data and who can access it. Consumer brands could issue NFTs and allow those consumers who own a product’s NFT to have additional input into the new product process. Brands could go as far as to create a Decentralized Autonomous Organization (DAO), where all governance would live on the Blockchain. In fact, gmgn supply, the first decentralized CPG company, launched in 2022 with the goal to disrupt the CPG market and make room for a new business model for the people. They want to launch 100 CPG brands where members will be rewarded for participating and include customers in the creation process.

Many CPG companies still have opportunities to leverage Web 2.0 and AI in innovation, particularly via IoT and Big Data. Not too far in the future, however, Web 3.0 will present additional opportunities for CPG companies, but there will certainly be challenges. Will consumers visit the Metaverse? Will mainstream consumers purchase NFTs, especially from a commercial entity? Can decentralization work? Imagine the messiness of thousands of consumers trying to agree on a product direction in a DAO – it’s often impossible to get four or five consumers in a focus group to agree on a single idea! Despite the challenges, Web 3.0 will create more powerful communities of consumers, and leading CPG companies will need to figure out how to leverage these communities to drive innovation.