Analysis

GUEST COMMENT How brands might use the Internet of Things

One of the hottest technology topics in recent years has been that ‘everything is connected’. We’re increasingly seeing different parts of our lives interconnected, with giants like Apple and Google knowing our every move and Facebook knowing us better than our close friends. The term IoT has been used as a buzzword, and everybody has different definitions and views on what it means – from general connectivity to analysis of data collected to provide actionable information or intelligent control. Whatever your definition, the promise of the IoT is that it provides the opportunity to further enhance and differentiate products, to move from product to service-based offerings and business models, and to make it easier for consumers to engage with brands. However, the FMCG sector is yet to fully embrace this technology, despite it being available for many years. Our workshop brought FMCG sector experts together to collectively understand the challenges the sector faces in embracing the IoT, learn how the different categories within the sector have engaged with the technology to date and discuss ways organisations can change to adopt it.

Why should FMCG companies care about the IoT?

The IoT is already being used in many industries and, in many instances, is fundamentally changing the business landscape. The effects can be seen in services from early-stage companies such as Uber and Deliveroo – which use technology to challenge staffing conventions and make services easier to access and more convenient for consumers – or established blue-chip organisations such as GE, which has added sensing and connectivity to its jet engines to improve efficiency, reduce downtime and sell thrust rather than engines to its customers. IoT technology is disrupting established business models – so it’s a threat but also an opportunity that the FMCG sector must do something about.

We’re seeing experiments in FMCG, with examples such as Amazon Dash changing the way consumers purchase products and engage with brands. Dash adds convenience for consumers and simplifies the route to fulfilment. In theory, it could potentially differentiate a brand and drive loyalty through convenience. Until multiple brands also have Dash buttons, of course, or until it evolves to be not brand led but product led, and the system selects whichever is cheapest at the time – driving loyalty to Amazon and not the FMCG brand. So, FMCG companies can’t rely on others within the supply chain to do this for them – they need to have their own plan.

With the growing interest in the IoT and its application, companies are trying to understand what value it could bring to their organisations, and many FMCG companies already have a digital team in place. Whilst these digital teams have been around for a few years, much of the early focus has been on digital marketing and social media, and there has been a recent increase in urgency – driven from senior management – that they need to fully engage with the IoT. They are asking questions such as: “How can we create value from the IoT? How do we improve our consumers’ experience through the IoT? Can we use the IoT to increase consumer loyalty? Do I need to offer a service? How do I do this? Is this an opportunity for a new revenue stream?” Or simply: “How can we use the IoT to sell more products?” Any FMCG company which does not start asking these questions and move beyond digital marketing and social media will run the risk of being left behind.
As with any business proposition, money is important. Market trends and business insight estimate that the IoT will generate more than $20 trillion of economic value from revenue. Businesses are predicting over 50 billion connected devices by 2020 – less than four years away! Whilst the cost of the technology clearly needs to be considered, there are potentially higher margins to be achieved through moving towards more service-based offerings and business models. And, given the inevitability of the IoT in the industry, those who do not take it up will surely lose market share and/or see reduced margins.

The service economy

An interesting observation is how loyalty is shifting away from products and towards services. It can be seen in the way we now consume music and video, the domination in services such as Facebook or the automated delivery of produce from Hello Fresh. It often feels like most of us are surgically attached to our smartphones. But it’s not the physical device itself that we care about – it’s the services it gives us access to. Consumers are looking beyond the product and more to the result and the experience it brings.

One of the things that services bring is helping to make consumers’ lives ‘seamless’ and more convenient. More and more is now available to consumers on demand within minutes or hours, be that loans, grocery deliveries or entertainment, and consumers’ expectations are constantly growing. Having information and the ability to control things at their fingertips is becoming ubiquitous and so FMCG companies need to meet this expectation.

Opportunities for the FMCG sector

Clearly the hard part for FMCG companies in adopting IOT technologies is knowing how to create relevant value from them. Everyone is searching for the killer application – there are lots of examples from FMCG and other sectors of IoT-related products and functions that are just gimmicks. It is also challenging to perform reliable return-on-investment calculations, largely because the ideas are so different from business as usual and it is difficult to predict how they will be accepted by consumers. However, there are clearly multiple opportunities for FMCG brands within the IoT space.

Connect directly with consumers

The IoT is already beginning to change how consumers shop – and how consumers and the FMCG companies do business. The FMCG sector is an industry that has never before had end-to-end engagement with its customers. Traditionally, once a consumer purchases a product from the supermarket, brands have no means of tracking individual consumer experiences and how they behave with the product – other than consumer research and insight trials, which are only ever a sample of the population and where it is hard not to disturb consumers’ usual routines or habits. The IoT enables inert items to become vessels of ongoing, real-time communication with consumers. This means brands can maintain direct relationships with their product users, offering tailored experiences as well as an additional service element to otherwise static items. For example, there are now personal care connected devices that can treat wrinkles, stretch marks or blemishes – with an app tracking usage (with the user’s permission) and sending the data back to the manufacturer to build their understanding of how well their product is working. The user will, in return, get recommendations for better skincare – and the brands can use the data for product development and marketing. The data can help them improve their products, provide more relevant ranges and understand how their products function in the real world.

Communicate your brand story

The big brands are just as passionate as smaller companies but it is often not seen or believed by consumers – the master brewer of a multinational brewery, for example, takes as much pride in their beer as a craft brewer in their garage. The IoT could provide an opportunity to tell people a richer story behind a brand, and make them aware of things they didn’t know. All companies have good traceability procedures in place – knowing where ingredients have come from and the conditions of the production process.

The IoT can help you tell your stories by providing the necessary communication channel. The personality of a brand is about cutting though noise because everyone is going through the same channels, even if those channels have been changing with the rise of internet shopping. But in an IoT world, it is about reinforcing the brand and the story over time. This also allows the brand to maintain a dialogue with the consumer and decide what that dialogue consists of – as well as making it much easier for the consumer to talk to the brand. That way the consumer can feel a loyalty to the brand, and the brand can learn so much more about its consumers. Going direct to the consumer in this way gives brands much more control and diminishes the power that the supermarkets and online retailers have – this has significant value not just in telling the brand story but also in building loyalty and engaging better with the consumer.

The FMCG sector is used to thinking about selling units of products – numbers of lipsticks, boxes of cereal, hectolitres of beer. Could this status quo be challenged? Could you attribute value to a different type of ‘unit’? Can you challenge the unit of value? Thinking more broadly than the product value – and the value that your brand can bring to consumers’ lives – will open up more opportunities to make money.
Beyond the hype of the IoT is a very real opportunity for brands to leverage the technology to create new business models that shift focus from standalone products to service-based offerings, resulting in better engagement with customers and fuelling additional revenue streams. These alternative revenue streams could include service revenue, hardware revenue, data revenue and ecosystem revenue.

How to proceed – what’s next?

The IoT is inherently more complex than traditional product offerings – it’s an integration of several things requiring a much wider range of skills and capabilities than any one company has. It requires end-to-end thinking for a business and advanced integration skills. As organisations begin to build their IoT solutions, companies could broadly take a few approaches. For example, plan, experiment, partner, look into start-ups.

In summary

The IoT promises a revolutionised, fully interconnected, smart world. It is already starting to take shape – and it is here to stay. For the FMCG sector, implementing IoT applications is no longer a ‘nice to have’ but a ‘must have’ and it is vital for the sector to remain competitive and to keep up with the ever-evolving needs of the consumer. Whilst there are challenges to overcome, there are plenty of opportunities, not least to connect more directly with consumers to say more about a brand and learn more about the consumer – but also to make money in different ways by moving to service business models and getting revenue from the data you collect. But to make the most of these ubiquitous enabling technologies, organisations need to embrace a more agile approach to development.

Sajith Wimalaratne is head of food and beverage development at Cambridge Consultants

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  • Cambridge Consultants

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