By E.J. Kenney, Senior Vice President and Global Head of Consumer Products and Life Sciences, SAP
Signs of economic stagnation top the list of concerns for most midsize business leaders across the consumer products industry. From inflationary pressures on operational costs and pricing to monetary policies that result in high interest rates, they are competing in a unique environment of opposing forces: exuberant demand tempered by caution in the face of a potential downturn.
Even though no one can accurately predict how the economy will pan out over the next 6 to 18 months, consumers are already changing their buying behaviors. They are quickly pivoting their attention to more value-based labels and retailers that allow them to buy more products at lower unit costs. And in some cases, they are modifying their overall consumption.
According to research from the SAP Insights center, this widely observed consumer behavior is no aberration. Approximately half of surveyed midsize consumer products companies rank their fear of economic stagnation ahead of worries such as global shortages in natural resources, employment and livelihood crises, and widespread distrust and misinformation.
Breaking down patterns with digital fluidity
Each long-term risk influences how consumers choose between being loyal to one brand and reaching for a comparable ‒ if not better ‒ product to meet their immediate needs. Brands that openly embrace this uncertainty can distinguish the advantages of digitization and digitalization to increase business performance, respond to future demand, and remain competitive.
Although the two words may sound similar, there are notable differences between digitization and digitalization:
Digitization translates physical things – such as papers, photos, documentation, and manual processes – into bits and bytes. For example, a document is scanned to create a digital version without alteration and activated as part of business-wide decision-making and work. Banking with ATMs, telecommunications with mobile phones, and grocery stores with barcode scanners – all these forms of digitization have become synonymous with convenience and reliability.
Digitalization, on the other hand, drives fundamental changes in how business run, serve customers, engage with vendors and partners, and impact the environment and society. New value from data aggregated through digitization is then unlocked by advanced digital technologies, such as cloud computing, machine learning, artificial intelligence, process automation, business intelligence, predictive analytics, and the Internet of Things.
By leveraging both sides of the digital spectrum, midsize consumer products companies can capture and compile demand-side and supply-side data to analyze consumer segments at micro and macro levels. For example, they can identify which offers persuade consumers to trade one product for another, pinpoint less-profitable lines that should be divested, and move investments into high-demand segments that can maintain their price. More importantly, assessments can be drilled down for specific consumer types based on age groups, gender, region, marital status, lifestyle, and more.
Allbirds is a prime example of a midsize consumer products brand connecting digitization and digitalization to support scalable growth. Manufacturing "the world's most comfortable shoe" and resonating with consumers, the company sold more than one million pairs in its first two years – which could potentially overwhelm its accounting systems.
To help manage every aspect of the company's business now and for a decade or more in the future, Allbirds' leaders chose a modern ERP. This decision led to the delivery of real-time financials with up-to-the-minute sales and customer data through the integration of legacy e-commerce and point-of-sale platform. Then the business went even further in its digital transformation by setting up systems that accurately purchase, pay, track, and value inventory – from manufacturing locations and distribution centers to the entire store network.
This combination of digitization and digitalization led to a consistent experience across all sales channels. Inventory, prices, and promotions are managed in a centralized global database – readying the business to improve on-time deliveries and reduce out-of-stock situations.
Establishing a foundation for future growth
Consumer goods companies – especially growth-focused companies – must streamline their operations to navigate every twist and turn of the global economy. That means breaking down silos that exist throughout the organization to eliminate waste, reducing the need for buffer inventories, and connecting business processes with a single platform for business intelligence, processes, and decision-making.
But first, brands must have a clear understanding of how digitization and digitalization can drive game-changing digital transformation. By having this outside-in view, they can address the needs of their business, customers, and external ecosystem in ways that create value that rivals even some of their largest competitors.