34 ISE Magazine | www.iise.org/ISEmagazine
Consumer packaged goods (CPG) are purchased
items that consumers need to replenish frequently,
such as beverages, packaged foods and household
With estimated 2017 sales of nearly $800 billion
contributing around 4 percent of U.S. gross domestic
product, these purchases play a critical role in the economy.
The industry is characterized by consumers’ low switch-
ing costs. For many years, a few giant players, such as Nestlé,
Procter & Gamble Co. and Unilever, dominated the industry
through product differentiation, market segmentation strate-
gies and brand loyalty.
Before 1930, consumer goods were sold in small neighbor-
hood general stores that satisfied local buyers’ needs. Packaging
and marketing did not play an important role in bulk deliveries
as households bought items daily from these small stores. The
rst direct-to-consumer approach appeared at the beginning of
the 20th century when manufacturers such as Avon began sell-
ing beauty products door to door with housewives as the tar-
geted customers. Door-to-door selling techniques experienced
a rapid decline after 1980 when women joined the workforce
in larger numbers.
By 1950, big CPG manufacturers such as P&G and Unile-
ver, forced by better quality in competitors’ products, started
Direct-to-consumer strategies
for CPG manufacturers
Brick-and-mortar options give way to personalized services for a variety of goods
By Gurram Gopal and Inés de Madariaga Azcuénaga
Direct-to-consumer strategies
for CPG manufacturers
Brick-and-mortar options give way to personalized services for a variety of goods
By Gurram Gopal and Inés de Madariaga Azcuénaga
Direct-to-consumer strategies
for CPG manufacturers
Brick-and-mortar options give way to personalized services for a variety of goods
By Gurram Gopal and Inés de Madariaga Azcuénaga
Direct-to-consumer strategies
for CPG manufacturers
Brick-and-mortar options give way to personalized services for a variety of goods
By Gurram Gopal and Inés de Madariaga Azcuénaga
January 2019 | ISE Magazine 35
to invest in brand management. Companies started to take ad-
vantage of brand equity and use it to add long-term value and
justify charging more for their products. Increased spending on
marketing to drive brand equity became the key strategy for
CPG manufacturers.
In the 1990s, modern retail stores such as supermarkets in-
corporated pioneering marketing and management techniques.
Big retailers started to invest in marketing and to offer generic
products, and thus increased their reputation. Until now, CPG
manufacturers’ strategy had been based on three main aspects:
gaining tactical placement at the retailers’ shelves, brand posi-
tioning and mass advertising.
In recent years, the CPG industry has struggled to sustain
growth with sales flat between 2013 and 2016. Large manu-
facturers have focused on cost-cutting and trimming brands
while seeking new avenues for growth. The appearance of
e-commerce channels, the strengthening of powerful retail-
ers and changing customers’ needs and priorities inevitably led
CPG manufacturers to reconsider their strategy and adapt to
new market trends (see Figure 1). Direct-to-consumer (DTC)
sales is a promising avenue for appropriate manufacturers to
drive growth in the e-commerce driven marketplace.
CPG consumers are demanding more
The CPG industry is facing several challenges, including shift-
ing consumers’ preferences, the appearance of disruptive com-
petitors in the market and development of new distribution
channels. Digital consumers are increasing, and according to
McKinsey and Co. “as much as 30 percent, or $50 billion,
of the CPG industry’s sales growth in the next five years will
come from online.” Moreover, a recent study suggests three-
quarters of all shopping journeys begin online, where consum-
ers use digital channels to find information about products and
compare prices. Consumers are also starting to integrate multi-
ple channels in their purchasing process. They shop differently
depending on their needs or circumstances.
Buyers are also shifting toward value, looking for conve-
nience and increasingly shopping online as they believe it is
easier to find the items they want along with saving money.
According to a study by the marketing and analytics firm IRI,
20 percent of consumers say it is easier to find needed grocery
items online.
Consumers are also active on social media. Recommenda-
tions from people they know or from online platforms such as
YouTube, Instagram and Pinterest influence purchase decisions
of most millennial consumers. Therefore, companies can use
social platforms to boost online sales through targeted adver-
tisements. Customers increasingly focus on wellness and tend
to buy healthy and organic foods and personal care products
with natural ingredients. Customer-centricity is becoming the
key – consumers want personalized, end-to-end shopping ex-
The CPG industry is also buffeted by changing global de-
mographics. The population is aging; the United Nations proj-
ects the number of people older than 65 will double to more
than 1 billion over the next 20 years. Millennials are the larg-
est living population group in the U.S., accounting for nearly
30 percent of the population in 2016. Millennials have grown
up with technology, feel comfortable buying online, are very
price-sensitive and want personalized shopping experiences.
With an increase in the middle-class population and millen-
nials’ demands regarding their shopping experience, mass pro-
duction will stagnate and individualization will be the key to
sustainable growth.
CPG retail landscape is challenging
Decades ago, people deciding what items to purchase trusted
advice given by the owner of the small general store they fre-
quented. These shop owners could influence buyers’ tastes and
try to sell them more products.
Today, physical retailers do not offer such suggestions, leav-
ing shoppers often overwhelmed by the extensive variety of
products available. Online sites that offer recommendations
and reviews from customers have emerged as a solution. Ama-
zon and online retailing have disrupted the traditional retail
market, boosted e-commerce and altered customers’ shopping
behavior partly by providing consumer reviews.
In response, strong physical retailers are investing in innova-
tion, in-store experiences and advanced analytics to catch up.
Yet smaller or slow-changing retailers are facing a decline in
sales accompanied by an excess of store space. This has also
triggered mergers and acquisitions among retailers.
In addition, powerful retailers such as Walmart, Amazon
or Target are developing their own private-label products and
directly competing with branded CPG companies. In 2007,
Amazon launched “Amazon Subscribe & Save,” a program
that allows customers to set up deliveries of CPG products at a
discount with free shipping.
Driving forces for DTC
These are among the environmental factors that are driving
direct-to-consumer sales.
36 ISE Magazine | www.iise.org/ISEmagazine
Nimble companies offer
strong competition
There are many more products available in each cat-
egory than a decade ago, leading to a decrease in the
perception of brand value from which CPG manufac-
turers have benefited. This fact, along with the shorten-
ing of product life cycles, makes the need to adapt to the
new trends in customer demand a must to survive in the
CPG industry.
As the barriers to entry are increasingly lowered,
small competitors are taking advantage of e-commerce
channels and offering individualized shopping experi-
ences directly to consumers. As seen in Figure 2, small
and ultra-small companies’ growth clearly outperforms
that of large companies. Large CPG companies such as
Unilever, Nestlé and P&G, among others, are increas-
ingly seeking mergers and acquisitions with these small-
er companies to start selling without intermediaries,
gaining information about their customers and making
use of e-commerce effectively.
In essence, the economic, technological and social changes
present an opportunity for CPG manufacturers to exploit new
business models and leverage e-commerce growth to offer un-
matched experiences to consumers. Companies that effectively
use emerging technologies such as artificial intelligence, ma-
chine learning and business automation to support changing
consumer habits would thrive in the CPG marketplace. Fail-
ing to embrace changes could imply a significant reduction in
CPG companies’ bottom line and a loss in market share.
A direct-to-consumer (DTC) business model could best fit
the current needs of the CPG manufacturers. In a DTC mod-
el, a customer orders directly from the manufacturer, mostly
through the company or product website. The customer then
receives the product through arrangements made by the man-
Advantages to a DTC strategy are numerous
The decision to undertake a DTC strategy can help CPG man-
ufacturers support the changing marketplace and engage close-
ly with consumers. Information about end-consumers will al-
low CPG manufacturers to effectively redesign their product
portfolio and target different product assortments to a niche
segment of customers. Using this information, manufacturers
will hold a higher price control and push products at com-
petitive prices, plus effectively use promotions and discounts.
Moreover, it will be easier to perform quick tests about new
products and obtain valuable customer feedback.
Having their own e-commerce portal benefits CPG brands
in that the products offered online are not side by side with
competitors’ products on a store shelf. Consumers visiting
their websites are more likely to buy their products than those
buying at retailers’ aisles where they can compare prices and
characteristics with many other products. CPG companies can
then easily shape consumers’ shopping experience by offering
personalized and customized alternatives.
Adding a direct-to-consumer channel allows an omni-
channel experience as end-consumers fuse their shopping
across digital and traditional shopping channels. They will be
able to decide whether to shop online or from a brick-and-
mortar store, if they want the product delivered to their homes
or elsewhere, and how urgently they need products to be de-
By selling directly to the end-consumer, CPG manufactur-
ers can capture more value from the brand while other prod-
ucts under the same brand will more likely be pushed to the
market. Additionally, manufacturers can reach potential cus-
tomers everywhere in the world through e-commerce, broad-
ening the potential market.
DTC strategy comes with challenges
CPG manufacturers willing to build an e-commerce chan-
nel from scratch and sell directly to consumers will face chal-
lenges that need to be studied. CPG companies will have to
carefully choose the right business model and commit to the
strategy. They need to come up with a clear and different value
proposition for online customers: Will they offer convenience,
personalization and new products or the same products sold in
stores? These are concerns that will shape the success of their
direct-to-consumer strategy.
Consumer packaged goods manufacturers also need to sort
out the possible adverse reaction from retail partners and man-
age channel conict. As consumers are increasingly insistent
about the speed of delivery and want to choose among different
delivery options, CPG companies will need to offer flexible
distribution alternatives and shorter delivery windows. Lack
of retail experience and the high investment needed to build
Growing from the bottom up
Smaller companies are growing faster and taking a greater share of the
consumer product market.
Direct-to-consumer strategies for CPG manufacturers
Credit: BCG and IRI 2017, “How Both Nutrition and Indulgence Are Propelling Growth in CPG”
CAGR 2011-2016
Market share changes
57. 2%
2011 2016
Annual sales > 5.5 billion <= 5.5 billion <= 1 billion <= $100 million
January 2019 | ISE Magazine 37
a digital channel might hamper the shift of some new CPG
companies toward a DTC strategy.
Finally, building a DTC channel entails an additional uncer-
tainty for management as illustrated by these examples.
Before Netix, a person had to rent or buy a DVD
or videotape at a store to watch a movie at home. This
changed when Netix started offering DVD rentals through
its website in 1998. Netix evolved to revolutionize the en-
tertainment industry by introducing a subscription service
allowing anyone with an internet connection to stream the
latest movies and television shows to devices such as phones,
computers and TVs. It allows people
to schedule what they want to watch
and offers a wide variety of content in
multiple languages.
In 2013, Netix decided to go di-
rect-to-consumer and started produc-
ing its own content to stay ahead of
competitors in a fast-changing indus-
try. Making its own shows and mov-
ies allows Netix to avoid complex
international content arrangements
and differentiate itself from cable TV
providers. The company can retain
the rights to show its original con-
tent in nearly any country in perpe-
tuity. Its original shows, movies and
database of viewer preferences have
made Netix the most successful on-
demand streaming service.
Harry’s launched in 2013 with
a subscription model to sell shav-
ing products directly to end-
consumers. Its products are simple
razors, but what it truly offers is an
easier shopping experience at low
prices. Customers will no longer run
out of cartridges nor have to go at the
last minute to a supermarket to buy
razors. Harry’s offers quality products
with free shipping, and replacement
blade cartridges are shipped automati-
cally based on customers’ shaving fre-
Harry’s has built a loyal customer
base by using social media effec-
tively. In the weeks before its launch,
it created a waiting list for potential
customers and rewarded people who
shared its campaign on social net-
works with free products (the more
referrals, the higher the prize earned).
The result: 100,000 people signed up on the waiting list in
only a week before even knowing what products Harry’s was
selling. This strategy allowed Harry’s to collect data from po-
tential customers and trigger the curiosity and engagement of
the marketplace. In 2016, Target partnered with Harry’s, and
in 2017 about 50 percent of Targets razor handle sales and
about 15 percent of its cartridge sales came from Harry’s.
Along the same lines, Dollar Shave Club sells razors
and bathroom products through online subscription.
The company stands out by offering a wide range of prod-
ucts and monthly bundles. It has become a powerful brand in
Today’s consumers, particularly younger ones, are eager to use subscription services to
purchase consumer goods. To measure the impact of the growing market for e-commerce
services, McKinsey and Co. published a survey in February 2018 of 5,000 U.S. consumers
and found the following:
• While 46 percent of consumers in the survey subscribed to an online streaming-media
service such as Netflix, 15 percent subscribed to an e-commerce service for consumer
goods in the past year.
• E-commerce subscribers tend to be younger (ages 25 to 44), have incomes from
$50,000 to $100,000 and live in urban environments in the Northeastern U.S.
• Women accounted for 60 percent of e-commerce subscribers.
• The median number of subscriptions consumers hold is two, but nearly 35 percent have
three or more. Men (42 percent) are more likely than women to have three or more active
subscriptions than women (28 percent).
• Curation services (personalized items such as apparel, beauty and food products)
account for 55 percent of total subscriptions; replenishment (commodity items
like razors or diapers), 32 percent; and access subscriptions (discount clubs and
memberships) for 13 percent.
Consumers are logging on, signing up to buy
38 ISE Magazine | www.iise.org/ISEmagazine
Direct-to-consumer strategies for CPG manufacturers
four years with a strong recurring revenue
model because of high customer reten-
tion. In 2016, Unilever acquired Dollar
Shave Club for $1 billion. That allowed
the CPG giant to compete with Gillette,
one of its biggest competitors and a P&G
razor brand, as well as to collect valuable
customers’ insights.
Bear Naked, now part of Kel-
loggs, allows consumers to choose
from a variety of ingredients and
customize granola blends. The com-
pany’s products are made of whole grain,
have no artificial preservatives and are
vegetarian-friendly. Granola is not a fre-
quently consumed product, but through
offering different shopping experiences,
customization and following the market
trends of organic and healthy products, Bear Naked has expe-
rienced significant success.
Love Cocoa is a British company that sells hand-
made chocolate. It offers next-day delivery of fashionable
chocolate boxes that can be personalized and allows consumers
to subscribe to monthly deliveries.
Nespresso, by Nestlé, is a luxury coffee brand that
has an innovative business model focused on offering
high-quality coffee and building strong relationships
with consumers. Nespresso offers coffee machines tied to
single-serve capsules available at Nespresso. It sells directly to
consumers and has its own boutiques. Additionally, Nespresso
enhances consumers’ experiences with Nespresso Club and of-
fers multiple delivery options. It outsources production of the
coffee machines to third-party manufacturers to ensure profit
margins. The company uses targeted advertising and is present
in all major social networks. It has recently started an Insta-
gram influencer marketing campaign to reach other customer
P&G is offering DTC for Tide, its popular laundry
detergent, via Tide Wash Club. This service allowed sub-
scribers to have packets of Tide Pods delivered every two or
three months with free shipping. P&G selected Tide Pods, its
most expensive but popular laundry detergent, as the product
suitable for DTC because consumers would be willing to pay
more for convenient service.
Similarly, Ben & Jerry’s, owned by Unilever, recent-
ly let consumers purchase pints of ice cream directly
from its online site. It benefits from brand loyalty and charg-
es a premium for online products. Ice cream is not a frequently
purchased item, but Ben & Jerry’s has a loyal customer base and
it can offer a range of flavors. It does not have a subscription
Nike is undertaking a substantial shift toward a di-
rect-to-consumer model that allows it to run a lean
business without signicant inventory at retailers’
stores. Additionally, Nike tries to get closer to its customers
lifestyles through different mobile apps. The company intro-
duced Nike Run Club, an app that allows fans to have person-
alized coaches, study their fitness level and compare it to that
of their friends. These apps allow Nike to gather a considerable
amount of information about their customers. Moreover, the
company offers shoe-customization through NikeiD that al-
lows customers to pick from a variety of “blank canvas” shoes
and decorate them with different colors. Another aspect that
has made Nike’s direct-to-consumer strategy successful is its
social media omnipresence.
VF Corp., parent company of Vans and The North
Face, among others, is another apparel and footwear
company that has built an e-commerce channel to cre-
ate stronger relationships with target consumers. Its
DTC channel accounts for 25 percent of its sales and accounts
for nearly 70 percent of the company’s sales growth.
Variables to DTC success
CPG covers a variety of product categories with their own
characteristics. Based on industry research and discussions with
managers of five CPG companies and two large retailers, we
identified a set of primary variables that play a key role in de-
termining the success of a DTC strategy. Frequency of usage is
a key factor in DTC as products that are used and replenished
more often can generate sustainable and predictable demand.
Product category growth rate in e-commerce is another
primary factor; categories that can benefit from price reduc-
tion when being sold online (razors, makeup, etc.) experience
strong growth. Personalization capacity, the ability to offer
personalized products that can create engagement and enhance
online shoppers’ experience, is the third primary variable.
Is the time right for DTC?
The direct-to-consumer potential for success is based on several factors.
January 2019 | ISE Magazine 39
Depending on the values of the primary factors, CPG com-
panies can find themselves in one of the following groups (seen
in Figure 3):
The “Not Yet Ready” group consists of companies that
have low scores for the primary variables required for a
DTC success and thus are not suitable for selling directly to
end-consumers currently.
The “Promising” group are companies that meet the basic
requirements but need to improve on one or more variables
to reach the “front-runner” group. A company might sell
a frequently used product like toothpaste and might have
high online growth rates, but its ability to personalize might
be weak. Some companies might manage to improve and
move to the front-runner group while others might be
stuck in this group.
The “Front-Runner” group: Companies that have high
values of the primary factors required to have a high prob-
ability of DTC success.
The ability to offer a subscription model is another impor-
tant factor in DTC implementation. A company can offer a
subscription of a fixed quantity and fixed price per replenish-
ment or charge a fixed price every period and let consum-
ers decide the quantity to be purchased in each period with a
yearly limit.
Managing last-mile logistics
Choosing the most effective way of transportation for the last-
mile delivery will be a complex issue for CPG companies, as
they must balance costs and delivery speed. CPG manufactur-
ers willing to sell food and perishable goods online must be
able to deliver products within hours, an additional challenge.
Figure 4 suggests some suitable transportation alternatives for
urban or rural areas, depending on the delivery speed required.
As for storage, a suitable alternative could be to use existing
startups such as Darkstore that use excess capacity in ware-
houses, malls and other storage facili-
ties as fulllment centers. These cen-
ters allow brands to store inventory
in major cities to provide on-demand
delivery at low costs. Additionally,
these startups can partner with de-
livery companies and offer the whole
fulllment service.
Have an effective
marketing strategy
CPG manufacturers must leverage
social media campaigns to gather
insights on potential consumers and
create engagement before launching
products. Later, companies should continuously collect con-
sumers’ data and use advanced analytics to direct marketing
efforts to the right consumer groups and change their offerings
according to consumer’s preferences. Companies will have to
devote significant marketing resources to drive DTC success
via customer acquisition efforts. This could include creating
mobile apps that augment the value of their products and con-
nect consumers.
The consumer-packaged goods industry is changing rap-
idly. Consumers have increasingly high expectations of con-
venience and personalization, retailers are consolidating
and startups are disrupting the traditional marketplace. The
framework proposed in this article highlights the critical fac-
tors needed to undertake a direct-to-consumer approach. A
successful DTC effort not only drives growth but also gives
manufacturers valuable end-consumers’ information, which
can provide the ultimate competitive advantage.
Gurram Gopal is an industry professor in industrial technology and
management at Illinois Institute of Technology with an interest in
industrial engineering applications. He has published more than 50
papers and articles and has presented extensively at academic confer-
ences. He received a 2011-2012 Fulbright Scholar Award to teach and
conduct research at Galway Mayo Institute of Technology in Ireland
and has been a Fulbright specialist candidate since 2013. Gopal devel-
oped marketing strategies for some of the world’s largest pharmaceutical
companies as a strategy consultant and manager for ZS Associates and
worked in strategic marketing, supply chain management and strategic
quality at Tellabs Inc. Along with certificates in ISO, CMM and
applied statistics and forecasting, Gopal holds a B.S. in chemical engi-
neering from the Indian Institute of Technology, Madras, and an M.S.
and a Ph.D. in industrial engineering from Northwestern University.
Inés de Madariaga Azcuénaga is a strategy consultant. She holds a
masters in industrial engineering from UPV/EHU in Spain and a
masters in industrial technology and operations from Illinois Institute
of Technology.
Last-mile logistics: Delivering the goods
Here are transportation options available for direct-to-consumer goods based on urgency
of delivery and customer expectations.