Today, product-based FMCG companies face many challenges in continuing to build value. One is that consumers are less brand-loyal in the face of an exponential increase in supply from traditional players and small brands. Another major obstacle is that in order to create superior and innovative products, companies have to devote a lot of work to R&D, something that is available to only a few. These challenges, together with the increasing share of private label products, make us reflect on whether the 'product-only' business model is sustainable in the long term.
Looking at the current environment, and the future of the industry, we at Lantern believe that FMCG companies will move from being more service-oriented models due to these challenges. By leveraging technology and digital interfaces, companies can create services that offer a direct channel to consumers and deliver value by creating not just products, but human experiences that are difficult to copy. This shift makes a lot of sense, as technology is much cheaper to deploy than it was a decade ago. We live increasingly digital lives and building direct relationships with the consumer enables the collection of data - a gold mine if properly exploited - and we can already see the first signs of this trend reflected in industry.
Take the world's largest food company, Nestlé, for example. Nestlé has already launched a programme called "Wellness Ambassador"; a service offered to seniors in Japan that designs personalised infusions based on DNA testing and information about the consumer's lifestyle, diet and exercise routine. With this information, Nestlé can create personalised infusions with specific micro-nutrients tailored to the user's health needs. In addition, the consumer builds a relationship with the company digitally, through chats and digital interfaces.
New hyper-personalised services can also be found in Beauty and Personal Care. Atolla Skincare is a brand that develops specific formulas for each customer, taking into account their medication, diet, air quality, and the PH of their skin. Every month, users take a skin test and receive an updated serum. Another example is Procter & Gamble's OPTE brand, which offers a high-precision electronic device for the treatment of hyperpigmentation. This device scans the user's face and applies a treatment only where it detects hyperpigmentation, generating better results and reducing the amount of product used.
Some companies focused on building a service model take this relationship building to the extreme. Take the concept shop created by New York-based beverage start-up Dirty Lemon Water, "The Drug Store". This shop is based on building a relationship of trust with the consumer. Customers can simply walk in, pick up a bottle and pay via their phone by text message (all without an employee in the shop). This concept not only shows consumers that the company trusts them, but also provides them with a unique and exciting experience.
So what does this transition to service mean for brands and what will they need to do to do it successfully? First, brands must master the art and science of creating human experiences. Creating an experience on supermarket shelves as a product-based brand is not the same as creating an experience as a service-oriented brand. When brands become service-oriented, they have the opportunity to amplify the experience through digitalisation, the introduction of technology and the creation of customer experiences. Companies will need to be technology- and design-driven, put strategic design at the heart of the business and have someone to provide a coherent vision of the experience the company wants to create, taking into account branding, packaging, user interfaces and human interaction.
Given this need for a coherent design and vision, we anticipate that companies that are determined to differentiate themselves and move to a service business model will need to have a Chief Design Officer (CDO). This CDO will be someone trained in design, who understands technology and business, and who will report directly to the CEO (not the CMO). This model can already be seen at PepsiCo, with CDO Mouro Porcini, who reports directly to the CEO and is responsible for ensuring that Design is a fundamental part of PepsiCo's business strategy. Design in capital letters, in its most strategic, not merely aesthetic, sense.