Majority of funds spent promoting online sales is wasted, survey finds

By Hank Schultz contact

- Last updated on GMT

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Getty Images
Much of the investment consumer products companies make in an effort to expand their digital presence are wasted, according to a new study.

Research done by global consulting firm AlixPartners shows that as much as 60% of the investments companies make fail to drive a positive return on investment.  This amounts to almost $50 billion down the drain on a global basis, the company said.

Brain Major, managing director  of consumer products for AlixPartners, told NutraIngredients-USA that his firm surveyed 1,110 executives across China, France, Germany, India, the UK, and the US, who are or have been decision makers for digital transformation in consumer products companies, to better understand how consumer products companies can successfully drive profitable growth. Each participant represented an organization in either the food & beverage, household products, or health & beauty sectors. Respondents were asked to rate their organization’s digital proficiency as being either leading, developing or emerging.

Problems common across consumer packaged goods

Major said some common problems cropped up across all these sectors. Lack of talent, lack of funding and a recalcitrant corporate culture were identified as amongst the key impediments to successful transformation.

Major said the digital marketplace is important not just from its raw revenue generation potential, but also for the rapid product development opportunities it affords.

“For a lot of the nutraceutical companies it's so important to test the product and understand the product prior to full scale market launch.  One of the beauties of direct to consumer is it is a pretty low cost opportunity,” ​he said.

Major said there is still a fundamental lack of understanding of the marketplace among many companies trying to ramp up their digital results.

“What I would typically say is that they don’t understand digital they don’t do the post mortems that they should,”​ he said.

Major said companies often used a crude metric for calculating ROI, such as the contribution of a marketing spend to overall sales.  A more targeted approach would include looking at the margin contribution of each product in each sales channel, he said.

Among the specific findings of the report, 39% of respondents ranked lack of talent as a top-three impediment. Lack of funding was cited 35% or respondents, and an unwillingness to experiment was cited by 34%.

Respondents also cited company culture as a barrier to better online promotional performance.  Not surprisingly, the more established companies struggled more with this than do newer players, based on the results of the survey. At market-leading companies, 34% of respondents said company culture was a barrier, whereas only 12% of respondents from ‘developing’ companies citied this, and only 10% from companies categorized as ‘emerging.’

Online end of supplement industry

Estimates vary as to how many dietary supplements are now sold online.  The data is difficult to come by, as most market research companies have yet to develop validated tools to quantify these sales, but the best guesses range from 5% to 20%.

  A number of the companies making these sales are niche players.  They are brand holders who are typically serviced by a whole ecosystem of contract manufacturers catering directly to this trade. 

Many of these companies start online and intend to stay there. Being set up for this sales platform from the get go might help such companies succeed if they have the relevant cost structure baked in to their business operations, Major said.

“Servicing direct to consumer customers can be more expensive than just warehouse fulfillment,”​ Major said.

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