Self-disrupt or self-destruct
Future of consumer business
CEOs of all major consumer product companies face the twin challenges of responding to the disruptive innovation threat in their traditional businesses, while simultaneously harnessing these same forces to create the businesses of tomorrow. The magnitude of the challenge means CEOs need to consider M&A as a strategic enabler to capture innovation-led growth. This point of view takes a deeper look at some of the challenges and examines how companies are using M&A strategically to win the battle for the consumer.
From "owning the aisle" to "owning the consumer"
In the past an evolutionary, linear approach to business development was a sensible strategy for consumer-product companies. All major consumer-product companies had a strong portfolio of core brands and relied on economies of scale to dominate their chosen markets. The growth strategy was defined by a philosophy of "owning the aisle", so that whenever a product or geographic gap was identified, a new brand would be launched or a challenger brand acquired to fill the gap. Companies expanded in adjacent products or markets, once again using brand extensions and M&A to drive growth.
In recent years, however, the digital revolution has transformed the world and today an individual may be both a consumer and a creator. The average individual willingly shares data about themselves in exchange for convenience, such as shopping through digital channels, and this allows for the creation of valuable insight about the individual's consumer preferences.
This paradigm gives a significant advantage to asset-light, digitally-native start-up brands that are using consumer data as the basis for competition and bypassing the traditional advantages of economies of scale and scope. These new challenger brands are using disruptive technologies and agile business models to engage with consumers directly, and using data exchange to compile a highly personalised social and economic profile of the target consumer. The most sophisticated of these challenger brands are using this privileged access to position themselves as a "trusted influencer" who can actively shape the consumer's purchasing behaviour.
Significant investments in digital channels
As a result, well-established companies now face the risk of decreasing customer loyalty that could result in shortened product life-cycles, diminished return on investment, and erosion of market share. Consumer-product companies have responded with significant investments in digital channels, customer analytics, and similar programmes.
However, the magnitude of the challenge means that CEOs need to consider M&A as a strategic enabler to capture innovation-led growth.
This means using M&A not just to capture market share, but also to acquire products, technologies, channels and talent that can reshape core businesses and market in the years to come.