Rising Stars of CPG ✨

#HTE 285 -March retail sales, RFM, and much more!

April 25, 2024 • Estimated Reading Time: 14 minutes

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🚀 Welcome, Innovators! 🚀

Get ready for an exciting ride through the world of Consumer Packaged Goods (CPG), where new stars are rising and big players are shaking things up. In this newsletter, we're exploring two major ways to conquer the market of tomorrow.

From surprising retail sales in March to the game-changing benefits of RFM Analysis, we're breaking down what's happening in the industry and what it means for you. So stick with us as we uncover the secrets to success in Q2 and beyond. Let's dive in and discover how to make your brand shine brighter than ever before! 💫📈

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Rising Stars Of CPG: Two Routes To Market To Dominate Future Growth ✨📈

March Retail Sales Exceed Expectations: Insights and Outlook for Q2 📈 

💡Discover the Game-Changing Benefits of RFM Analysis! 🚀

Top Reads📚

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Rising Stars Of CPG: Two Routes To Market To Dominate Future Growth ✨📈

A recent Deloitte study forecasts robust growth in the consumer products industry this year, offering a silver lining for companies amid the turbulence of recent years. Surveying executives, the study found that 93% prioritize driving revenue growth, with 50% anticipating improved operating margins. 

The study underscores the importance of digital engagement systems in building trust and enhancing experiences. 

Let's explore two often underestimated avenues through which these digital technologies can reshape market access for consumer product manufacturers.

CPG routes to market: Mom-and-pop stores

Next time you visit your neighborhood tienda or corner store for a late-night essential, consider the collective impact of these retailers. 🛍️

On a micro level, customer lifetime value from these stores is significant. While order volumes may be modest, they are frequent and high-margin. 📦

And this value could soar even higher with innovation that circumvents traditional channels and allows for direct sales to these stores.

You might argue, “But that sounds complex and costly.” Historically, selling directly to independent stores posed challenges, given the lack of tools to support multiple small stores cost-effectively in a fragmented market. However, the advent of digital commerce technology has revolutionized this landscape. 🌐

These solutions enable the connection of various regional platforms to a central commerce engine, providing mom-and-pop stores with intuitive, consumer-grade tools to manage their businesses. Crucially, applications can be embedded on store owners’ phones, meeting them where they conduct business. 📱

Utilizing these tools enables you to:

  • Streamline processes and eliminate middlemen, thereby increasing margins.

  • Leverage comprehensive customer behavior data to fuel innovation and growth for small stores.

  • Acquire more data for fine-tuning product mix, developing new business models, and boosting profits. 📊

The direct selling approach

Now, let’s consider another market route undergoing transformation through e-commerce technology. 💼

Does this evoke images of Tupperware parties? Well, partly yes, partly no. While consultants or ambassadors once relied on catalogs and physical products to drive sales, the business has evolved into a digital realm, aligning with significant market, employment, and social trends. 💄

Many products sold in this model belong to health, cosmetics, and personal care categories, which witnessed a surge in sales during the pandemic as remote workers prioritized wellness and self-care. 💅

This sector, employing approximately 125 million people globally, with around 75% being women, complements the evolving employment landscape and the rise of gig work. 🌍

As a model where consultants leverage their networks to sell manufacturers’ products, direct selling seamlessly integrates with our ubiquitous mobile phones and our constant engagement with social media. 📱

You might already collaborate with celebrity influencers, who wield considerable influence in raising awareness of your products among their vast following. So, why not explore this route to market through direct sellers, who serve as micro-influencers within their own networks? 💬

Business-to-business (B2B) e-commerce technology holds the potential to enhance the experiences of both these consultants and your consumers, enabling you to tap into this vast potential profitably and at scale. 🚀

📈 March Retail Sales Exceed Expectations: Insights and Outlook for Q2

  1. Positive Retail Sales Trends

Last month's retail sales data, released by the U.S. Commerce Department's Census Bureau on April 15, revealed unexpectedly positive trends for the first quarter of the year. The year-over-year increase in March, standing at 5.3% across various sectors, exceeded expectations and outpaced inflation, indicating robust consumer demand for goods. Moreover, the federal government upgraded its numbers for the prior months as well.

  1. Factors Driving Growth

Labor market improvements, with significant job additions in February and March, alongside a growth in average hourly earnings for private-sector workers, contributed to the buoyancy in consumer spending. Average hourly earnings grew by 4.1% year over year in March and 4.3% in February, according to UBS analyst Michael Lasser.

Unique factors such as the Easter holiday and the traditional flow of tax refunds further boosted sales. Additionally, analysts attributed e-commerce growth to events like Amazon's spring sale, which likely helped give e-commerce a 5.6% boost.

  1. April's Outlook:

Economists caution that April may lack the distinctive drivers seen in March. Meghann Martindale from Avison Young suggests that April could mark a return to normalcy after the pandemic, although challenges persist. April's retail sales performance could be a test of what normal looks like, even in an election year.

Analysts anticipate mixed spending trends in the coming quarters due to factors such as rising debt levels and moderating consumer optimism. WalletHub analysts estimate that consumers are on pace to add as much as $120 billion to outstanding credit card balances this year, potentially breaking the all-time record for credit card debt.

  1. Concerns and Warnings:

Despite ongoing spending, concerns linger about the sustainability of current consumer behavior, particularly regarding high debt levels. Consumer auto and credit card debt at least 30 days past due is up, according to a report from Moody’s Ratings released last week. Financially fragile consumers are turning to installment-based payment methods more often than financially stable ones, according to the Federal Reserve Bank of New York.

Analysts warn that the full effects of these trends may not be felt until later years, emphasizing the need for cautious observation and planning. More broadly, following Q1, consumer spending will likely slowly moderate due to lessening optimism about employment prospects, still-high costs of living, and elevated borrowing rates, according to Moody’s Ratings analysts.

The retail sales performance in the first quarter showcased resilience and positive momentum, driven by various economic factors and unique events. However, analysts emphasize the importance of closely monitoring consumer behavior and financial indicators to navigate potential challenges ahead.

💡Discover the Game-Changing Benefits of RFM Analysis! 🚀

Identifying High-Value Customers (HVCs)

RFM analysis provides unparalleled clarity for eCommerce brands to pinpoint their high-value customers (HVCs), the top 20% who wield a significant influence on a brand's profits—specifically, the gross margin per customer or customer lifetime value.

Customers with RFM scores of 1 and 2 emerge as HVCs, demonstrating an exceptional impact on revenue and profitability. Remarkably, RFM score 1 customers often prove to be 1.5x to 5x more valuable than their RFM score 2 counterparts.

Some brands may discover outliers within their score 1 customers, with certain individuals contributing substantially more value to further elevate business success.

We’ll run through a few examples (with real data) about how this looks in practice.

Consider the visualization below.

Score 1 customers yield a 2.3x higher Lifetime Value, translating to a $4M boost in gross margin for our brand. Dive deeper, and the contrast amplifies with a staggering 43x greater LTV for Score 1 compared to Score 10 customers. 📈💰

A second viz example:

Comments:

  • Of note, this brand has a fairly extreme difference in score 1 value compared to all others. Score 1 customers are worth 6.3x more than score 2 customers, and 37x more than score 5 customers.

  • Score 10 customers are actually contributing negative LTV, at -$2.73/customer.

A last viz example:

Comments:

  • Score 8, 9, and 10 customers are contributing negative LTV.

  • Although this and other brands find that they have multiple RFM segments contributing negative LTV, in practice, those customers with positive LTV contributions may still be unprofitable, depending on the brand’s CAC.

Increasing CLV & driving more profitable revenue

Customer lifetime value is a crucial metric for sustaining eCommerce prosperity. While one-time customers may cost your business in the long run, fostering enduring relationships with High-Value Customers (HVCs) is paramount for a sustainable eCommerce strategy.

📊 RFM Targeting for HVCs:

Effortlessly identify and target your High-Value Customers (HVCs) using RFM analysis. Tailor your messaging and deliver exclusive offers through email and SMS to cultivate lasting relationships.

💡 Unlocking Insights:

Discover valuable insights such as product affinities among score 3 and 4 customers, enabling strategic promotions that increase the likelihood of repurchases and conversion into HVCs.

💰 Strategic Upselling:

Optimize your product catalog by moving beyond hero products. Leverage RFM marketing to recommend personalized bundles, cross-sells, or upsells tailored to your most valuable customers.

🛑 Decrease Churn with RFM:

Mitigate customer churn by communicating effectively with your most valuable segments. Use RFM to understand why loyal customers might be leaving and implement targeted strategies to address issues, whether related to products, pricing, loyalty programs, or other factors.

🔄 Retaining Customers Longer:

Collect zero-party data for personalized experiences. Tailor your offerings based on customer preferences—be it a specific shirt style or a favorite beverage flavor—to enhance engagement and loyalty.

Transform your eCommerce approach with RFM analysis and watch your customer relationships flourish! 🌟✨

🚀 Revolutionize Your Brand Strategy with RFM Analysis! 📈

Retaining the top 20% (and especially the top 10%)

Securing long-term loyalty from high-value customers is pivotal for business success. In the analyzed brand, delving into RFM (Recency, Frequency, Monetary) data exposes key insights. The top 20% of customers, scored as 1 and 2, wield significant influence, contributing to 65% of the brand's Lifetime Value (LTV). Within this, the top 10% alone commands 50% of the LTV, emphasizing their crucial role.

This numerical revelation underscores the imperative: channel efforts toward this segment. Customers with a score of 1 deserve prime attention, including exclusive offers, loyalty rewards, early product access, and upselling. Equally important are score 2 customers, holding the potential to ascend to score 1. Nurturing them is pivotal for advancing their RFM scores.

A universal truth observed at Daasity resonates here: brands emphasizing value maximization from High-Value Customers (HVCs) tend to witness accelerated growth, heightened profitability, and streamlined marketing spending.

Targeting the Top 21% to 40% of Your Customers (RFM Score 3 and 4)

Transitioning to the 21-40% tier (RFM Score 3 and 4), these customers represent an untapped growth opportunity. While not in the top echelon, elevating their RFM scores can transform them into consistent, long-term contributors, significantly impacting the brand's profits.

Avoiding the Bottom 20%

However, effective optimization extends beyond cultivating high-scoring customers; it also involves acknowledging that not every customer holds equal value. The bottom 20% (RFM Score 9 and 10) contribute a meager 4% to the total LTV. For these low-scoring customers, a strategic pivot might involve reducing or discontinuing marketing efforts. Instead, reallocating resources toward High-Value Customers ensures a more focused approach, extracting maximum value from the customers pivotal to the brand's sustained success.

If you’re looking to find your best and worst customers, develop better targeting in your marketing program, optimize spending, and much more, RFM analysis is the way to go. 

RFM is rooted in the most important dimensions of customer behavior, and it can help power your brand to new data-driven heights.

Top Reads📚

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