Recently, I came across an article published in The Economist on how large global CPG manufacturers are facing challenges from smaller, more agile competitors taking their market share. How does the competition between the agile and the traditional of the CPG sector relate to software providers (including Trade Promotion vendors like ourselves)? Curiously, we have seen similar and parallel shifts in our industry over recent years.
In the not so distant past, large CPG companies such as Nestle, P&G, or Unilever had a competitive advantage in many markets with their ability to optimise supply chains, delivering the upper hand on in-store availability and securing shelf space, whilst leveraging huge marketing budgets. But, increasingly, the large CPG companies’ centralised approach to delivering global brands with global appeal has left them vulnerable to companies targeting shoppers with brands tailored to local needs. Examples quoted by The Economist include the Yunnan Baiyao Group in China with 10% market share in toothpaste, Brazil’s Botica Commercial Farmaceutica with 45% of Brazilian perfume sales (and a 45% growth rate), and India’s Ghari Industries’ growth to 17% of the detergent market. These challenger brands are gaining share by playing to their strengths.
The size of these local vs global companies means they are able to focus and adapt more to the needs of their shoppers and consumers, whilst often outsourcing their production and leveraging technology to save costs. Their agility allows them to quickly adapt and evolve with their products’ changing demands. So, how does this relate back to providers of Enterprise software..?
- Outsourcing: Using a SaaS model, therefore removing the need for on premise servers, is a strong trend, with the majority of new solutions not even available “on prem” anymore. The benefit for companies? A better view of ‘Total Cost of Ownership’ with the ability to outsource support and hosting and, also, importantly, to add users and functionality quickly.
- Local vs Global: Local implementations are back in style. The aspiration of a one-size-fits-all solution global template build is no longer best practise. It is more important to deliver against the business requirements for the local teams, which take into account regional variances, rather than to centrally impose a model usually created for mature markets.
- Agility: A SaaS solution implemented quickly, via an agile approach, can deliver on-going upgrades and new functionality sooner to meet business needs. These factors, combined with a user adoption curve which tends to be steeper due to localised configuration and implementation, deliver a quicker return on investment.
- Technology: The majority of large players’ on premise software solutions struggle to live up to user expectations. Standards have risen rapidly thanks to the latest mobile and gaming user experiences. Often, only SaaS applications are available on all devices and have had the user experience front of mind during development.
- Size No Longer Matters: Small software providers are able to scale their ability to deliver the solution to many customers at the same time. This has allowed SaaS providers to roll out their solutions successfully with agile teams growing organically. Decision making and reactivity is quicker outside a corporate behemoth.
So, in the same way that niche, challenger CPG manufacturers are able to take market share from larger, more established companies, niche software vendors are able to compete on the same level as larger, more established vendors. By focusing on user experience, cost, localisation, and agile delivery, they are thus able to provide a far superior ROI over time.