IBM Retail - The Future of The Consumer Products Industry
IBM Retail - The Future of The Consumer Products Industry
IBM Retail - The Future of The Consumer Products Industry
Consumer Products
The future
of the
Consumer
Products
industry
The end of the
world…or a world
of opportunity?
IBM Institute for Business Value
IBM Global Business Services, through the IBM Institute for Business Value,
develops fact-based strategic insights for senior executives around critical public
and private sector issues. This executive brief is based on an in-depth study by
the Institute’s research team. It is part of an ongoing commitment by IBM Global
Business Services to provide analysis and viewpoints that help companies realize
business value. You may contact the authors or send an e-mail to [email protected]
for more information.
The future of the Consumer Products industry
The end of the world…or a world of opportunity?
by Guy Blissett, Trevor Davis, Bill Gilmour, Patrick Medley and Mark Yeomans
22 IBM
IBMGlobal
GlobalBusiness
BusinessServices
Services
The future of the Consumer Products industry
The end of the world…or a world of opportunity?
Population growth and What on Earth? only three cities – Tokyo, New York and Mexico
8
increased urbanization More people + more money = more City – had populations in excess of 10 million.
opportunity By 2020, 16 cities will have populations in
will present CP 9
Over the next 10 years, the world’s population excess of 20 million. More than 70 will boast
companies with a mix is expected to grow by almost 20 percent, populations greater than 5 million, roughly the
of opportunties and primarily in emerging market regions (see population of Denmark.
10
5
challenges. Figure 1). China and India, as well docu-
Many of the new “mega-cities,” such as
mented, will be among those with substantial
Mumbai, São Paulo, Dhaka, Cairo and Lagos,
increases, but so will nations such as Pakistan,
will be in developing nations and will present
Nigeria, Democratic Republic of the Congo
6 a mixed set of opportunities and challenges.
and Ethiopia. Meanwhile countries such as
Availability of transportation, sanitation and
Russia, Japan and Germany will be among
7 healthcare are not likely to keep pace with
the biggest population losers. Clearly big
population growth, resulting in issues with
changes are happening.
logistics, hygiene and illness. Already, in 2007,
Much of the world’s increased population will more than 1 billion people – or 30 percent of
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live in a city, and, as a result cities are getting the world’s urban population lived in slums.
bigger... much bigger. Consider that in 1975,
FIGURE 1.
The World’s population is growing rapidly, but not evenly.
1950 1975 2000 2025 2050
Source: IBM Institute for Business Value analysis, “The World at Six Billion,” United Nations, 2004; The World UN Population Assessment
2006; “Unsustainable World,” BBC, April 15, 2008.
FIGURE 2.
The World’s population is growing rapidly, but not evenly.
2020 aggregate
Facets 2020 population consumption power*
(annual consumption power) (change vs. 2008)
(change vs. 2008)
Cosmopolitan Elite
> $20,000 0.5 $11.5T ($0.5T)
FIGURE 3.
Water consumption for the manufacture of selected products.
FIGURE 4.
Across all facets of the diamond, conventional market thinking will increasingly be challenged by emerging
realities.
Conventional thinking Emerging realities
Price is primary driver of purchasing behavior Low prices perceived to be of inferior quality
Global brands prized over local brands Local brands increasingly trusted by consumers
High income consumers not overly price sensitive High earners equating thrift and responsibility
Consumers will buy more if more discounts offered Many consumers cannot afford to buy in bulk
Growth market learnings have limited applicability Products and learnings can be applied directly
Private label products are low price and quality option Three-tiered private label offerings with top quality
Source: IBM Institute for Business Value Analysis; Menzel, Peter and Faith D’Alusio,”Hungry Planet: What the World Eats,” Tricycle Press;
“Rise of Domestic Brands.”AlixPartners press release, October 21, 2008; “Tightening the Beltway, the Elite Shop Costco,” The New York
Times, Novmber 25, 2007.
• Companies need new models and capital 1. Understand at a deep level the unique or differ-
to pursue the breadth and depth of growth entiated value their business model adds for
opportunities. Wealthy financier and investor each element of the business and prioritize
Warren Buffett, via his Berkshire Hathaway areas where greatest value is added and differ-
company, provided critical investment entiated
capital for the US$22 billion acquisition of 2. Identify future sources of capital and explore
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Wrigley by Mars, Inc. alternative capital structures to realize growth
opportunities
• Maturity of technology has enabled the
realization of long-held visions around the 3. Develop capabilities, skills and management
globally integrated enterprise. For example, structures to enable the business model to
the Nestlé GLOBE project harmonizes “execute flawlessly”
business practices and leverages global 4. Assess whether the company is more likely
standards, information systems and tech- to be acquired or acquiring, and developing
strategies and models reflective of those
realities.
FIGURE 5.
Macro trends are driving CP companies to embrace fundamental change to many elements of their
organizations.
Trend Business model implication
Slow – no growth in developed Emphasis on true product innovation, and delivering new services to
markets customers, suppliers and consumers
Extended, complex global Redefine CP roles via developing deeper relationships with retailers,
supply chains distributors and suppliers. Be clear on where you add value
Robust competition in Exposing CP firms to entities with substantially different ownership, funding
emerging markets and payback horizons
Competition from discretionary Competitive set now includes media and entertainment, telecommunications
consumer income and consumer electronics companies
Number and breadth of growth CP companies accessing new types of capital and deploying new venture and
opportunities capital structures
Constantly connected Seeking new ways to interacting with brands and consumers, leveraging new
customers tools to access information and embracing new inputs
Glocalization Differentiation
Balance market demands for Focus on those assets and processes
localization of offerings with the need that create sustainable differentiation
for global operating efficiency driven by and deliver the greatest value
global standard processes and systems
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5
4
3
2
Corporate responsibility 1
Integrated information
Integrate corporate responsibility Integrate information both inside
into the organization as a source of and outside the organization, and
value, efficiency and effectiveness analyze and use that information to
drive the business through insight
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