In July, a hot startup got scooped up by a multinational conglomerate for $1 billion. That’s hardly groundbreaking business news, except that this was no software-based entity with a hot app on the market. Instead, the company sells something you can buy at your local pharmacy — razors.
The Dollar Shave Club rocketed into prominence in 2012 with a viral video featuring CEO Michael Dubin promising that “Our blades are f**ing great.” The video, which now has logged 23 million views, bought priceless attention for the small firm. That and DSC’s unique business model — consumers could buy blades off DSC’s website and have them shipped to their homes on a monthly basis — allowed the company to carve a niche for itself that Gillette and Bic hadn’t considered. As a result, Unilever, owner of the Axe and Dove male grooming brands, decided it was easier to buy DSC than try to create the same brand and distribution network on its own.
A failure for CPG brands?
We are used to hearing how Uber and Airbnb have disrupted the taxi and hospitality sectors respectively. While there are some forward-looking marketers in the latter, no one viewed the taxi segment as a hotbed of innovation before Uber showed up. By contrast, companies like Procter & Gamble and Unilever have proactively attempted to meet consumer needs. P&G, whose mantra for the past decade has been “the consumer is boss,” has made sure that managers at all levels of the company are soliciting feedback from consumers.
Unilever has created people data centers in five key markets which provide real-time insights into consumer related questions. The company draws from a mix of live data sources such as social media channels and listens to over 220,000 conversations per day in 10 languages.
Listening like this is crucial. A recent analysis conducted by Capgemini among 57 large consumer product firms with cumulative revenues of $517 billion found a strong link between the companies’ maturity of consumer insights and their financial performance.
For example, in the report, Shawn O’Neal, VP of marketing data and analytics for Unilever, outlined how Unilever’s Ben & Jerry’s brand harnesses such insights: “About 80% of all Ben & Jerry’s gets sold on Saturday,” he said. “However, we observed that most of the conversations on social media happen on Thursday and Friday, not on Saturday…which means they are open to digital influence on that day. Therefore, why run ads on a Monday or Tuesday, when probably 99% of impressions are wasted? But on Thursday and Friday, the value of impressions may go up 5% or 10%. That is a dramatic difference on the same level of advertising spend.”
Promoted view from a Capgemini Expert
«The next challenge of analytics is collaboration, as data volumes become huge we need to move analytics to data not the other way around.»
Despite these sophisticated listening models, startups are often still able to disrupt the market. Such small and midsize firms took 1.6 share points, or nearly $10 billion in sales from larger CPGs from 2009-2012. Part of the reason is that there is an army of venture capitalists eager to fund digital-first companies that don’t have the brand baggage that CPGs often do. For instance, it’s hard to imagine Unilever launching a brand with an expletive-laden video like DSC did, for instance.
Startups often have different distribution models, which gives them better access to consumer data. Another challenger in the razor category, Harry’s, bought a factory in order to incorporate consumer feedback into the product development process. Such actions illustrate an edge that newcomers have over established rivals — the ability to reboot entire business models.
Startups have other advantages as well; the opportunity to potentially get rich draws some top talent and motivates staffers to perform at a high level. The growth hacker mindset, borrowed from the software industry, places a high value on experimentation and feedback. That’s a direct challenge to traditional CPG marketing, which is more about perfecting a product before release. By contrast, growth hackers are content to release a minimum viable product, reasoning that they can improve it later.
One potential game changer for large firms is the advent of Artificial Intelligence. While startup success has relied on smart businesspeople spotting niches in the market, what if computers were able to do the same by analyzing huge amounts of data? In that case, the company with the bigger and better system will win, at least in theory. On the other hand, when was the last time a machine came up with a funny viral video?
By Todd Wasserman
Mashable’s business editor, Todd has been writing professionally for close to 20 years. From 1999-2010, he covered the advertising and marketing industry for Brandweek, which promoted him to editor-in-chief in 2007. Wasserman has also freelanced for The New York Times, Business 2.0, The Hollywood Reporter and Inc, among other publications.