July 29, 2019

Survey: consumer products firms wasting 60 percent of their money in digital transformation push

Companies are making expensive mistakes in pursuit of exploding e-commerce market, AlixPartners survey shows.

By DC Velocity Staff

More than half of companies' digital-transformation investments are being wasted as they simply "throw money at the problem" of chasing hot digital sales growth, an industry survey shows.

Digital sales of consumer products are forecasted to grow by approximately double from today's $218 billion per annum to around $440 billion by 2023, according to New York-based management consulting firm AlixPartners.

That hot growth presents an alluring target for many mature companies that have relatively flat revenues in their traditional channels. But those same firms face barriers to a successful digital transformation at every step.

In order to measure their progress, AlixPartners surveyed 1,110 executives across China, France, Germany, India, the U.K., and the U.S., representing the food & beverage, household products, and health & beauty sectors.

The results showed that many executives surveyed cited low returns on their investments, AlixPartners said. Of the $79 billion spent globally on online advertising and trade spend (everything from ads on Facebook and YouTube to digital coupons and discounts) in 2018, an extrapolation from the survey's results suggests that over 60 percent, or about $47 billion, failed to deliver an observable a positive return on investment.

"Many companies, in an effort to chase the promise of growth through digital, have simply thrown money at the problem, leading to billions in wasted investments," Brian Major, a managing director in the consumer products practice at AlixPartners, said in a release. "However, digital for the sake of digital will serve no one, and as our survey shows, there are many expensive mistakes being made in pursuit of digital nirvana."

In contrast to those ineffective attempts, measureable success is achievable over time by using more precise and targeted methods, which have greater opportunities for consumer engagement and data analytics, Major said.

The survey showed that views inside companies depend on respondents' seniority, with executives operating in functional areas of their businesses viewing the process as lagging, versus the optimistic views of their more-senior colleagues in the C-suite.

The impediments to success include lack of talent (cited by 39 percent of all respondents on average as a top-three barrier), lack of funding (cited by on average 35 percent), and an unwillingness to experiment (cited by on average 34 percent), the survey showed.

"Technology has fundamentally changed the way companies operate and has migrated from a back-office function to the commercial front end, disrupting the relationships between manufacturers and suppliers and reinventing the entire business model for consumer products companies," David Garfield, global leader of the consumer products practice at AlixPartners, said in a release. "For many large, traditional consumer goods companies, their long-established brand and channel strategies, a legacy core strength, make it difficult to pivot to digital. Many have innovated quite well at a micro level but find it challenging to apply those changes across the whole organization, as their sheer size and complexity make cultural change difficult."

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