Know The Risks: Navigating consumer trends and new commercial models

Welcome to our third installment of "Know the Risks," where we examine pivotal shifts in consumer industry dynamics and offer strategic insights. This edition dives into evolving consumer behavior and corporate strategies to adapt, with expert insights from Steven Bailey , #EY Americas Consumer Customer and Growth Leader.

With a significant shift to omnichannel retail and further divides in market segmentation, retailers and brands are challenged to harmonize digital and physical shopping experiences. Steven highlights the importance of integrating customer data across platforms to ensure a seamless consumer journey.

Additionally, we explore the impact of Generative AI (GenAI) on marketing and customer engagement. As brands and retailers adapt to these advancements, staying visible and relevant in GenAI-driven landscapes is crucial.

Join us as we uncover effective strategies for consumer companies to navigate these shifts, ensuring they remain at the forefront of consumer industry transformation while, as always, keeping an eye on the mounting risks associated.

US Census research shows that since 2019 e-commerce’s share of the retail market has increased by nearly 60%. As human behavior continues to change in a post-COVID-19 world, how do you see companies harmonizing the way consumers want to buy and interact with brands and retailers?

 Steven: Let’s dive into these changes from both retailers’ and consumers’ perspectives to better understand this shift.

Retailers:

COVID-19 underscored the value of a robust digital presence for retailers. Those lacking in this aspect found themselves scrambling to develop digital channels, transforming physical stores into fulfillment centers for online orders.

This rapid digitalization revealed inconsistencies in the customer experience across different sales platforms. For many retailers, the challenge highlighted the lack of an integrated data infrastructure capable of capturing and personalizing customer needs universally, irrespective of the shopping channel.

While integrating data across platforms, many companies can overlook the importance of creating a seamless transition for transactions, as well as customer data across diverse channels such as in-store, online or via customer service. Since 2022, the focus has intensified on synchronizing these experiences to prevent customer dissatisfaction while maintaining a consistent, trust-building brand experience.

Consumer goods:

The landscape for both B2B and B2C channels has significantly evolved. Pre-COVID-19, substantial investments were funneled into digital and traditional marketing to grow share. Increased regulatory pressure for privacy protection, coupled with the deprecation of third-party data to be collected during web browsing, have led to a rising need for zero- and first-party data collection. Companies need to continue to build trust with consumers and offer value in exchange for zero-party data. The loss of third-party cookies also reduces reliable signals required for effective digital marketing, resulting in a shift of marketing dollars from digital marketing to more direct engagement like retail media to regain effective engagement.

Moreover, the adaptation isn’t just limited to consumer companies developing direct-to-consumer strategies and data collection initiatives; third-party agencies are also pivoting in response to regulatory shifts, refining their strategies for data acquisition on behalf of consumer brands.

Ultimately, brands that embrace and own the consumer experience across channels are distinguishing themselves in the market. By embracing the complexities of today’s shopping behaviors and preferences, these companies are positioning themselves at the forefront of the evolving retail landscape.

There is not a day we don’t read about how GenAI is changing businesses and the world we know. What are the greatest commercial opportunities for brands and retailers integrating GenAI into how they operate and engage consumers?

Steven: Historically, brands allocated part of their digital budgets toward either search engine optimization (SEO) or search engine marketing (SEM) to capture top visibility in search engine results. The advent of GenAI, however, poses the need for a strategic pivot; brands now need to navigate this new landscape to maintain prominence in GenAI-driven search outcomes. Look for companies shifting to make sure their brand surfaces in GenAI responses. Imagine someone asking GenAI for recipe or outfit suggestions and relying on its concise response for what to purchase. How does a brand make sure they have a chance to be part of the response? It won’t be long before we will welcome shopping bots offering tailored recommendations proactively based on a combination of our profile and past shopping behavior. Brands will soon need to consider investing in bot placement strategies to maintain market visibility.

The rise of GenAI as a go-to source for research will inevitably challenge both SEO and SEM strategies by both consumers and retail companies. This shift will most likely introduce new regulatory challenges that will need to be navigated carefully.

GenAI is also shifting marketers’ work from campaign production tasks to scaled personalization and higher-value testing, learning and analytical activities that they have long yearned to have capacity to do. With GenAI assistance, companies can now generate insights and analytics more quickly and reliably than manual methods allowed, elevating analytical proficiency across the board.

Empirical evidence consistently shows that personalized messaging significantly outperforms generic communication. As GenAI continues to automate the content supply chain, brands will be able to scale personalization like never before, reducing the time required to get campaigns in market while making them more effective.

Companies are increasingly turning to data and analytics to understand consumer preferences, from the evolution of relying on third-party data to the imperative of zero- and first-party data ownership, what are other most pressing issues for consumers and brands?

Steven: Retailers and consumer brands will continue to increase reliance in data analytics to understand customer preferences and will need to build the right in-house analytical capabilities and skills. They will navigate a complex array of challenges, from enhancing data privacy and robust risk management processes to innovate responsibly while adapting to the evolving landscape. Successfully addressing these issues requires a proactive approach, prioritizing consumer trust and regulatory compliance, while embracing the transformative potential of technology that will redefine products, consumer trends and the marketplace.

My take:

The consumer behavior landscape has undefinably evolved. Attributing these changes solely to the pandemic is an oversimplification. Changes in the regulatory environment are leading to companies forging their own paths in collecting consumer data. Technology innovation, such as GenAI, represents just the beginning of what is possible. The world is on the cusp of a transformative shift, ready to unlock unprecedented creative potential and redefine our approach to problem-solving.

What’s the risk?

In the face of these challenges, companies are compelled to bolster their data infrastructure, ensuring robust protection against breaches while navigating the complex landscape of global data protection regulations. This requires a delicate balance between leveraging data for insightful analytics and complying with privacy standards to foster consumer trust.

The drive toward innovation, spurred by technologies like GenAI, introduces the possibility of creating unprecedented products and services. However, this also brings about the challenge of managing risks associated with novel offerings, particularly in ensuring compliance with quality and safety standards. Companies must navigate these waters carefully, innovating responsibly while mitigating potential risks.

What’s the action?

Companies must establish comprehensive quality control measures, privacy requirements and risk management frameworks. With these guardrails in place, the possibilities are boundless, paving the way for innovation that respects ethical boundaries and promotes positive outcomes.

External forces such as COVID-19, regulatory pressures and technology innovations, are not only altering the landscape, but they are also expanding it. It presents an exciting frontier for consumer products and retail companies, offering unprecedented opportunities to enhance visibility, engage consumers through innovative channels, and refine internal capabilities for deeper insights and personalization. By embracing proactive risk management, companies can navigate the evolving landscape with confidence, leveraging the power of data and AI to enrich customer experiences while maintaining a commitment to integrity and regulatory compliance, staying competitive and meeting the ever-changing needs of consumers.

The integration of AI and other advanced technologies into business operations is set to redefine roles and create new opportunities for skill development, emphasizing the need for adaptability and continuous learning.

The views reflected in this article are those of the author and do not necessarily reflect the views of Ernst & Young LLP or other members of the global EY organization.