Ecosystem Strategies in the Functional CPG Industry
Today’s functional CPG consumers are increasingly wanting more. While conventional CPG products usually focus on fulfilling basic physiological needs, purchases of functional food, functional beverage, and nutritional supplements, inherently come with a consumer attempting to satisfy a higher hierarchy of needs on Maslow’s scale. That attempt usually takes form in some combination of safety (health), esteem (self-esteem), and self-actualization needs…
The major issue with the standard customer journey within the functional CPG industry is that…
- Consumers have a goal in mind (intent) when they make functional CPG purchases (e.g. I want to lose 15 pounds or I want to lower my cholesterol 20 points)
- Consumers understand they have a lot of product options available in the market that’s focused on serving those goals
- Consumers are left to reverse engineer all steps (products, services, actions, etc.) needed for them to successfully achieve that end goal
- Consumers become overwhelmed with needing to synthesize complex information
- Consumers begin to look for shortcuts
This creates a major challenge in the customer brand relationship model because…
- Functional CPG products are not magic…even though sometimes overly persuasive marketing language might have consumers believing a lie
- Even if these functional CPG products are working as intended, they will never be the core reason for a consumer successfully achieving their end goal
- Consumers are heavy-handed with attributional bias and will blame the functional CPG product before failed elements within a more complex wellness routine construct (e.g. just look at the reviews of fat burners on Amazon)
What do you get when this is all combined?
Functional CPG brands should consider moving away from only offering “off the rack” products without building additional value creating ecosystems.
Ecosystem Strategy Explained
Ecosystem strategy considers a broader sphere of influence. It implies systems thinking, which means the functional CPG brand must understand the interdependent structures and participants (consumers) in dynamic systems, and their effects on one another over time. Pursuing an ecosystem strategy is a long-term initiative comprising three phases:
- Define the ecosystem strategy
- Design the ecosystem
- Build the ecosystem.
An ecosystem strategy can create additional value by:
- enabling new product bundles
- establishing new customer solutions
- generating new platform economies
Why is it becoming important that more and more functional CPG brands consider ecosystems?
The value functional CPG consumers are looking for comes from experiencing the use of a product that is tailored to their specific needs and preferences. Delivering such experiences often requires complex and integrated systems. That’s why I believe that functional CPG brands can no longer satisfy these consumer demands long-term by simple “off the rack” products alone.
Case Study #1 — Proper Sleep
Achieving a consistent better sleep experience will never be possible with only a simple “off the rack” product. That’s why Proper Sleep has developed a ecosystem strategy that connects:
- nutritional supplements formulated for sleep improvement
- personalized sleep coaching that works with a customer to identify underlying causes of poor sleep health
Proper Sleep focuses on supporting the thesis that behavioral change leads to sustainable, long-term sleep health. I predict with additional market validation and funding, the company will extend into more robust integrations with health and fitness wearables and create strategic partnerships around other soft and/or hard goods associated with sleep quality improvement.
Case Study #2 — Revive MD
The sports nutrition category has a bit of a reputation for its “sea of sameness” innovation that’s repackaged again and again under the veil of a slightly different marketing strategy. Every once in awhile though you get a company that stands out for one reason or another. Revive MD isn’t your typical protein and pre-workout powder sports nutrition brand. It’s a premium health and wellness company with sports nutrition products targeting mostly internal organ health and hormone levels.
Revive MD is the brainchild of respected fitness coach Matt Jansen and hormone specialist Dr. Domenic Iacovone. The brand has recently evolved its business model strategy from traditional to ecosystem with the deeper integration of its REVIVE Health & Wellness locations. These clinics provide medical services that range from hormone optimization to stem cell therapy.
Revive MD customers can receive free comprehensive blood work and medical consultation twice yearly. I predict with additional market validation or funding, the company will extend into more robust technology integrations that can build subscription revenue that can help scale their telemedicine services (or physical location buildouts).
Case Study #3 — The Beachbody Company
Case Study #4 — Nestle
This is maybe more of a prediction of the future than a current case study but…
Numerous personalized nutrition startup are focused on getting to n=1 through regular blood panels and/or genetic data. I believe that’s the long-term depth needed for personalized nutrition to achieve its objective, but it doesn’t mean it’s the most effective strategy for all companies.
Nestle Health Science uses the subscription-based personalized vitamin business Persona to focus on large-scale customer data acquisition. With Nestle being the largest food and beverage company (and also the largest nutritional supplement company) in the world, this data collection can be utilized to predict commercialization trends in the future.
With Nestle accumulating assets across food, beverage, supplements, OTC medicines, and pharmaceuticals…it seems obvious that the company believes a bigger play of personalized health is positioning it for mainstream “sick” consumers looking to optimize their health.
Personalized Nutrition (food/beverage/VMS) + personalized medicine = huge opportunity long-term
Potential Downside of Ecosystem Strategies
“Focus and win.”
The functional CPG industry is becoming increasingly competitive. That means functional CPG brands must decide if focusing on fewer core activities in order to reduce investments and avoid the higher costs of complexity is a better strategic move. This focus would enable the functional CPG to target their capital expenditures on deepening their core competencies.
Final Thoughts
Any company undertaking this strategic shift must remember that discovering new customer value through ecosystems is a process (not a project). Most successful ecosystems started with a broad idea of where the potential for new value might lie, and then through customer feedback loops and an iterative innovation mindset does a winning combination emerge. Ecosystems that are successful in the long run need to be adaptable and be ready to modify their designs in anticipation of shifts in markets, technologies, regulations, and public sentiment.
Just remember that designing a business ecosystem is a major undertaking, but achieving one that’s well-designed has the potential to create entirely new industries or substantially shape and transform existing industries.
