By Michael Evans and Jack Toolan
A combination of the recovery of the U.S. economy, low interest rates and inflation, and the introduction of new products in the marketplace are all driving consumer product sales — but not for every business. Strong demand by consumers for products is not nearly enough. No matter how attractive the product, a plan to make money in consumer goods must have the following three components:
- A well-defined product strategy
- A highly coordinated product and service distribution channel
- The right mix of brick-and-mortar and online retailing
Does Your Customer Know You?
A well-conceived product strategy starts with clarity on the basics. Is your company offering unbranded commodity products, which require a lean, low-cost structure? Or is the offering a consumer-recognized branded product, which requires a more intensive marketing strategy?
Commodity Products. Commodity products require an intense focus on an ultra-efficient operating model, an efficient supply chain, and a low-cost manufacturing model. The strategy must build in regular improvements to the supply chain, getting products from Point A to Point B at as low a cost as possible.
Branded Products. For high-end fashion or branded products, profitable revenue growth requires considerably higher marketing costs, including advertising, licensing, and marketing staff, or outside market research services to gather and analyze consumer data. Getting the product to the customer, a process know as the supply chain, will have higher costs as fashion products usually involve shorter, less efficient manufacturing runs.
Regardless of strategy, the biggest challenge is to find the time required to make sure that the company stays the course and keeps execution on track. Daily operating distractions are often the management team’s worst enemy.
Do You Know Your Customer?
A highly focused, weekly discussion with the entire management team is essential. Leaders of each of the departments or business disciplines — from product design to logistics to relationships with retailers — should be held accountable for the performance of the company.
Meetings should be organized and focused to build clarity of purpose and stay the course. While it is important to know how the company is running, the discussion should be on the customer and how their buying habits will affect the company’s operations.
Ask Probing Questions. Require meeting participants to provide detailed answers to the following types of questions:
- Where is the business today? Why is it where it is? Is the team satisfied?
- Where does the business go from here? Is it on track to get there? What tools are needed?
- What are inventory levels and returns by product?
- What is being discounted on the shelves?
While these questions may seem basic, asking them probingly can help reveal the root cause of operating problems. Each business discipline must be accountable for reporting accurately on its performance. Digging into the responses is a powerful way to align the company’s activities with its objectives.
Excellence Requires Coordination. Improving the profitability of a consumer products business requires that retailers rate the company’s overall performance favorably. Coordinating and executing across all internal departments and with external partners is essential for being seen as a supplier who can maintain or expand market share.
Retailers are demanding a rigorous commitment to daily execution, with penalties and fines assessed for poor performance such as products that are defective or improperly labeled. Reinvestment in operational excellence is what gives companies leverage against competitors.
Does Your Customer Know How to Find You?
The biggest challenge lies in understanding the interdependencies between the supplier, the retailer (brick-and-mortar or online), and the end consumer. Advanced technology and instantaneous access to massive amounts of data have transformed the balance of power. Consumers are in charge.
The expectation is for a wide variety of product choices that are personalized, affordable, and conveniently available. Even though it means competing with retailers, smart consumer products companies go where the consumers are, and that is online.
The key is to understand the consumer. While there can be a financial benefit to selling products online, the real value is in the relationship built with the end consumer. Analytics based on data accumulated from online consumer behavior are the key to developing winning marketing, branding, and product strategies. Constantly remind retail partners that these insights lead to a more productive partnership.
There is no substitute for defining a product strategy that is executed flawlessly and repetitively, internally and with channel partners. For consumer products companies, improving profitability is as much about processes as it is about products.
Jack Toolan, a partner in Newport Board Group in New York City, also contributed to this article.