Doing more with less: Successful strategies overcome the turbulence
New research has established a number of methods to assist CPG companies prosper in spite of rising economic pressure and falling consumer demand, with important lessons for companies of all sizes.
Top performers in the consumer packaged goods (CPG) industry achieved 3.6 per cent sales growth over and above category average while decreasing their sales costs as a percent of sales by 6.1 per cent over two years, according to the 2008 Customer and Channel Management Survey: Doing More with Less: Winning Sales Strategies to Navigate a Challenging Market (CCM survey), released last week by the Grocery Manufacturers Association (GMA) and McKinsey & Company. The survey, which has been conducted since 1978, links companies’ self-reported practices with financial performance and in-market results to identify winning practices across the industry
“This comprehensive report serves as a valuable tool that helps CPG makers identify gaps and opportunities in their customer and channel management practices, as well as gain insight into important industry trends,” said Brian Lynch, GMA director of sales and sales promotion. “What’s interesting about this year’s results is that top performers varied widely in terms of size, distribution models, go-to-market models and their brands’ market position, suggesting that there are valuable lessons for every type of company in the sector.”
The 2008 survey focused on four elements of customer and channel management: sales coverage and execution, pricing, trade promotion and shopper marketing and identified three performance tiers in each area- the “best of the best,” “winners,” and “others”. Detailed quantitative benchmarks on coverage and service models for top American retailers such as Wal-Mart, Target, Kroger, Costco, Walgreens, CVS and 7-11 were also incorporated this year.
The study established five key lessons for companies keen to be among the ‘winners’, including:
Make big bets on future opportunties – before they are clear to the market
The report discovered that leaders were able to keep up-to-date with the ever-changing retail landscape and anticipate the potential of alternative channels. As such, winners in the report were those who had been able to realise the growth potential of the grocery channel in 2005. Since then American supermarkets have increased their share of shopping trips and manufacturers who invested in the sector have reaped the rewards.
The report also suggests a new cycle in the retail landscape has begun this year, with companies who had anticipated fewer consumer shopping trips and a ‘trading down’ within categories to derive benefits in the months ahead.
Build fewer, stronger account teams
When creating account teams for dealing with retail customers the leaders were found to be more selective in the number of teams they employed. However, they offered greater support to their account teams; with more resources a common attribute.
Another profitable strategy was seen to be the focus of senior management building relationships with important customers. For example, 84 per cent of ‘winning’ companies had their CEO involved with sales calls to market leader Wal-Mart at least once a year compared to 63 per cent amongst other manufacturers, according to the CCM survey.
Price more often and invest in a scientific approach
The results of the CCM Survey imply that pricing strategies are increasingly important, with smaller but more frequent price alterations seen as a wiser alternative to large price rises on an inconsistent basis.
Reduce trade rates and grow sales through prioritisation and retailer accountability
This simple concept involves focusing attention on the most profitable customers. Segmentation can assist in directing funds away from underperforming customers and ensure promotions can be effectively targeted to profitable customers and consumers. Holding performance reviews and monitoring the success of promotions were established as vital to successful companies.
Develop cutting-edge approaches and capabilities in shopper marketing
Shopper marketing, which involves working with retailers to provide an improved in-store experience for the consumer, was considered a leading investment priority amongst survey respondents. The growth of the strategy has been immense in recent years as companies realise that there are amazing opportunities to engage the customer within the shopping environment and, consequently, influence their purchase decisions.
“The key theme that emerged from the CCM data is that companies can reduce costs and still grow, despite the challenging economic and retail climate,” Mr Lynch continued. “For example, by carefully prioritising and holding retailers accountable, top performers in the trade promotion category reduced trade investments but grew sales. Under the sales umbrella, we found that winning manufacturers build fewer but stronger account teams to service key customers.”
The study was based on survey responses from more than 450 executives representing 45 large and mid-cap manufacturing companies from across the food, beverage, personal care and home care categories and point-of-sale data provided by Information Resources Inc. A complete copy of the report is available online at www.gmaonline.org/publications/index.cfm.
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