UK: Smart Moves: Building A Winning Strategy To Achieve Growth

Last Updated: 16 February 2006
Most Read Contributor in UK, August 2017

Growth: Top Of The Agenda

Consumer products companies need to maintain their relentless efficiency drive. That agenda is being forced by retailer power, over-capacity, and consumers who expect prices to keep on falling.

But now – with expanding global markets and a realisation that enormous scale is required to achieve cost efficiency – manufacturers need to be just as relentless in driving growth.

Despite revenue growth being key to corporate valuations and a major driver of scale efficiencies, many organisations still heavily weight their spend on projects and initiatives towards cost reduction, more efficient SGA and manufacturing spend. These clearly need to remain important, as they represent big opportunities to release funds for investment in growth. But are many companies missing the big value-creating plays?

We believe that developments across a broad range of fronts – including technology, processes and corporate finance – offer significant opportunities to take much stronger central control of growth investments, as well as to use savings on current spend to fund better focussed and more efficient investments in developing brands, new products, even whole new businesses.

In today’s industry climate we believe there are big opportunities for better focus of resources –. with significant quick wins as well as longer-term benefits to be achieved – in six key areas:

  • Commercial execution.
  • Brand development.
  • Market development.
  • Talent management.
  • Mergers, acquisitions and divestments.
  • Innovation.

We are developing a series of papers, looking at these key elements of the growth agenda in more detail, which we hope you will find interesting and thought-provoking. This booklet provides some initial food for thought…

Six Seriously Smart Moves

1. Focus Efforts Where There Is Real Room For Improvement In Commercial Execution

The real value of a consumer products business is in its brands. And developing the value of the brand portfolio should rightly be the key business focus. But it takes bestin- class commercial execution capabilities to turn powerful brands into increased share of distribution and bottom-line value.

Over the past decade many consumer products businesses improved the efficiency and effectiveness of their sales organisation by deploying field-force automation technologies, improving channel strategies and category management, and adopting best-practice ways of working. This has sharpened up the competitive situation across the market. As a result companies are now turning their focus on two key drivers of competitive advantage and bottom-line return – promotions management and pricing.

Improve value for money from trade promotions

Consumer products companies commit over half of their total marketing spend on trade promotions, accounting for up to a quarter of gross revenues. But understanding and managing the value from this spend is getting harder: with increasingly complex mechanics, an ever greater need for provable controls, and real pressure to manage consistently across borders.

Yet a surprising number of organisations remain wedded to piecemeal processes, fragmented ’stovepipe‘ views and a plethora of spreadsheets. Admittedly, few processes in consumer products cross so many functions within the organisation: marketing, sales, finance, production, distribution…
We believe this range of stakeholders has been a major obstacle to really streamlining trade promotions decisions and evaluations, and ensuring that they are properly visible.

At every step of the trade promotions process there is the opportunity to create value… or destroy it. And the fact that on average, promoted products can go out-of stock in around a fifth of major stores1 suggests that there is still a long way to go. The only solution is to take an end-to-end, strategic view of the entire process: people, technology and regulatory issues, your customers’ objectives, your financial goals…
It takes a comprehensive approach to really deliver benefit.

The best consumer products companies who have taken this approach are realising a win:win from process and technology improvements. By radically redesigning the way they do business and deploying much more integrated processes, technology and measurement structures, they are able to give real empowerment to their commercial teams, ensure every deal delivers brand objectives and improved ROI, and also deliver much more effective control without imposing administrative burdens. Those companies who are slow to adopt new ways of working will struggle to maintain distribution without increasing promotional spend – either losing market share, or damaging the ability to invest in brand development.

And this win:win extends to retailers. Better targeting and planning means better returns all round, combined with smoother execution and fewer out-of-stocks.

Get pricing execution right

No-one would argue that getting the price right is critical to success. A 1% improvement in price can have an 11% impact on the bottom-line2.

Taking control of trade promotions: five realistic benefits

  • Increased promotional effectiveness.
  • Better delivery of brand strategy.
  • A more effective sales team .
  • Smoother, more efficient supply chain.
  • Improved working with retailers – better returns, better planning and reduced disputes on deductions – helping to grow distribution.

More systematic pricing execution: five realistic benefits

  • Significant increases in operating income and margins.
  • Typical payback on investment in around nine months.
  • Redesigned processes and pricing models, delivering greater profit per segment, SKU, customer…
  • Better understanding of pricing opportunities and how to manage them.
  • Reduced exposure to market consolidation from more consistent pricing.

But even the best pricing strategy has to be properly executed to achieve both the right market impact and the right bottom-line return. Executing accurately is not straightforward. The sheer volume of transactions, promotional overlays, complex market structures and a myriad of systems and deals can make the ’real‘ or ’net net’ price very hard to identify.

Our experience shows that there are significant margin benefits to be obtained by analysing in detail what is really happening to your prices in the daily transactions in the marketplace. Key areas for focus include:

  • SKU velocity analysis – to confirm which SKUs make up the majority of total revenue (typically just 10-20%), and highlighting where improvements in pricing realisation/execution should have the greatest impact.
  • Product and customer contribution – plotting SKUs and customers to show which are creating profit and which are actually eroding it.
  • Price band analysis for chose segments – to identify and address both the highly profitable and highly unprofitable transactions.
  • Segment performance – reviewing the average net price in chosen segments to assess whether the customers in those segments are achieving the volumes that deserve the reduced price.
  • Price/profitability waterfall – showing the key ‘buckets’ that reduce list price down to net net price, and a parallel ‘cost to serve’ analysis. Each bucket represents an opportunity to improve margin at the transaction level.

Our clients have achieved major benefits by quickly identifying divergence from, or unintended consequences of, strategic decisions when they are executed in the field. In the first instance, this can highlight significant short-term opportunities for tactical pricing (resulting in substantial returns to the bottom-line within a matter of months), as well as identifying possible longer-term improvements in processes, systems, controls, training and metrics.

2. Harness The Power Of Brands More Effectively

Even when you can evaluate the most effective promotions for your brand and you are confident that you are achieving the desired price, you are still left with some big questions around where best to invest the funds across brands and geographies.

In the past, ROI has typically been squeezed because:

  • Funds are allocated according to past market history with year-on-year changes.
  • Differing brand objectives lead to difficulties comparing performance.
  • Different markets and different brands use different KPIs.
  • High turnover of staff leads to lack of learning.
  • The focus may inevitably have been on sales generated…but sales may not be achieved until long after the money has been spent.

Make brands work: systematically

A structured brand performance framework can tackle many of these issues. This framework needs to align the different brand building blocks – brand equity, consumer equity, communication, distribution and overall corporate culture and leadership – because so many factors have an effect on the relative strength and differentiation of each element.

The challenges companies face in developing a structured brand performance framework are to:

  • Understand the value drivers for each brand.
  • Align behaviours across business units and geographies.
  • Improve availability, timeliness and standardisation of brand performance data.
  • Develop consistent brand definitions.
  • Create effective consolidation mechanisms.

The most forward-thinking companies are aligning behaviours around brand value frameworks in order to target their investment where it will have the greatest return: enabling them to create successful global brand positions and develop the category killers that are the real creators of value. Others will be left with also-ran brands. But this is a journey where everyone still has a long way to go…

Implementing an effective brand performance framework: five realistic benefits

  • Brand-focused organisation culture.
  • Clearer definition of brand equity and values.
  • More consistent execution of brand values throughout the marketing mix.
  • Consistent ‘brand performance’ scorecards, delivering meaningful data.
  • Greater ROI on brand-related spend.

3. Extend The Capital Of Your Existing Brands

by developing geographic markets Very few truly global brands exist. But as the world increasingly becomes a global village, so the opportunities for geographical expansion become increasingly real for consumer products companies.

The attractions of geographical expansion are clear in terms of economies of scale, proven propositions and so on. Yet although regulations and consumer tastes are converging, there are still hurdles to overcome if companies are to successfully enter new territories or grow brand coverage across markets.

Do consumer business companies have the capability to execute centrally-set strategies across regions? Do they have sufficient global mobility in their management teams to take full advantage of the opportunities that exist? And do they have the full set of capabilities to really be able to execute in new geographies? The slow pace of brand coverage would suggest not.

We believe these capabilities have suffered from a lack of focus over the years, because they do not easily fit most organisational models in the industry, and promise medium-term rather than short-term payback. Yet in terms of overall long-term value creation, the capability to take existing successful brands into new markets has the potential to transform the value growth of an organisation from mediocre to stellar performance levels.

Drive from the top, involve every function

Developing the organisation and processes to drive market expansion needs strategic drive from the very top of the organisation. All functions have to contribute if it is to be fully effective: sales and marketing alone will not generate a sustainable expansion model beyond the franchising stage. This involves rethinking the central infrastructure – to ensure that it is value-creating in its own right – as well as the usual challenges of setting policy, managing investment and providing corporate governance. However, this can bring unexpected additional benefits. As well as enabling the centre to ’unlock‘ value in subsidiaries, the increased career opportunities and mobility can radically increase the dynamism of the whole organisation.

Developing market entry capability: five realistic benefits

  • Creation of global economies of scale for brands.
  • More diverse career development opportunities for management, helping to attract and retain talent.
  • Maximum value from existing brand assets.
  • Opportunities to get in at the growth phase of emerging markets.
  • Counterbalances to the threat from overseas entrants into ’domestic‘ markets.

4. Maximise Your Talent To Deliver Results

For a long time, the major consumer products manufacturers have developed some of the brightest, most capable managers in industry. Strong cultures – built around strong brand identity and a real sense of pride, loyalty and belonging – are the envy of many.

These characteristics give consumer products businesses some unique challenges. How to retain their brightest people; how to manage individual careers to create space for challenge and growth, encourage creativity and innovative thinking across all business teams; how to harness the talent of individuals working for their strategic partners; and how to overcome the challenge of effectively integrating valuable external recruits into organisations with such a strong culture.

Challenge convention, inspire continuity

Another major challenge faces marketing organisations, where frequent moves are seen as part of a ’normal‘ career path. Managing continuity in brand strategy and investment (which is by its nature a longerterm process) can be a real headache. This intensifies further if businesses fail to create alignment between their ’employer brand’ and the actual experience of employees who work in the organisation.

Enthusiasm and motivation quickly turns to disillusionment and disengagement if the internal culture appears very different to market image.

As the global economy enters another growth cycle, those businesses who are able to attract, retain and realise the full potential of the best personnel within an increasingly competitive marketplace will be able to actually make their strategies and teams work. Without an effective approach to talent management and continuous development of their people, some businesses will struggle as they lose those key individuals and so hamper the organisation’s ability to grow in the future.

Yet within the consumer business industry, the processes for effective talent management are often fragmented and unclear. Even if the HR organisation and management team work together successfully in the commercial and marketing functions, all too often the HR team is restricted to administrative tasks within the supply chain. And management practices and capabilities vary considerably between business units and regions. In recent CIPD research, 86% of HR directors said that ‘more effectively integrating their management development with the business’ was a key priority.

The challenge is clear: to embed talent management as a strategic cornerstone, and to ensure that the management team and HR organisation work together in partnership to achieve consistent quality of practice across the organisation.

We believe that the real value comes when the whole organisation gets involved in HR transformation: with senior management owning and championing the cultural agenda and values, and line management working in partnership with HR to turn that cultural agenda into reality. In that situation, new HR capabilities (and the accompanying skills, processes and technologies) are then developed to meet the real, strategic needs of the organisation, with full buy-in and support from line management.

Truly effective talent management: five realistic benefits:

  • Embedded high-performing culture, realising greater potential from all employees.
  • Retention of knowledge about previous successes and failures, enabling informed decisions about future investment.
  • Reduced costs from replacing individuals in key positions, coupled with reduced risk of low morale and demotivation for other team members.
  • Increased ability to attract higher calibre recruits at all levels – executives, professionals and graduates – leading to future success.
  • Talented individuals deliver great value. Talented teams deliver even more!

5. Capitalise On Opportunities For Mergers, Acquisitions And Divestments To Get In Shape For Growth

All consumer products companies need to retain a strong focus on dominating their selected categories. But all companies also have existing portfolios of stronger and weaker brands across a number of categories. So we can confidently expect to see continued merger, acquisition and divestment activities; whether on the scale of P&G and Gillette or at the level of individual secondary brands.

Different industry sectors have their own specific dynamics, but some clear trends are emerging:

  • Consolidation at all levels of the value chain is driving the bigger players in each sector to acquire, in order to complete their product and geographic portfolios to maintain their competitive positions.
  • The same pressures from consolidation are providing a specific challenge to mid-tier companies, who have neither the economy of scale of the major players nor the rapid innovative response of niche players. A few will look to acquire scale through a rapid acquisition strategy. Many more will look to be acquired.
  • Private equity investors will continue to provide additional market liquidity: valuing businesses not necessarily by their growth potential or strategic fit, but rather by their ability to generate cash and by their attractiveness as acquisition targets.

Mutate and assimilate… or die

One thing is clear: acquisition activity will continue apace in the sector. All companies with growth ambitions will need to be able to integrate new brands and operations into their existing portfolios quickly and cleanly. That competency not only depends on a well-organised ’100-day plan‘, but also on a number of foundation stones that cross the whole growth agenda: not least strong, flexible talent management capability and a clear existing commercial strategy backed up by leading commercial execution capability that can easily absorb new brands and products.

We also believe that further opportunities exist beyond the movement of brands. Ultimately, the real value in consumer products lies in the brands and how they are developed. Few segments allow players to maintain a true competitive advantage from manufacturing efficiency. Indeed seeking manufacturing economies of scale may be a particularly cumbersome M&A strategy. Instead, again due to the interest of private equity, there are opportunities to ’deverticalise‘. Divesting manufacturing assets to a third party – who has more opportunity to consolidate capacity – frees up capital for brand investment and can reduce operating costs without surrendering any brand leverage.

Capitalising on M&A opportunities: five realistic benefits

  • Better capability to execute on strategic expansion plans.
  • Rapid time-to-benefit from acquisitions.
  • Integration of the best people and capabilities from acquired entities.
  • Greater flexibility to respond to market challenges and opportunities.
  • Corporate restructuring to focus on the real value of the brand.

6. Get The Balancing Act Right Between Effective Innovation And Sustaining Existing Business

No other strategy for driving sustainable top line growth in consumer products is more important than developing new businesses, brands and products.

Although innovation is a top five priority in over 90% of CPG companies3, executives are dissatisfied with their ROI. What’s more:

  • Companies struggle to get the right balance between maximising short-term profit and investing for long-term shareholder value growth.
  • Margin requirements and existing infrastructures struggle to compete with disruptive innovation – it can be hard to make an objective case for the necessary ’leap of faith’.
  • The business case for disruptive innovation looks completely different to the arguments for sustaining existing business activities.

Treat innovation as a structured process, not serendipity

We believe ROI is limited because typically companies have fragmented processes, and fail to capture all the detailed good ideas that abound within the business in an effective way. There are parallels to the issues faced within trade promotions (see above). Many different areas of the company are affected in different ways, and only a holistic approach to innovation processes can drive the innovation machine more effectively, by:

  • Capturing and recording ALL ideas within the organization (and indeed outside).
  • Working through a disciplined process, with well understood criteria for progress at regular checkpoints (the ’gate‘ approach).
  • Stopping ideas quickly when they are identified as unsuitable, without constant attempts to rework them or find additional supporting evidence.
  • But also making sure that all ideas are retained so you avoid ’reinventing the wheel’.
  • Ensuring that all stakeholders have visibility of impacts in the supply chain, marketing and sales, and that the desired standard of support from each is available in time to ensure a successful launch.
  • And finally ensuring that all new product introductions are monitored closely against well-thought-through launch plans and forecasts, to allow very rapid response to divergence from plan – whether to provide further support, kill turkeys or ship stock to the shelves as the product flies out the door.

Active innovation management: five realistic benefits

  • Well-defined innovation and growth strategy.
  • ‘Innovation engine’ to drive growth.
  • Clear and consistent process and tools for managing innovation and intellectual assets.
  • Culture change: open and supportive yet realistic about all types of innovation.
  • Optimised R&D spend and organisation.

Footnotes

1 Article in The Grocer, January 2005.

2 Harvard Business Review.

3 Source: Boston Consulting Group: Innovation-To-Cash Survey 2004.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.