The rate of change in today’s business environment is faster than it has ever been - and getting faster. Years of experience as a CEO of consumer product companies selling to retailers and consumers have taught me that even very strong demand for your product is not nearly enough. The pressures of today’s market mean that, no matter how good a product or service you are selling, a strategy to improve profitability in customer package goods must have three components: a well-defined product strategy; a highly coordinated process across the supply chain that optimizes the product’s value and attractiveness to the end consumer; and the right balance between bricks and mortar and on-line retailing.
Step 1: Develop Compelling Product Strategy
The first step is for you, the CEO, to develop and agree with your top team on a well-conceived corporate and product strategy. It starts with clarity on the basics, such as: are you a supplier of unbranded commodity products requiring a lean, low cost structure? Or are you a supplier of consumer-recognized branded products—that require a more intensive marketing strategy?
Commodity/Private Label
If you are in the former category, your focus must be on an ultra-efficient operating model to service your market. Supplying basic commodity or private label items requires that you master product specifications; commit to a long-term process of producing them consistently and at progressively lower cost; and deliver them on-time. Success requires investment in high volume, efficient manufacturing based on long manufacturing runs. A well-oiled supply chain is essential. Keeping costs low can mean a strategy to maintain access to raw materials and to minimize transportation costs. For example, if you are currently manufacturing in China and your labor costs are rising, a forward-looking strategy might mean considering moving manufacturing to Mexico to take advantage of lower costs to get goods to your North and South American markets. Your strategy must address regularly improving your supply chain, to get your products from Point A to Point B at a cost lower than the competition.
Branded
If on the other hand, you sell fashion or branded products, profitable revenue growth requires a business model that can accommodate considerably higher marketing costs than is the case with basic commodity products. These costs include advertising, licensing and marketing staff or outside market research services to gather and analyze consumer data for example via focus groups and branding seminars. There is no alternative to knowing what your consumers are thinking. With fashion or branded products you likely won’t have the benefit of highly efficient, long manufacturing runs. Shorter runs result in a more costly manufacturing process.
Focus Is Key
Whether your strategy is for fashion branded or basic commodity products, the biggest challenge facing a CEO in carrying out a consumer product strategy is to find the time required to make sure that their company stays the course and keeps execution on track. Lack of time is often a management team's worst enemy. Intense daily operational requirements constantly threaten to distract you from sustained focus on executing. For example, are you regularly measuring your level of product and packaging quality? If you are in unbranded goods, are you replenishing store shelves with exactly the same product, for example adhering to precise consistency in color dyes? If you are selling a branded packaged product, is your packaging catchy, speaking clearly to the consumer about your product and telling its story in a glance?
In the next parts of this article, I will discuss the two more facets of a successful strategy to improve profitability in your consumer products business: coordinating across all the functions required to get to products through the supply chain; and the need to balance the bricks and mortar and online retail channels.
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Jack is an executive with 30 years of experience in consumer products, in both private equity-backed middle market companies and large multinational corporations.
He is Newport Board Group partner in the New York area.
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