Newport Board Group, a National Business Advisory Firm of CEOs Serving the Emerging Middle Market, Releases a 3 Step Strategy To Improve Consumer Products Profitability

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Successful consumer product companies must have a well defined strategy, a dependable supply chain and the right mix of physical stores and on-line retailing.

Organizations that can foresee and proactively raise issues when they are still down the road, before they become problems, are the winners in today’s market place.

The rate of change in today’s business environment is faster than it has ever been—and getting faster. Strong demand by consumers for products is not nearly enough. No matter how attractive the product, a plan to make money in consumer products must have three components: a well-defined product strategy; a highly coordinated process across the supply chain and the right mix of bricks and mortar and on-line retailing.

Step 1. Develop Compelling Product Strategy
A well-conceived corporate and product strategy for consumer goods starts with clarity on the basics. Is the company offering unbranded commodity products, requiring a lean, low cost structure? Or is the offering consumer-recognized branded products—that require a more intensive marketing strategy?

Commodity/Private Label
Commodity products require that focus must be on an ultra-efficient operating model. A well-oiled supply chain and efficient low cost manufacturing are essential. 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.

If on the other hand, a company sells 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 data about what consumers are thinking. Supply chain costs will also likely be higher as fashion products usually involve shorter, less efficient manufacturing runs.

Focus Is Key
Regardless of strategy the biggest challenge facing companies in carrying out a consumer product strategy 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.

Step 2: Coordinate Relentlessly
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 structured and crisp, to build clarity of purpose and stay the course.

Ask Probing Questions
For example, require meeting participants to provide detailed answers about:
1. Where is the business today? Why is it where it is? Is the team satisfied?
2. Where does the business go from here? Is it on track to get there? What tools are needed?

While these questions may seem basic, asking them probingly can lead to 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. Organizations that can foresee and proactively raise issues when they are still down the road, before they become problems, are the winners in today’s market place.

Retailers are demanding a rigorous commitment to daily execution---with penalties and fines assessed for poor performance such as products that are defective or aren’t labeled properly due to manufacturing and packaging errors. Reinvestment in operational excellence is what creates a large point of difference against competitors.

Step 3: Suppliers Must Compete Against Themselves
The biggest challenge lies in understanding the inter-dependencies between the supplier, the retailer (bricks 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 and made available conveniently and of course at low prices. Buying from stores, online retailers and directly from suppliers depending on access, price and convenience is also expected. Even though it means competing with retailers, smart consumer products companies are where the consumers are, and that is online.

Selling Online: Key to understanding consumers
While there can be a financial benefit to selling product 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.

Process as important as product
In summary 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.

Newport Board Group is a partnership of board directors and senior executive leaders. We assist growth, middle market and private equity portfolio companies to navigate transitions and improve performance.

Jack Toolan ((908) 246-6295) is a partner in the New York practice of the Newport Board Group.

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