When the economy is buzzing, most companies can afford to overlook inefficiencies or take a broader view of what their customers want. But when times are tough, as they are now, companies have little choice but to re-evaluate how they do business if they hope to continue to grow and prosper. Managers are faced with essentially two choices: cut costs or understand precisely where the most profitable market demand is and align more effectively with it. Both options are difficult, but only one can achieve both short- and long-term objectives.
Throughout the recession, we have been inundated on an almost daily basis of news of companies closing plants, laying off employees and reducing product offerings. It is the rare business that has not taken action to reduce costs in some form. However, the supply-focused cost cutting approach can have several significant limitations, including:
Companies that develop new insights into demand can drive dramatic improvements in a company's cost and revenue positions:
Our work with a major food manufacturer can better illustrate how a precise understanding of profitable demand yields tangible results. This company was experiencing flat to negative growth on a historically key strategic brand, and was communicating in-market in a reactive way. Management had come to the conclusion that this core business had exhausted opportunities for growth and was seeking to expand the brand into new adjacencies. Using our hallmark demand strategy approach, The Cambridge Group undertook the following steps:
One year after completing the strategy, the results were clear: brand sales went from -1% to +15% and returned the brand to profitable growth - the only one at the manufacturer to simultaneously grow share, sales and margin that year. Furthermore, brand costs were reduced by eliminating packaging, supply chain and formulation components not motivating to target consumers. Trade spend was rebalanced to the most profitable, more premium SKUs. The target consumer and need state was redefined from single males to households with teens and from BBQ to after-school/afternoon snack, respectively. Even now, when most brands are experiencing pressures, this brand continues to enjoy unprecedented volume, revenue and profit growth and has surpassed profit targets by nearly 30% this year while achieving the #1 share position in its category.
The precision of demand analysis can be the solution to turning around brands that have seemingly plateaued. And the application of this analysis goes beyond consumer packaged goods - it has been successfully implemented at credit card companies, insurance companies, retailers and a range of others. In these difficult and uncertain economic times, understanding precise target segments, need states and brand strategy are critical tools to driving growth and profitability.
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Gloria Cox will be presenting May 13 at Nielsen's Consumer 360 conference.
Gloria Cox is the Managing Director with The Cambridge Group. She specializes in consumer products and services clients, working with them to develop market-driven growth strategies through consumer targeting, brand strategy and positioning, and new product development.
Prior to joining The Cambridge Group, Gloria was an Engagement Manager and core member of the Consumer Goods Practice at McKinsey & Company where she addressed strategic and organizational challenges for a number of consumer goods and services clients. Gloria also worked in market research in the Paper Division of Procter & Gamble, where she was responsible for designing, executing, and analyzing custom market research for several key Procter & Gamble brands including Pampers, Luvs, Charmin, Bounty and Puffs.
Gloria graduated Phi Beta Kappa from Indiana University with a dual degree in telecommunications and business. She received her Masters of Management from the J.L. Kellogg School of Management at Northwestern University.