KamLibrary - Business As Usual In Unusual Times?

It could seem that the current exceptional market conditions require unique treatment, when in fact a return to basics might prove to be a better option.

Making sense of the current unprecedented turmoil, let alone deciding on a retrospectively-defensible plan-of-action can cause a NAM to waste time seeking unique solutions to what appears to be a unique situation. In fact the current breakdown of economies’ fiscal and monetary ‘rules’, collapse of finance and banking ‘norms’, increasing distrust of euro-currency management initiatives, challenging of political business-models and competencies, breakdown of social order and even interruptions to politicians’ holidays, are all part of a ‘wake-up’ call for a world that had become fixated on growth, fuelled on borrowed money…

We are now living in ‘pay-back’ time, a period of adjustment that will take as long as is necessary to evolve new models and correct the numbers. The basic ingredients of supply and demand remain the same. Meanwhile, we need the boxes as usual…

The game is still about somehow achieving an adequate reward for risk in an increasingly competitive market, where any growth has to be at the expense of other players. In other words, it is necessary to go back to basics in terms of assessing the extent of real need for the brand, stripping back all the layers of add-on features now made redundant by the savvy consumer in straightened circumstances. A cash-strapped consumer is continually attempting to rebalance priorities, and the supplier’s job is to elevate need for the brand to a level that can sustain sales at levels that allow survival.

Obviously the brand offer does not exist in isolation, so a systematic and objective comparison of its ability to deliver consumer satisfaction versus equivalent offers available to the public must be made and updated regularly.

This means comparing product performance, real price, presentation effectiveness in communicating the offer, and ability to make the product available where the consumer expects to make a purchase. It means understanding the fundamental supplier and retailer business models, ability to identify and optimise the business drivers to generate an acceptable return on investment.

Financially, it means being able to achieve an ex-factory cost of no more than 50% of average trade price, thus leaving sufficient supplier margin to cover innovation, A&P, trade funding, distribution and net profit of 5-10%, thus allowing the supplier to make an average Return On Capital Employed of 15-20% per annum as a basic requirement for continued existence.

At the retail end the brand has to punch through the apathy, and stand rigorous comparison with competitive offerings in terms of product performance such as brand share and rate of sale, prices and terms that are equal to, or better than competitors, A&P expenditure support that works better and has the ability to meet 100% zero-defect delivery requirements. Given this base requirement, the brand then has to present effectively at point-of-sale and respond effectively to continuous shopper marketing process, better than the competition.

Financially, the brand has to provide an average gross margin of 25% combined with a minimum rotation of 25 times per annum, resulting in a shelf price at least equal to like-with-like competitor offerings. Any excess in retail price has to be cut back via increased efficiencies and faster stock rotation. Otherwise competitive products will appear to offer better value for money and gain share at the expense of the brand.

Innovation may produce a temporary advantage, but good ideas can and will be copied, thus restoring parity in the category.

Selling is still about meeting a need, a need that will not exist if the buyer is ‘satisfied’ with the current provider, possibly unaware that a better offer is available. Disturbing that status quo is necessary in order to facilitate consideration of new alternatives. This means raising and meeting the buyer’s current expectations, better than the opposition. An objection then becomes a buying signal, a sign that the buyer is seriously considering change.

Essentially a shop is simply the world in miniature, a place where all outside influences are considered and factored into a decision to buy, at a price that seems like good value for money to an increasingly savvy consumer.

Deep down, these unusual times are simply noise in the channel, the basics remain the same….

For KamTips on 'The Usual Tools in Unusual Times', see NamNews - August 2011

Date article published: August 2011

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