CEO and co-founder of Aforzaa global leader in cloud computing, transforming consumer goods companies to sell more and grow faster.
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I believe the consumer packaged goods (CPG) industry is facing a margin crisis, with CPG manufacturers being hit particularly hard by a confluence of factors such as rising costs, supply chain challenges and a consumer base increasingly intolerant of price increases.
This is marked in an analysis from 2022 by Accenture on the “cost structure and cost pressure on margin by industry in Europe.”
I recently had the opportunity to visit my company’s customers in Europe and the Middle East and see firsthand the pressures being placed on consumer goods companies.
In my travels, I’ve observed three major trends holding back businesses in this challenging environment. First, many companies fail to prioritize their customers based on profitability, resulting in lost revenue and missed opportunities. In addition, pricing and discounting practices in the field are proving difficult to manage and control, leading to further margin erosion. Finally, I see widespread inefficiencies in field operations, exacerbating the challenges for CPG manufacturers.
As a co-founder of a company that provides a sales execution platform aimed at driving margin protection for CPG companies, I believe companies need to take a more strategic and data-driven approach to their operations to remain competitive.
By focusing on profitability, optimizing field operations and streamlining pricing, I believe manufacturers can mitigate the impact of current challenges and better position themselves for long-term success in the rapidly evolving consumer goods landscape.
Contents
The need to prioritize customers based on profitability
As mentioned earlier, one of the major challenges I see facing the consumer goods industry is the lack of customer prioritization based on profitability. While many companies focus on customer acquisition and retention, they often fail to consider the profitability of individual customers. This can lead to significant losses, as companies may end up spending resources on customers who fail to generate significant revenue or even incur losses.
Further, companies may also provide discounts and other incentives to customers without regard to their profitability. This can cause further margin squeeze, as discounts can be given to customers who already generate significant revenue without any real impact on their purchasing behavior.
To address the problem, I think companies need to take a more strategic approach to customer segmentation and targeting. By analyzing customer data and identifying high profit margin customers, companies can allocate resources and develop targeted marketing and sales strategies to drive revenue growth.
To begin identifying margin erosion, consider the following questions:
• Which channels respond better to promotions and with which products?
• Which channels underperform and affect margins, down to the exact market?
Manual prices and discounts in the field
Another major challenge for the consumer goods industry is the issue of manual pricing and discounting practices in the field; these actions are difficult to control and can lead to significant margin erosion. Many field sellers have the ability to offer discounts or adjust prices on the spot, often without proper oversight or guidance. This can lead to inconsistent pricing across regions or customers, resulting in lower margins and lost revenue.
Manual pricing and discounting practices can also be time consuming and labor intensive; sales representatives may have to spend a lot of time negotiating prices or determining appropriate discounts, which reduces productivity and increases costs for companies.
I believe that consumer goods companies should implement omnichannel pricing and rebate systems to provide greater control and oversight of pricing practices in the field. This may include implementing software or other tools to help sellers determine the right prices and discounts based on customer segments, historical price trends, and other factors.
Inefficiencies in field operations
Many companies rely on manual processes and outdated technology to manage their field operations, which can lead to delays, errors and missed opportunities. For example, salespeople may be required to spend a lot of time on administrative tasks, such as entering data or completing paperwork, which can reduce their productivity and limit their ability to focus on sales and revenue growth. I also see how they often struggle with inefficient route planning and scheduling, which can result in more travel time and less time spent with customers.
I see a more strategic approach with a focus on automation, optimization and data-driven decision-making. This may include deploying modern mobile apps that include capabilities such as guided selling, digital content management, and contextual analysis to streamline administrative tasks and give salespeople access to customer data and other relevant information.
Take a segment-driven approach to how you go to market. Group customers into prioritized segments based on dynamic attributes, such as revenue, footfall, and competitive position. Then use these segments to determine the products customers are being sold, the prices they offered, and the promotions they qualify for. This checks margins at a detailed account level and prevents mistakes when decisions are made based on gut feeling and intuition.
Finally, companies can invest in training and support for salespeople to ensure they are comfortable using new technology and tools and understand how to make data-driven decisions about their field operations. By taking a more strategic approach to field operations, companies can improve margins and profitability, even in the face of the ongoing industry-wide margin crisis.
Finally, I believe the margin crisis in the consumer goods industry can be addressed with a strategic approach that prioritizes customer segmentation, data-driven decision making and digital transformation. By actively segmenting customers based on profitability, companies can prioritize their resources and focus on high-value customers and products.
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