Article

Of note: Building the capabilities that build margins

While consumer goods companies are struggling with volume growth, their profitability is thriving. But history shows that margin gains are hard to maintain.

Par Vijay Vishwanath

First published on septembre 10, 2014
min


Vijay Vishwanath Leader, Global Consumer Products practice While consumer goods companies are struggling with volume growth, their profitability is thriving. In 2013, the average global operating profit margins of the top companies reached a 10-year high of nearly 15%. But history shows that margin gains are hard to maintain. That’s why companies are strategically building a range of capabilities to pursue growth while keeping healthy returns. Pricing is a perennial challenge for consumer goods executives. It’s the rare brand that has been able to get pricing right—our research found that only 12% can raise prices and still outpace category growth. New, mounting evidence that household penetration is the biggest contributor to brand growth has given companies a clear mandate for pricing decisions. Winners are aggressively replacing tactical, reactionary pricing with an iron-clad strategy that ensures all pricing decisions are sharply aimed at boosting penetration, not to meet short-term needs. As we explain in “Pricing for penetration,” they also create a global pricing team to keep sales, marketing and finance all on the same path. As companies address new opportunities in a rapidly evolving consumer goods marketplace, they often need to adapt their operating models for how and where work gets done. In the slide presentation “Winning operating models for consumer products,” one of our operating models gurus, David Cooper, shows how pioneering companies replace their “cube squared” organizations; focus talent and capabilities on the right geographies, customers and consumers; and align their resources to future profit pools. These companies are gaining on competitors by aligning their operating models with their updated strategies, not clinging to the ones that have worked for them in the past. Finally, winning consumer goods executives thirst for any insights into shopping behavior that can give them even a slight edge over competitors. In volume 1 of our 2014 China Shopper Report, we share invaluable details gleaned from the purchasing habits of 40,000 Chinese households. For example, we discuss the trend of shoppers making fewer visits to hypermarkets, which some consumer goods companies are addressing by offering larger package sizes—at higher per-kilogram prices. As leading companies know, it takes digging deep into the data to find the opportunities.

Vijay Vishwanath

Leader, Global Consumer Products practice

While consumer goods companies are struggling with volume growth, their profitability is thriving. In 2013, the average global operating profit margins of the top companies reached a 10-year high of nearly 15%. But history shows that margin gains are hard to maintain. That’s why companies are strategically building a range of capabilities to pursue growth while keeping healthy returns.

Pricing is a perennial challenge for consumer goods executives. It’s the rare brand that has been able to get pricing right—our research found that only 12% can raise prices and still outpace category growth. New, mounting evidence that household penetration is the biggest contributor to brand growth has given companies a clear mandate for pricing decisions. Winners are aggressively replacing tactical, reactionary pricing with an iron-clad strategy that ensures all pricing decisions are sharply aimed at boosting penetration, not to meet short-term needs. As we explain in “Pricing for penetration,” they also create a global pricing team to keep sales, marketing and finance all on the same path.

As companies address new opportunities in a rapidly evolving consumer goods marketplace, they often need to adapt their operating models for how and where work gets done. In the slide presentation “Winning operating models for consumer products,” one of our operating models gurus, David Cooper, shows how pioneering companies replace their “cube squared” organizations; focus talent and capabilities on the right geographies, customers and consumers; and align their resources to future profit pools. These companies are gaining on competitors by aligning their operating models with their updated strategies, not clinging to the ones that have worked for them in the past.

Finally, winning consumer goods executives thirst for any insights into shopping behavior that can give them even a slight edge over competitors. In volume 1 of our 2014 China Shopper Report, we share invaluable details gleaned from the purchasing habits of 40,000 Chinese households. For example, we discuss the trend of shoppers making fewer visits to hypermarkets, which some consumer goods companies are addressing by offering larger package sizes—at higher per-kilogram prices.

As leading companies know, it takes digging deep into the data to find the opportunities.