“How would you describe your primary business objective in 2017?”
“And what are your key priorities in pursuit of that objective?”
“What do you mean? My priority is profitable growth.”
We’ve had this conversation, or one similar to it, many times of late… enough that it prompted a question in our minds. Are business executives truly appreciating the distinctions between business objectives and business priorities today? And more than that, does it matter?
The answer is absolutely.
Let’s explain. The primary business objective of most senior executives today, by their own admission, is profitable growth. But just as important, if not more, are the business priorities you adhere to in order to achieve that goal of profitable growth. To put a finer point on it, we have found that when you adhere to the following three demand-based priorities companies can drive growth while saving 20% or more of total costs – costs that are often completely overlooked through traditional cost-savings mechanisms.
When looking for these Demand-based Cost optimization opportunities, we ask ourselves the following four key questions:
1. Does this expense drive customer satisfaction?
For example, it’s not surprising that when store shelves are flooded with new products launched in pursuit of incremental market share and sales, supply chain suffers. Complexity in the system explodes, as do costs. In such situations, SKUs must be rationalized using a demand-based approach to realize necessary improvements without negatively impacting sales and profits. Well designed consumer research will highlight the most valuable customers, and what is motivating them to buy, which is the necessary insight managers need to keep the best products on the shelves and eliminate the rest. As Hershey’s CEO J. P. Bilbrey reinforces, “[This] approach has lowered inventories, reduced SKUs, reduced complexity, created tremendous efficiencies, and generated greater cash flow. I’ve never seen a jump in performance like this before…”
2. Does this expense build relationships (instead of transactions) with customers?
All too often media spend is a blanket purchase with little precision and even fewer metrics on returns. A key metric increasingly is getting your message seen by consumers – which don’t get us wrong, is important – but even more important is the relationship building and deepening with them. Armed with a deep understanding of demand, the team at Hershey was able to optimize their media investments by identifying the right message (the one that would engage and build relationships with consumers) and delivering the right message to them at the right time and in the right manner. In most cases, these efficiencies equate to 20% of total media spend meaning the same media impact can be attained while spending 20% less or media impact can improve by 20% while holding spending constant. That’s real money that is otherwise being left on the table.
3. Does this expense fuel future growth?
When it comes to driving long-term profitable growth few things matter more than a well-supplied customer-driven innovation pipeline and a focus on retailer relationships that ‘work’ to the mutual benefit of manufacturers and retailers alike. Ensuring a healthy investment in future innovation pipeline efforts is and will remain critical to supporting growth. In addition, understanding which customers shop at which retailers for which products, and the relative profitability of each intersection, converts retailer profitability into a certainty. When the customer team at Hershey took this approach, and understood retail partners and their respective shopper profiles, the team was able to find money to fund growth by identifying areas where investment could yield dividends – and other areas where investment was unwarranted. Fish where there are fish. Patently obvious on the one hand, but something all too often forgotten in the pursuit of fishing where there could be fish.
4. Does it motivate internal entities to achieve greater efficiencies?
Finally, but certainly not least, never forget the impact that such moves have (or could have) on an organization internally. Internal programs, initiative, endeavors that champion brands and brand leaders who take risks for example in the pursuit of growth and improved alignment with consumers, for example, should continue to be a priority in an environment of cost optimization. These risk-takers will be the ones to lead your organization forward and must continue to be a priority and supported in their efforts.
At the end of the day, profitable growth will (and should) remain paramount for companies in 2017 and beyond, but just as important as the objective of profitable growth are the priorities to realize that objective. If you truly demand profitable growth, be vigilant to never separate your decision-making from Demand.
Jason Green is the CEO of The Cambridge Group. He focuses on developing customer-driven strategies, new product development, positioning, and consumer segmentation for consumer goods, retail and services industries. In addition to working with clients, Jason also leads Nielsen’s global Growth and Demand Strategy practice. He has been published in the Harvard Business Review, among other publications, and has contributed significantly to two books.
Linda Deeken is Chief Marketing Officer at The Cambridge Group. She has been published in Harvard Business Review, among other publications, and has been a key contributor to several books recently released by The Cambridge Group. Previously she was a consultant with The Cambridge Group, focusing on developing consumer-driven strategies, new product development, positioning and consumer segmentation, in addition to advancing critical new pieces of intellectual capital for the firm.