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Friday, July 19, 2024

Range reset rewards

Julie Neal outlines 10 ways to make the most of a comprehensive product overhaul

Every CEO knows that understanding the cost of making or selling a product is essential to building a successful business, and focusing on driving sales for the most profitable items certainly makes sense. However, cost is rarely the only consideration and in today’s more uncertain, world decision-makers need to keep their finger on the data pulse when it comes to understanding customer behaviour and having the agility and insight to react to market changes.

With inflation and the cost of living impacts, many UK households have less disposable income, which is forcing FMCG retailers and their suppliers to explore ways to simplify their product ranges while still giving consumers the value, quality and availability they’ve come to expect. Whereas once businesses might have chosen to drive revenues by increasing product lines, today they are more interested in optimising value from each sale by scrutinising the gross/net data of every product.

When a range review takes place, some rationalisation is usually expected, but it is equally important for businesses to see such projects as an opportunity to improve operational efficiency and increase value. They should also be aiming to improve their resilience by adjusting their business model to be more adaptive to rising costs and other demand-side changes.

When it’s done well, a range reset can bring lasting benefits for all types of FMCG business by shortening supply chains, streamlining costs, improving availability, minimising waste and enhancing consumer or end market loyalty. For decision makers planning to review their product range, here are ten factors to consider:

 

  1. Have a range reset strategy 

    Before reviewing the company’s product range, Boards should know exactly what they want to achieve. If they are looking to reduce costs, they should know by how much and over how long. But do they have any other goals in mind? Rather than seeing it purely as a cost reduction exercise, there could be an opportunity to add value to the business by boosting ESG performance, enhancing customer loyalty or growing market share.

 

  1. Follow the value 

    Knowing where to start when reviewing the company’s product range is crucial. Boards need to be asking the right questions to ensure they understand where value lies and how this overlays with customer data and consumer trends. This will enable them to make the right strategic decisions. Does the Board have a robust gross/net understanding? Are all costs associated with promotional campaigns being factored in? Do they know the value of the goods they deliver and the payback rate? Customer and third-party data can also be used to develop bespoke data-based tools to benchmark profitability and inform decisions about which products to keep or delist, and crucially, how and when to reinvest.

 

  1. Know where to start 

    It makes no sense at all to delist products that are unprofitable without understanding the full impact of that decision. Access to accurate and reliable data is a vital starting point, but there may also be a need for qualitative research to understand what customers/consumers really want. Equipped with a more holistic picture of their cost base and a better understanding of customer/consumer preferences, it should be possible for businesses to identify low-hanging fruit – i.e. opportunities to delist products and realise cost savings, without impacting customer satisfaction. It will also help to minimise the risk of damaging customer loyalty by making the wrong delisting decisions.

 

  1. Push the right products 

    – When reviewing a company’s product range, it is usually obvious which products are delivering most value – either due to the profit margin they earn, the volume of sales they generate or a combination of both. Retailers can use this information to inform their assortment strategies; making sure that sufficient product is available and visible in-store or online. In some cases, retailers might choose to put the most popular, profitable products in more than one place to ensure as many shoppers as possible get to see them.

 

  1. Get the balance right

    – Grocery e-commerce ranges tend to offer greater consumer choice, but some goods have a shorter shelf life than others, which could lead to availability issues. It’s important to build such factors into decision-making models when considering whether to refresh product ranges and/or introduce new lines. Understanding the value that consumers attribute to certain products is important, as some products may be worth sticking with even if they deliver little or no profit. Rather than de-listing products that have seen sales slide, it may be worth trialing different sizes or product formats.

  1. Better range, better performance

    – Optimising product range can have a positive impact on business performance. A recent trading update by Marks & Spencer reported a like-for-like increase in food sales and clothing/home sales of 11 percent and 6 percent respectively in the early part of the year. The success of the retailer’s turnaround strategy has been credited to delivering ‘quality and trusted value’ while ‘sharpening prices’ on some products. Similarly, Sainsbury’s annual report, published in June 2023, reported strong annualised growth off the back of its Food First strategy, which is aimed at giving customers ‘low prices, exciting new products and great customer service’. Although some products are likely to have been delisted, the company launched 1,400 new products in 2022-23.

 

  1. Use generative AI to drive competitor advantage

    – Are you using high-level data to complete customer end product segmentation? AI algorithms can harness insights from specific groups of shoppers, such as students or young parents. This information can be used to shape product ranges, promotions and services to meet their needs. For example, with consumers increasingly focused on value for money, M&S is promoting its value-driven home products to customers who regularly purchase products from its ‘Remarkable Value’ food range. Another key area of opportunity for using generative AI within consumer-facing businesses is customer care, and there’s a great deal of experimentation taking place currently.

  1. Make more of loyalty

    – Improved customer understanding will help turbocharge personalised marketing campaigns – for example, personalised push notifications campaigns. These can also help to encourage consumers to sign up to loyalty programmes. Data-driven loyalty programmes are a win-win for the consumer and the FMCG. For retailers, they create a data advantage that can be leveraged across the supply chain, while providing value and care to consumers.

 

  1. Is now the right time to re-invest?

    – At a time of significant cost volatility, keeping track of profitability is challenging, and Boards should develop data-based tools to guide their investment decisions. Savings achieved through de-listing loss-making products for example, could be reinvested into new lines that could help enhance customer loyalty and strengthen market share. For example, an FMCG manufacturer might choose to reinvest by streamlining packaging solutions to optimise space in delivery vehicles, thus reducing transportation costs and lowering carbon emissions. They could also make use of AI-assisted platforms that bridge the supply chain to streamline supplies based on accurate demand data.

 

  1. Is there an opportunity to drive ESG performance? – 

    A range review could provide opportunities to drive ESG performance and reset the business on a more resilient and sustainable pathway. For example, the extreme heat in parts of Southern Europe has led to reduced yields and shortages of certain foods. In Florida, hurricanes and tree disease have led to a global shortage of oranges, driving up the price of orange juice around the world. A range reset could allow grocery outlets to adopt a more dynamic operating model, replacing such products with locally-sourced alternatives. This could bring both cost and sustainability benefits by reducing miles travelled as well as lowering carbon emissions.

Julie Neal is Partner and FMCG sector specialist at Vendigital

 

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