Consumer-packaged-goods (CPG) manufacturers everywhere are facing rapidly changing market realities. Consolidation among retailers and wholesalers is concentrating buying power in the hands of fewer entities. In many countries, discounters are luring consumers away from supermarkets and hypermarkets. Online players are steadily taking share. And many retailers are building sophisticated capabilities in big data and advanced analytics. In most categories, smaller and nimbler CPG competitors are growing quickly, buoyed by rising consumer demand for organic products, local or regional goods, and healthier options, as well as easier access to shoppers via e-commerce.
Amid these challenges, large CPG companies can’t simply manage their customers and channels the way they always have. Commercial excellence requires new skills and more-advanced capabilities—but in which specific areas? Which customer- and channel-management practices truly matter to a CPG company’s performance today? To find out, we surveyed more than 250 companies across Asia, Europe, Latin America, the Middle East, and North America (see sidebar “About McKinsey’s Customer and Channel Management Survey”). The survey results brought to light a set of must-have capabilities, with nuances depending on a company’s geographic scope.
Regional champions versus global giants
We examined what “winners” in customer and channel management do differently from “others”—winners being companies that achieved higher sales growth than the categories they play in, while also outperforming peers on one or more customer- and channel-management metrics. We found that, in every region, winners outgrow their categories by two to 16 percentage points, even as they maintain lower sales costs. In Europe, for instance, winners grow on average eight percentage points faster than others, and their EBITDA1 margins are at least nine percentage points higher. In China, the sales-growth gap between winners and others is even larger: 16 percentage points.
Like in our previous survey, we found that regional champions are still outperforming global giants in most geographies, albeit by narrower margins (Exhibit 1).
Global best practices
Our analysis of the latest survey results indicates that winners’ approaches to customer and channel management have become more disciplined and systematic since our last survey. For instance, many companies have either established a new center of excellence in customer management or strengthened their existing one. Typically, this global customer-management function oversees the development and rollout of tools and techniques, the selection of solution providers (and, in some cases, of the solutions themselves), and the dissemination of best practices across the organization. Such a function can also give smaller markets access to data and solutions that might otherwise be too costly to purchase on an individual-market basis.
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As outlined in our previous articles, winning consumer-goods companies pursue a set of global customer-management imperatives: namely, they allocate resources to high-growth channels, form “power partnerships” with their most important customers, hone their revenue-growth-management (RGM) capabilities, use big data and advanced analytics to generate detailed insights, constantly refine their route-to-market models, and make assertive omnichannel investments. The relative importance of these imperatives varies; some are more crucial for developed markets, others for developing markets (Exhibit 2).
Of course, not every market follows this pattern precisely. Exhibit 2 shows that in China, for instance, omnichannel retail is a much bigger factor than it is in other emerging markets (see sidebar “Winning in China”). And in developing markets with a high share of modern trade—such as the United Arab Emirates—power partnerships might play a more critical role in driving growth.
In general, winning companies everywhere prioritize the following imperatives:
Build an ‘insights factory.’ Winners put big data and advanced analytics to work in every aspect of customer management. By developing an insights factory—a centralized set of analytical models, tools, and processes—winning companies can automate data collection and integrate data from a variety of sources (such as data gathered in the field by the sales force, shared by wholesalers, or purchased from external agencies). The insights factory can also conduct standardized analyses and generate market-specific customer and shopper insights.
Maximize returns through RGM, powered by advanced analytics. Companies are increasingly making decisions about pricing, promotions, trade spending, and assortment—the four main elements of RGM—in an integrated way. Leading CPG manufacturers have launched global RGM programs (or “net-revenue management” programs, as some companies call them) and developed cutting-edge analytical approaches to RGM. For example, they’ve deployed advanced tools and solutions for trade-promotion management and optimization. They’ve integrated pricing and promotions, putting a single team in charge of both, rather than treating them as separate capabilities that reside in different parts of the organization. In addition, winning companies use big data analytics to make pricing decisions. They create more accurate price-volume-profit models to assess the impact of price changes or the effectiveness of hundreds of individual promotions. And they’re applying these programs not just to modern trade but also, increasingly, to the traditional trade—for instance, by collecting data from the field more efficiently through software-supported processes.
Winning in developed markets
In markets where modern retailers dominate and e-commerce is growing rapidly—markets such as Europe and North America—leading CPG players focus on power partnerships and omnichannel management.
Overinvest in power partnerships with high-priority customers. In developed markets, winning companies are overhauling the way they manage their key accounts. Many are questioning the old markers of strategic partnership (such as category captainship). Within our survey sample of CPG manufacturers operating in the US market, category-management full-time equivalents declined 28 percent between 2014 and 2016. Companies instead chose to shift resources toward joint business planning—for instance, by creating new commercial or sales roles with titles such as “business-development manager” or “sales strategist.” These new roles are designed to improve collaboration between the marketing and sales teams and to ensure that insights from consumer and shopper research translate into increased sales at the front line.
For these roles, analytical skills are crucial. Winning companies have invested heavily in data, tools, and capability building to keep their insights and knowledge on par with retailers and to retain their competitive edge during negotiations. This enables them to transform transactional relationships into true power partnerships; they can enter into mutually beneficial data-sharing agreements with retailers and are better equipped to address longer-term strategic issues.
Invest in omnichannel retail. In North America, online sales now have a share of approximately 10 percent. Western Europe is close behind, with 8 percent. These percentages, although small, are growing by double digits annually.
Winners secure first-mover advantage by shaping how their categories are sold online. They develop market-specific strategies, ensuring strong buy-in from their leadership teams on key strategic decisions. One such decision is how—and how deeply—to partner with Amazon and other pure-play e-commerce companies; another is how to do business with multichannel players. In half of winning companies (versus only 13 percent of others), a central commercial team defines the online strategy, with input from the local-market teams responsible for execution. The central team also provides expertise and shares best practices across the organization. Winners then tailor their assortment, merchandising, and promotions to the online channel, and they support their online offer with aggressive digital-marketing campaigns.
In the United States, winning companies currently invest 2.4 times more resources in omnichannel retail compared with their peers—and they don’t look for an immediate payoff. They recognize that success in omnichannel retail requires a medium- to long-term investment horizon.
What matters most in developing markets
In markets where traditional (or “fragmented”) trade still accounts for a large fraction of total retail sales—such as Latin America, the Middle East, and much of Asia2 —winning manufacturers are putting more emphasis on identifying pockets of continued growth and optimizing their route-to-market models.
Allocate resources to pockets of growth. Winners follow a clear channel strategy, prioritizing pockets of growth within both traditional and modern retail channels. They conduct in-depth analyses of channel trends and seek to develop accurate forecasts of channel growth, even in data-poor environments—for example, by mining transactional data from distributors and retailers or by leveraging social media and other public sources of information. They also strive to cultivate a detailed and up-to-date understanding of the cost-to-serve levels in each channel and the factors that can push these costs up or down. In these endeavors, global customer-management functions can be particularly valuable, as they can share insights from other markets (for instance, in predicting the trajectory for modern-trade growth).
Their rigorous analytics help winners to do a thorough job in tailoring their product portfolio, merchandising, and promotions to different channel requirements and to adjust their resource allocations depending on expected channel growth and cost-to-serve drivers. Winners also make sure to build the capabilities of their sales organizations, equipping them to remain competitive amid modern-trade growth and consolidation in fragmented trade.
Tailor route-to-market models to ‘microsegments.’ Winning companies regularly review and adjust their route-to-market models (for example, direct store delivery or third-party distribution) in each market to maximize sales per outlet and keep cost to serve in check. They rely on microsegmentation of the outlets they serve, using advanced analytics as well as more—and more forward-looking—criteria to make such decisions. In China and Latin America, winners have cut the number of distributors they do business with. Having a smaller network of strategic distribution partners not only reduces complexity but also allows winners to tailor their execution across microsegments. Sales reps follow clearly defined, outlet-specific execution standards to reduce out-of-stocks, implement planograms, and launch promotions. At many winning companies, global customer-management functions take the lead in creating an approach for defining standards and success metrics for each outlet.
Global functions also often help select the best vendors for software and handheld devices in each market, taking into account unique market situations and field-sales requirements. Winners continuously improve the functionality of their customer-relationship-management and mobile technologies to better track compliance, record in-store performance, and generate shopper insights.
Chief customer officers (CCOs) at global CPG manufacturers have full—and ever-expanding—agendas. As they seek to determine their priorities, the framework we’ve outlined in this article can serve as a starting point. Depending on a company’s footprint and growth ambitions in developed and developing markets, the CCO can use the framework to decide where to focus and which specific capabilities to build in which markets. Done right, the payoff will be commercial excellence that sets the company far above its competitors.