Consumer goods (CG) companies are grappling with seismic shifts to the industry—including constantly evolving consumer trends, loyalty shake-ups and growing demands on brands, new partnership demands from retailers, and the rise of e-commerce and retail media. These long-term trends are taking shape against a challenging backdrop of talent shortages and wage increases, severe inflationary pressure, and ongoing supply chain volatility. As a result, CG companies are being challenged to rethink their business models and refocus on the imperative of profitable growth.
Commercial excellence matters now more than ever, and it’s driving outsize returns. Our latest research on CG value creation found that accretive growers—companies that outperformed their peers on both real organic growth and margins—delivered nine times the average TSR compared with the rest (18 percent compared with 2 percent). What’s more, execution, defined as the portion of growth not driven by category momentum or M&A, has emerged as the main and accelerating differentiator. Between 2016 and 2019, execution contributed to more than 70 percent of organic growth among accretive growers and led to a 5.1 percentage point differential in organic growth (up from 4.6 percentage points between 2015 and 2018). However, top- and bottom-line growth remains elusive: fewer than 30 percent of the companies in our database were accretive growers that achieved organic growth and margin expansion at the same time.
So how can CG companies out-execute the competition? Drawing from the results of our 2021 North America Commercial Excellence Benchmarking (CEB) Survey, we have identified the most critical practices that set winning CG companies apart (see sidebar, “About the research”).
What it takes to win—and why it matters
Winning on commercial excellence drives significant value. When comparing capability winners with the rest of the field, we found that winners enjoy the following advantages:
2.0 times the average retail sales per new SKU
1.3 times more sales per dollar spent on marketing
4.3 percentage point increase in price per equivalent unit on an annual basis (versus 2.4 percentage points for others)
12.0 percentage point increase in total points of distribution ahead of the category
2.3 times more share of sales dollars from e-commerce channels
Driving toward these outcomes requires systematically out-executing competitors at scale. While there is no single formula for success, our research reveals a set of common themes across five pillars of commercial excellence—portfolio, innovation, and design; data-driven marketing; revenue growth management; sales and in-store excellence; and e-commerce and direct-to-consumer (DTC) (Exhibit 1). Winners react faster and more frequently to the shifting consumer landscape. They collect and analyze more data to inform their strategies, with a holistic approach to balancing short- and long-term portfolio moves. Winners execute at a more granular level, based on channel, customer, and audience needs. And they make strategic investments in the teams, capabilities, and tools that enable superior execution.
Winners execute at a more granular level, based on channel, customer, and audience needs.
Diving deeper into each of the five commercial pillars, we have identified ten lessons on the winning practices that enable CG companies to accelerate and sustain commercial excellence.
Portfolio, innovation, and design
Lesson 1: Know the most valuable places to innovate (and renovate). Organizations that master innovation deliver two times the economic profit and returns to shareholders. Our CEB survey revealed that 71 percent of respondents are taking aggressive action to improve their exposure to attractive “where to play” spaces—the occasions, consumer need states, and channels that will drive growth. Winners are more skilled at identifying these growth opportunities through consumer-backed insights and concept testing (Exhibit 2). But it’s not only about creating new brands or disruptive products. Winners are more than twice as likely to invest in a formal renovation program to ensure that existing products align to evolving consumer preferences and continue to generate top-line and cost improvements.
Lesson 2: Deploy fit-for-purpose operating models. Innovation continues to be tough for CG companies. Time to market is long (13 months, on average, for a simple line extension), success rates are low (75 percent of innovations fail within three years), and returns are far from guaranteed (in our experience, 50 percent or more of innovation portfolios deliver negative ROI). Winners are changing the game by building distinct operating models tailored to different types of innovation and by challenging long-held conventions (such as the stage gate model) to unlock innovation at pace. Many companies have adopted multispeed operating models with distinct sets of stakeholders, decision-making processes, and guardrails depending on the risk exposure and potential revenue of the initiative.
Winners are also deploying new ways of working—such as small-scale transactional learning and digital—to rapidly drive core innovation. The results demonstrate a step change: one food company reached the market in just 125 days, while a beauty player launched a new brand in only 30 days. These are examples of the bold actions and agility that differentiate winners from the rest of the pack. But with 80 percent of CG companies still struggling with manufacturing and supply chain issues for innovation, there is still more work to do.
Winners are deploying new ways of working—such as small-scale transactional learning and digital—to rapidly drive core innovation.
Lesson 3: Get personal—and invest in the right data strategy, analytics, technology, and ecosystems to do so at scale. Winning CG companies are leveraging data-driven insights to deliver the right message through the right channel at the right time—and they generate 30 percent more sales per dollar spent on marketing compared with nonwinners. This starts with an investment in the right infrastructure and capabilities: winners are three times more likely to have a foundational marketing technology stack in place and are twice as likely to be skilled at stitching together multiple data sources, including their own first-party data. By implementing tools such as geotargeting and microsegmentation, CG companies are able to identify unique pockets of growth and effectively curate personalized content for ever-smaller audience segments (Exhibit 3). For example, a large CG player was able to leverage dynamic creative to develop thousands of creative variations that enabled personalization at scale, which led to a double-digit improvement in advertising effectiveness without a significant increase in nonworking spend.
Lesson 4: Embrace an ‘always on’ approach to performance marketing strategy. Winners are four times more likely than others to extensively use “test and learn” approaches to assess and optimize their marketing campaigns—and they do so at the segment level as opposed to the national level. They are also 1.8 times more likely to have agile cross-functional teams working at scale, in partnership with core brand teams, enabling them to move swiftly in response to quickly changing consumer attributes. For example, while most CG companies target customers based on search history and past purchase behavior, winners focus on contextual attributes—such as physical location, weather, time of day, and day of the week—that enable a more flexible and real-time adjustment.
Revenue growth management
Lesson 5: Harness the power of analytics to develop revenue growth management (RGM) strategies based on occasion and consumer need. Next-generation RGM teams leverage a broad range of insights to create a holistic understanding of consumer needs and the market landscape—and what drives consumption across occasions, needs, and behaviors (Exhibit 4). As a result, the competitive set can be reframed around, for example, winning share of stomach across time of day versus winning in yogurt or orange juice. These granular insights also enable more precise pricing actions—for example, teams can leverage SKU switching data to assess net elasticities based on purchase structures. At the same time, advanced RGM teams unpack the structural drivers of category economics and competitor performance—for example, by studying profit pools and game theory models. To sharpen strategies and execution with value chain partners, they develop a thorough assessment of distributors, retailers, and other channel partners, diving deep into the economics, the role of category, and areas of potential win–win alignment.
To develop this multi-lens view of the market, top RGM teams draw on broader, more granular data sets—including household panel and survey data, loyalty cards, social-media sentiment, clickstream data, digital journeys, local economic indicators, syndicated data, investor presentations, and data from rapid experiments. Unlocking the value from these data sources requires specialized research and analytics expertise—typically from market researchers, data scientists, and tools—and supporting governance. Investments in modeling and scenario-building capabilities enable winners to respond rapidly to changes and plan ahead, especially in hyperinflationary environments. Winners are seven times more likely than others to use predictive and prescriptive analytics, including machine learning, rather than historical and descriptive analytics (such as post-event promo ROI).
Investments in modeling and scenario-building capabilities enable winners to respond rapidly to changes and plan ahead, especially in hyperinflationary environments.
Lesson 6: Balance RGM plans across both short- and long-term horizons. Seventy-five percent of winners build multiyear plans that span the full set of RGM levers—pricing, promotion, trade terms, changes in price pack architecture, distribution expansion, and new products. Only 21 percent of nonwinners report doing the same. But even the best-laid plans cannot predict the future, and companies must quickly course correct in response to a volatile external environment. Winners are significantly more likely to take RGM actions to adjust trade funding, promotion intensity, or promotional strategy at least once a quarter, and they are twice as likely to use test-and-learn approaches or in-market pilots to derisk execution. They develop routines to track and monitor market dynamics—including cost forecasts, logistics, supply conditions, and new product pipelines—to inform decisions at a pace dictated by external conditions while maintaining a longer-term value creation outlook.
Sales and in-store excellence
Lesson 7: Drive cross-functional collaboration to deliver seamless, omnichannel customer management. Winners are breaking down the silos between online and in-store customer management: they are 40 percent more likely than others to have integrated customer teams that manage both offline and online sales. As part of this process, they are also more likely to engage a broad range of cross-functional team members to support sell-in activities—from key account and category managers to e-commerce, digital marketing, and revenue management experts. Winners collaborate with customers across more levers (such as supply chain improvements and exclusive packaging), allowing them to build more powerful and holistic partnerships.
Lesson 8: Unleash sales force productivity with next-generation tools and analytics. Winners are far more likely than nonwinners to segment outlets across quantitative attributes—including outlet revenue, profit opportunity (driven by granular analytics), and ability to influence—and to use this information to tailor the frequency, resourcing, and duration of sales activities. Using this same data-driven approach, winners are able to deploy their in-store sales force more efficiently by focusing their time on the activities with the highest value-add (Exhibit 5) through retail execution tools and analytics that provide a deeper understanding of which activities drive in-store impact. However, there is still ample opportunity for winners and nonwinners to incorporate next-horizon metrics to manage sales force performance—such as speed to shelf, out-of-stocks, execution quality scores, and drive time.
E-commerce and direct-to-consumer
Lesson 9: Set a clear omnichannel vision—with distinct roles, business objectives, and targets for each channel. Winners are much more likely to include e-commerce strategy as a part of their long-term and annual planning and engage a broader set of online channels, including direct-to-consumer (DTC) and social media. Two-thirds of winners report planning to sell through last-mile delivery platforms (such as DoorDash DashMart, and Uber Cornershop) within a year, compared with just 25 percent of others.
Many are taking a more strategic approach to DTC development in response to shifting consumer and go-to-market dynamics accelerated by the COVID-19 pandemic. The vast majority of survey participants agreed that the objectives of their DTC strategies include enhancing user experience, controlling the brand narrative, and generating creative insights and innovation. The difference is that 100 percent of winners are monetizing their DTC, compared with only 40 percent of nonwinners. Successful DTC strategies must have a scalable, profitable business model—even if the share of sales going through DTC remains small (relative to third-party e-commerce and brick-and-mortar stores).
Lesson 10: Compete profitably on Amazon. Four in ten winners report that they have significantly improved their Amazon margins over the previous two years. Winners consistently collaborate on promotions and merchandising and are expanding into supply chain partnerships with Amazon. For instance, 60 percent of winners said they participated in Amazon’s Vendor Flex program (in which Amazon ships directly from vendor company warehouses to consumers), while only 18 percent of others reported doing so. Finally, winners are also seven times more likely than nonwinners to monitor unauthorized sellers on Amazon Marketplace and take concrete measures against them.
CG companies can begin by asking themselves the following questions to determine their capability starting point for the journey ahead:
Portfolio, innovation, and design. Are we bringing sufficient focus to driving growth from “core” innovation and renovation and identifying growth opportunities for established brands and categories?
Data-driven marketing. Is our marketing granular, personalized, and agile enough to hold its own against our digital-native (or DTC) competition?
Revenue growth management. Do we have a longer-term perspective on the role of RGM in driving profitable growth that is anchored in a multi-lens view of consumers (occasions, needs, and behaviors), drivers of category performance and economics, game theory understanding of competitor conduct, and relative positioning and motivations of value chain partners? Have we built sufficient agility and flexibility into our RGM routines and approach to be able to respond to dynamic market conditions?
Sales and in-store excellence. How are we evolving our sales capabilities, resources, and processes to meet the ever-changing needs of our omnichannel customers and consumers?
E-commerce and DTC. Have we defined a holistic channel strategy for e-commerce with distinct roles, strategies, and customer-specific financial and execution targets for each online channel (including emerging platforms)?
Winning on commercial excellence has more value now than ever. Our latest research reveals the leading practices and strategies that separate the winners from the rest. By adopting these ten lessons, CG companies can build the critical marketing and sales capabilities they need to drive superior execution and sustain profitable growth in the next normal.