There is no average day unfortunately. Within a month a brand manager in FMCG could do some or all of these 15 things and more and not in any particular orderRead More
Brand and Sales managers do spend a lot of time analyzing sales declines so they can explain it to their organisation. Mostly they know the internal reasons like a price change, out of stock or a new product they have launched which will cannibalize their own products, however external reasons can sometimes be hard to identify.
FMCG Academy believes these are the top 5 reasons for an immediate sales decline:
1. New Competitive Product Launch. A new product launches in the category at an average price or thereabouts and achieves some distribution. This will impact sales of all other similar products. There is a finite amount of chocolate, chips or cereals consumers can eat. So scan the market for any new entrant, even looking at new channels like online which you may not be actively tracking.
2. Distribution. This can work both ways. If your brands distribution drops, your sales will drop. If your competitor increases distribution, your sales should also drop as more consumers now have another product to consider. This is more common in emerging markets. In modern trade markets your retailer should normally advise you earlier of deletions, reduced distribution etc. so you can plan for it.
3. Competitive Promotional Activity. Normal competitive promotional or discounting activity should be accounted for in your sales plan, however, increased competitive activity will impact your sales. If your competitor normally has a promotional price of $2.99 which you have modeled in your plan and they decide to implement a $1.99 price, their sales will shoot up and your brand should decline for the duration of the promotion.
4. Stock allocation mis-match. This is less analysed but easily understood. Retailers and Distributors sometimes send out incorrect quantities of product stock to stores. This results in some stores having lots of stock and some running out very quickly. The stores with excess stock cannot sell more than they normally do, but you already knew that.
5. Shelf position Change. Sometimes retailers change their store or shelf layouts without pre-warning FMCG brand owners. A change in shelf position can be beneficial too, however, if your products were at eye-level but have now been moved to the bottom shelf, expect sales to drop almost instantly.
There could be more reasons for a sales decline, however these 5 are a good start to dive into and build some benchmarks.
- What is the objective of developing the New Product? Is it related to market share, net sales value, profits, fill a market gap we just spotted, because the competitor has launched one (very common), because it is important to be doing something (common with some big brands), the boss had included it in the budget or just to kill boredom? It is important to set simple metrics and targets to define the success of a New Product program, and these are derived from the objective. Another aspect to consider is the length of the product life cycle, is it going to last for eternity like a Coca-Cola or will it be redundant in 2 years or so. That also sheds light on how strategic or tactical the new product will be.
- Will anyone buy this product? Is it based on data backed insights or did the neighbor recommend it over a beer? Did the product idea germinate on pure instinct or was it gut feel backed by some evidence? A number of products are developed by skilled marketing teams based on an idea germinated by a distant boss in an annual budget meeting (sounds familiar?). The product fails or is shelved mid way and no one owns it...........but a lot of time, energy and money is wasted. Modern global marketing teams though are getting better at managing these new product funnels and crazy ideas without any realistic hope of success get shot down quickly, maybe sometimes too quickly.
- How many people will buy this product? Most brands rarely get this exactly right, but are the numbers based on a holistic understanding of the category drivers and related consumer behavior? Computing this is an advanced marketing skill, as their are many variables like product quality, price, brand strength, brand relevance, distribution capability etc. FMCG Academy did a short, simple video sometime back on how to forecast volume for a new product which can be viewed here.
- How will this new product impact the brand? A question not asked much in modern times as traditional brand marketers are sometimes drowned by social media experts, digital evangelists and big data crunchers. Irrelevant and poor quality products weaken the brand while a new product that gains substantial market share strengthens a brand across metrics of awareness, usage, engagement, profits etc. A great product not in sync with the brands core values erodes positioning and impacts long term growth (e.g. if Tesla launches a diesel powered car).
- What is the time frame to develop this product? This is critical to understand and build some slack as markets keep evolving and consumer preferences can change. If it is a "me too" product (a viable strategy for some brands) that simply copies a recently launched competitor product, then the best gains are to be had early. However, if developing something that is radically new and innovative, time frames have been known to stretch from 2 to 5 years even in modern times.
- How will the new product impact our current products? Most marketing teams tend to underestimate cannibalization of their current products. After all it makes for a better presentation and is easier to sell up the management chain. There are many advanced and complex ways to estimate this (and data and analytics firms will be more than happy to sell you the new complex modelling tool), however the easiest and most frequently accurate way I have found...... is simply to assume volume source to initially reflect market share of all players......with 50 to 100% additional volume from other products under your own brand. Note, volume generated by new users to the category is separate.
- Why should retailers accept your product? Another area where many marketers fail and many good products simply do not make it past an unconvinced retailer. Mind you, the big brands seem to make it on retailer shelves thanks to size, history and advertising budgets.......but mostly at the cost of their current products as retailers continue to rationalize their range. The smaller players are the ones that never reach their potential, as while they may have a great product, many haven't figured out how to sell to a retailer (different skill sets). So while one is building a new product and its strategy, it is important to put time and thought on how to gain retailer buy-in before launch.
- What is the Pricing Strategy? Increasingly it is not simply about deciding a shelf price and hoping it works. Pricing is a lot more complicated with a number of finer adjustments required to gain trial, retention, keep the retailer happy and make some money. FMCG Academy offers a course on Udemy titled Pricing Strategy for Consumer Products (FMCG) through which in 60 minutes you can learn how to price consumer goods and understand the financial impact of your decisions. It includes advanced templates. (end of hard sell)
- What is the Advertising and Promotion Strategy by channel? Advertising and Promotional investments (including price discounts) are front loaded in most New Product plans and their efficacy can be the difference between failure and success. If these have not been thought through, finalized and aligned with key internal and external stakeholders (including retailers) well in advance, a successful launch could be jeopardized.
- Will the New Product make money? 5 year P&Ls based on estimated users, market share and thorough competitive analysis are common. Most new product projections have an upward bias and some extreme ones project dethroning the long entrenched market leader in a couple of years with a marginal innovation and a new brand! It is not impossible and does happen, however, is normally not profitable. Typically marketers have over estimated the reach of their advertising, influencing power of their ads and the relevance and quality of the product while under estimating competitive reactions. P&Ls can appear quite different from what was projected and many new products are discontinued within 24 months of launch. One tactic many successful brands follow is to ensure that every new product makes higher margin than the category average, else it will pull the P&L down. Making money is a zero sum game between consumer price, retailer margin and brand profit. FMCG Academy did a short video sometime back on these key relationships which matter a lot.
New Product development is the most critical, challenging, financially impactful and satisfying activity a FMCG or CPG organisation undertakes. It takes a lot of intellectual and emotional energy and involves the whole organisation from manufacturing, finance, supply chain, sales, human resources, the CEO and of course marketing. We have all seen a number of very great products become big and successful without traditional advertising, however, we rarely see a poor, irrelevant product that is advertised heavily become big and successful over the long term. Hope this helps.
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