In the world of consumer products, there are few things as exhilarating as getting the “big order” from your most important customers.
There’s nothing that creates excitement and effusive pronouncements of positivity up and down the spine of your enterprise than when a massive sales order gets placed. Of course, behind the P.O. – and the pallets of merchandise that flow by the truckload to that big box retailer – is a more rational reality that sometimes gets overlooked: actual retail consumption, and the tale that it foretells about the future health of your business.
I had the opportunity to visit with a client still basking in the effects of several strong months of large shipments. As he crowed about his sales figures, I asked him if I could dig into his data.
As I waded beyond the rosy glare of dollar signs, I noticed a troubling truth that seemed to escape the CEO and the sales organization that was still touting its great successes in securing so many large orders. Although quite a bit of inventory had been shipped to these retailers, what was being sold at retail was lower – and a year after the initial launch, retail consumption trends highlighted the true health of the business: Sales were flattening out.
The supply being held by retailers in distribution warehouses and at stores – once stable at a healthy four to six weeks -- was now at about 10 to 12 weeks, and climbing.
Even more troubling – this client was forecasting 20 percent year over year shipment growth based upon their manufacturing volume of $500 million – which would elevate revenues to $600 million – rather than on actual retail consumption of $375 million. This lower retail consumption data -- and associated trends -- are truly what should have been used as a starting place for planning the next year.
It became painfully evident to me that this client was missing out on key indicators that would help them to better understand the true health of their brand. Turning such a blind eye to what was happening beyond their own shipments is not only ill-advised, but could ultimately strike a fatal blow to future forecasted revenues.
The good news is thus: It’s easy for any CEO to get a better handle on brand health – it doesn’t take the war chest of the big boys, like Unilever and P&G, and you don’t need the insights of a Big 6 accounting firm.
In fact, there are five critical questions that any CEO can ask, on a rolling basis, to ensure they are properly gauging the fiscal fitness of their products and services. It doesn’t take a spy camera in the warehouse, or a passel of secret shoppers – simply, a bit of attention to the right facts is all you’ll need to stay ahead of the curve.
Let’s dive a bit deeper, and learn more about the five questions:
- Are your sales/shipments exceeding actual retail/end-user consumption? Ultimately, this is your Holy Grail computation – understanding whether your product sales are lagging what’s being shipped will help you to understand several keys about the state of your business. For example, you need to understand whether the retailer will require returns or deep discounts to move inventory. This practice will put downward pressures on future shipments, and could lead to unexpected costs in the short term.
- Do you know current retailer inventory levels, and are they above targets set by your retail partners? Do you have a tool that is tracking, in real time, product movement at retail? Are you using Nielsen, IRI (or other retail tracking tool) on a four-week basis to gather data on your actual sales? Do you know the targeted retail inventory levels desired for your category and brand?
- Are you forecasting future volume in terms of category growth, market share expectations and realistic inventory levels? Understanding this will help you to understand whether you need to ramp or slow down manufacturing based upon what you can expect for future shipments. Forecasting should be done from a retail consumption base, not factory shipment basis. Then you can layer on new distribution, new products, or special events.
- Do your marketing and sales teams know the trends on the brand and utilize tools to report and identify issues and opportunities? That same Nielsen/IRI data can be mined to reveal emerging sales and pricing trends in the marketplace, and can help you to target promotions geographically, seasonally and even on a store-to-store basis. You must understand the category trends, and those of your competitors -- as they shed light on your current and future growth.
- Do you have well-established metrics that are predictive of the health of your brand? When I work with clients, I create a custom model that takes into account the most critical metrics that affect their brand and ensure that they are tracked on a dynamic basis. Understanding this model and inputs – and responding to the trends it predicts – can mean the difference between brand success and failure, in a world where success can happen on the razor’s edge.
Though the answer to these questions may, at first, seem concerning, it could help you to grasp a more realistic picture of your brand’s health. In my marketing “toolbag” is a formula that will help you assess your particular brand health situation – a “ship share model” that has helped other manufacturers get a better handle on consumption while planning future activities in support of what is truly happening in the business. If I can be of service to you in this manner, please click here to reach out.