Working in FMCG companies
April 29, 2011 § 2 Comments
In 2005, during the last couple of months of my bachelor’s degree in Venezuela, I attended a subject called “marketing for engineers” and was made believe that a FMCG company meant the broader marketing experience because of the use of the “full marketing mix” available to support your campaigns. Truth as that might be, this is not the only thing that differentiates FMCG marketing from specialized or industrial marketing. The major difference between these types of business is THE SPEED.
FMCG is an acronym for Fast Moving Consumer Goods; and it is precisely FAST MOVING what makes the difference between these products and the rest.
Most experts will say that the biggest problem in today’s market is the compliance that investors, stockholders, and stock exchanges require from businesses in terms of reporting results quarterly. We can all agree that the main purpose of a business is to make money and most FMCG companies make money through their stock, hence, reporting quarterly results in accordance of this financial business enables the company to gather resources and be profitable. However, there are a lot of inconveniences of working reports on a quarterly basis and only a few bold leaders such as Paul Polman (Unilever’s CEO) dare the markets and change the usual way of reporting (great interview by McKinsey to P. Polman).
FMCG companies are different from niche, small or industrial business not only because of the marketing mix, but because of the speed required to:
- Develop new products to satisfy not-covered consumer need
- Develop new “innovative” ways to reach consumers.
- Demonstrate that NPD are succesful within weeks of launch.
- Be efficient with investment and prove ROI.
Developing New Products (NPDs)
A Brand Manager or as I like to call them, Brand CEO’s has the duty to participate in all stages of the innovation process. From the identification of insights & ideas (through qualitative studies, where only few members from other departments are involved), developing prototypes (empowering lots of members from the organization, but requiring more flexibility and faster development) and after a product that will evolve the future of a business, Marketing and Sales work together to launch (as soon as possible) the innovation.
Most companies invest so much time and Money on developing the right product that after the product is ready to be sold, there is not enough money to properly launch the NPD to make the difference. Al Ries and Jack Trout comment this type of behaviour in “The 22 Immutable Laws of Marketing” and tell marketers that it’s more important to be first on the consumers mind than on the market (so you should invest more on getting to people mind’s than being first on the market).
In a country like Spain, where the private label brands (PLB) are well-developed and market leaders in some commoditized-categories are not able to develop important innovatio; and PLBs are not only a usual brand but a valued-brand. PLBs gain advantage added to the lack of cost resulting from double distribution and double margins and the easiness to list-new-products compared to A-Brands, allows the market to watch unprotected innovations on shelf with PLBs prior than A-Brands. This is possible because:
- The manufacturer hasn’t been able to convince the client of the importance / relevance of the innovation.
- The manufacturer couldn’t protect the innovation through patents or copyrights.
- Innovation is mostly functional and easily copy-cat able.
- The brand is not required to take the step toward the innovation.
New ways to reach consumers.
We are always encouraged to find new, innovative, ground-breaking, out-of-the-box ways to reach consumers, but the most important of all is that it has to be effective. It’s rare when companies use new-expensive tools, you have to know that your boss will always ask about the cost per contact on each new initiative. The best would be:
- Better quality of message and interaction.
- Faster Communications, faster response from consumer, faster call-to-action.
- Lower cost per contact
All marketers look for the holy grail of communications; a media that allows your brand to reach with an effective message to a big target at low-cost (such as TV in the past century).
This is why, some marketing gurus speak about digital advertising as that holy grail, but the main problem that these gurus have detected is that as this is a new media, almost nobody will bet on it. However, recently we have seen that it’s not just about the lack of investments, but the amplitude of the media that avoids a bigger spending.
In a Spanish article from April 5th 2011 published by www.clubdarwin.net under the title ¿why does the digital strategy works for Coca-Cola and it doesn’t work for Pepsi? (in spanish)
We can see that the efficiency of the digital media is not only related to the amount of investments, as Pepsi used all the “super bowl” Budget to support a Social Expending.
We should demonstrate that our product is a success.
To me, this has been a constant requirement of my career, considering that I have participated in 3 massive launches, and several line-extensions. Just after the launch is official (that’s to say you support the innovation with ATL investment), the organization starts to ask for information that assures them that the project was “worth it”.
Each, and every week, we need to know the evolution of the market, the behaviour of the consumer, the trials and repeaters, what’s the typical use for the product, what time of day is being consumed, frequency of consumption, etc. And just after the ATL airings end, you must know if the ad had worked, if it was useful, if the consumer decoded the right message and if the company should repeat it.
In the best case, the model is adjusted to reality; which gives everybody a good sense of success, but top management will still ask: What can we do to improve results further?. The opposite case (the worst case) is when there is a model that doesn’t fit the reality; this case brings frustration and anxiety, hence typical questions arise: Why are we not making the numbers? What have we not done? Where did we failed? How to improve performance? And according to my experience, we never look back to the model. A model that was defined to forecast results (no matter if the results are better or worse), we never review the model because top management had agreed on the numbers.
The information gathered from quantitative Studies help model the behavior of consumers ahead of a new offer although most research manager will always ask the volume projections to be conservative. This projections are based on purchase intention and product performance. Other more complex models include trial and repeat rates among other variables. At the end, is that top management that approves the forecast in accordance to an approved model, common sense and a pre-determined risk level.
All innovations require time to be developed. Time to change consumer habits, time for the product to “get into society”, even time for competitors to develop a “me-too” and help build the awareness, time for clients to watch results and consider the product for the future.
Let’s see the case of hybrids cars. They were launched as a solution to combustion engines and through the use of an extra electrical motor, they reduce the environmental impact by gas emanation. Nowadays, with the high awareness of environmental catastrophes and the rise of prices of gas have led the market towards a hybrid friendly world, where consumers look at this cars as a solution, it’s politically correct to own a hybrid car and the sales of these type of cars start to jump. This is a clear case that in order to change habits, you need to be constant and WAIT!.
The last, but very important requirement is: Paying the investment (ROI).
All great innovation requires a fair investment. And all companies have limited resources to develop their businesses, so it would be very naïve to think that a company would invest 20-50% of net sales towards a new production line. All companies have an “investment capital” that is to be split among several projects, which are normally prioritized on companies goal’s. Most companies with similarly core business projects decide how to invest depending on the Payback and the ROI.
Sadly, is not always considered the “potential long-term business” opportunity. It’s all about research, models, scenarios and indicators that confirm that in les than 3 – 5 years you’ll pay back an investment and give profit to your business.
This overly financial view of any massive market has it’s pros and cons.
Pros: To keep a track of our finances and avoid romantic ideas that has no real background to start a new business. Remember, marketing is not only about communicating what needs to be communicated and having a great package design, but to understand your consumer and move a multi-skilled team to generate profit in the years to come. This involves prices strategies, cost and expenses, distribution, fabric expenses, line efficiency, stocks and so on.
However, there is another side to this financial view coin; and that is the favour that finance manager will give a low risk, high margin project independently of the long-terms results to the brands. It’s evident that your company is there to bring confidence to investors and make money, but sadly short-term results are financially more important than long-term brand developments.
Final thoughts: “Every great innovation requires time to be developed”, “the worst decision is the one you don’t take”. So if you’re reading this because you are facing an idea, project or plan, you need to keep confident, develop it with all your heart, research for proper information and be consistent until you achieve the results. Be aware of what you promise but keep in mind that the only way to achieve greatness is to aim high.
I recently moved this blog to http://tavovalencia.com if you want to read more interesting articles, don´t forget to visit my new and improved website.
- 3 things for FMCG brands to consider when using social media (freshnetworks.com)
- The 22 Immutable Laws of Marketing (amazon.com)