Survival Tactics

To prosper, consumer goods companies must continually create new products and services to satisfy the needs of their consumers. But their ability to build brand loyalty is a more challenging task than ever before. This month, Consumer Goods Technology sat down with Sarvesh Jagannivas, Director of CPG Industry Marketing, Agile Software, to discuss how leading-edge consumer goods companies need to master new design methods and learn new innovation metrics to drive corporate success, if not survival.

Tesco carries up to five times greater a percentage of private-label merchandise than typical U.S. grocer. How will Tesco's plan to open U.S. stores in 2007 affect consumer goods manufacturers? How is our industry managing this trend?

Tesco's movement into the U.S. market underscores the momentum that private-label merchandise has been gaining on retailers' shelves. In the past 10 years, U.S. grocers, for example, have greatly increased their percentage of revenue from private labels because the profit margins are much higher. As such, retailers are constantly looking for ways to add more labels. Whether it's Tesco or another U.S. retailer, it's a trend to be reckoned with. I see three key areas where brand companies can focus to best manage the trend and maintain a competitive edge.

First, brand companies should place emphasis on continually distinguishing their brands and capturing the imagination of their consumer with innovative products.

Second, it's paramount for brand companies to develop and bring to market innovative products to stay ahead of the private labels. By bringing more new products to market quickly, brands will force private labels to constantly play catch-up.

Lastly, and perhaps most importantly, is effective product portfolio management. The key advantage for private-label companies lies with cost differential. Private-label companies do not have to make the same investments in R&D as brand-label companies and, therefore, are not faced with the challenge of deciding where to allocate resources and determine which products are most likely to become successful. Brand companies can better make these decisions if they are equipped with product lifecycle management (PLM) tools that enable them to efficiently assess which products will be successful, require fewer resources and fit into their core brand identity.

The ability to deliver new products to the market faster is critical. What processes do consumer goods firms need to implement to make this happen? Speed to market is critical. To make this happen, consumer goods firms need to be able to rationalize their product portfolios and provide early visibility into product data to all stakeholders and external partners, if appropriate. PLM addresses this challenge by providing multi-enterprise visibility into a single, integrated view of the product record.

However, speed to market is not the only area of focus. Equally important is increasing the amount of products a company has in its pipeline. Therefore, the challenge to address here is, how can one add more products with the same resources? A firm does not add more people because they add more products. Increased throughput is accomplished by eliminating unproductive design cycles and improving collaboration.

Many companies are now leaning towards outsourced product design and innovation to increase their product pipeline while minimizing investments in R&D. For example, Procter & Gamble said that R&D can come from external companies, smaller companies or outsourced partners. All of this requires a high level of collaboration within organizations around product information. While you don't want to take away the creativity around product design, you want to eliminate inefficiencies around product cycles through collaboration.

As much as 50 percent of the cost of a product goes into the packaging. Why is packaging innovation so important, especially as it relates to product image and product safety?

Packaging innovation is so important because it is a key differentiator, not just for communicating brand identity, but also for how the product is consumed. Whether it be for hitting different price points, achieving consumer ease of use, ensuring a longer shelf life or meeting consumer taste (i.e. biodegradable packaging), once a product's packaging resonates with consumers, it can be the most efficient way for the product to be delivered.

Another important role of packaging is meeting various labeling requirements in different countries. In food and beverage, for example, there are new requirements around allergens, country of origin labels, classification of ingredients, requirements around food supplements, etc.

Central to complying with globally changing requirements and managing quality and label standards is a fundamental understanding of what the product is made of. And that is the core of PLM -- providing complete control and visibility of all product data and processes.

A.G. Lafley was recently quoted as saying, "You do what you do best and can do world-class". P&G's model of focusing on core capabilities is one that many consumer goods companies are beginning to follow. 

In regards to product innovation, how should companies strategically outsource non-core capabilities?

The demarcation of core and non-core capabilities will be different for each brand company. There is a trend towards outsourced filling and packaging because many brand companies do not consider it a core capability. Where the line falls often depends on how a company defines its brand.

Like many other industries, outsourcing is not just for non-core capabilities. For example, GOJO, which manufactures the brand Purell, has a licensing agreement with Pfizer, which markets the anti-bacterial hand sanitizing product in many parts of the world.

The consumer electronics side has been outsourcing many core and non-core capabilities for some time and is much farther ahead with this. For example, the Apple iPod was designed and driven by Apple, and production was a multi-company collaboration. The core of the iPod's design was done by Apple. Many components of the design was done by a Taiwanese company based on specifications provided by Apple. So while the core of Apple (no pun intended) is still design, it is able to outsource subparts when appropriate.

Another good example is how Crest and Philips Oral Healthcare developed and launched a product that that combines Crest toothpaste and the Sonicare toothbrush. All of this requires interorganizational communication around product data.

How important is it for companies to collaborate internally to ensure that they are delivering products to market faster?

Collaboration in itself is important, but early visibility among key stakeholders is what drives early time-to-market. By providing insight earlier on product cost structure, quality and compliance requirements, companies can launch better products faster to market and at target cost.

Early visibility is not easily achieved if structurally, companies operate with technologies housed on desktop computers or silo-based organizations. PLM provides such visibility by creating an environment where there is one central repository for product information available to stakeholders that have a part to play in the product lifecycle. With portfolio and program management tools that help with workflows, processes can be put in place enabling people to meet their goals.

For companies that consider innovation as key, effective collaboration across product design centers in globally dispersed locations is important. With real-time access to product data and consistent global processes for product development, Bell Sports, for example, is able to introduce market leading sporting gear consistently.