Consumer products leaders seek profitable growth – doubling down on the Four P’s

Cost conscious consumers have often reached for private label products during times of economic stress or as a core budgeting strategy. The economic disruption of COVID and high inflation has amplified this disruption and in fact increased the number of consumers reaching for store/private label brands from 58% to 66% over the past year. Brands will have to rethink value as they compete more often with their own distribution partners.

Cost conscious consumers have often reached for private label products during times of economic stress or as a core budgeting strategy. The economic disruption of COVID and high inflation has amplified this disruption and in fact increased the number of consumers reaching for store/private label brands from 58% to 66% over the past year. Brands will have to rethink value as they compete more often with their own distribution partners.

Health and wellness have existed as a sub-segment in consumer products for decades for the health-conscious buyer. Specialty products and retailers have found success reaching this niche consumer. Today, more than a category, health and wellness has morphed into a characteristic of products and brands. As consumers identify themselves as more concerned with health and wellness, 41% expect health and wellness will be a key factor influencing their purchase decisions. Health and wellness have become an innovation imperative for manufacturers.

AI will drive innovation in how, when, and what consumers buy in the future. Geolocated AI-powered ads may offer consumers in the future in-store promotions or auto populate online carts based on past purchases and preferences. Will consumers trust AI which understands and seeks to predict their purchase and consumption patterns? When asked, 67% of consumers say they have moderate or complete trust in promotions that are generated by AI.

Thinking globally is in the core strategy template for consumer products leaders. Globally, consumers hold different definitions of value and levels of optimism for the future and are often faced with vastly different economic factors impacting their decisions. For example, a recent survey showed that 84% of Indian consumers are optimistic about the future compared to only 54% of their US counterparts. This could drive a company’s investments to focus where capital may have a higher return. Companies striving for growth might look outside the US for an opportunity to match the needs of the growing global consumer.

Continuous and proactive strategic evaluation and reshaping of brand, category, and geographical portfolios to place capital where it is most impactful will lead to an acceleration of M&A&D activities and a higher level of growth. Central to this review is the challenge and rethinking of assumptions on growth – anchored in reassessing of geopolitical factors and consumer needs. With the growth and importance of the global consumer for example, beverage companies may need to expand variations to accommodate not just regional but global tastes. This flexibility requires local knowledge, advanced business intelligence, and perhaps even partnerships to develop local capabilities. EY’s recent CEO Pulse survey found that 49% of consumer products respondents are planning joint ventures or strategic alliances in the next 12 months, 42% are planning mergers and acquisitions.

Beyond the portfolio of brands, categories, and geographical markets – innovation needs to unlock platforms that deliver scale and new white-space sources of growth beyond line extensions and adjacencies. For example, it may not be enough for a sneaker manufacturer to be aligned with exclusively sports and gym operators. Innovation might require an expanded ecosystem of wellness partners in the medical or insurance space. Evaluating new business models and ventures will open sizable opportunity – leveraging the company’s core competencies and brand influence while derisking compressing existing category growth. In addition to health and wellness, we see new industry platforms emerging around data, consumer occasions, and sustainability.

“GenAI can help leaders reimagine their platform business model and redesign how these products get to market, speeding up commercialization.”

Reimagining innovation and the R&D function will be central for breakout performance. The challenge for the incumbent is they need to drive a continuous consumer-centric innovation cycle before the challenger gets distribution. The challenge in today’s stagnating performance environment is that cost reduction programs have the potential to erode innovation investment and open the door for competitors to gain a foothold. This cycle will accelerate unless new attention is placed on a platform strategy.

Today’s industry productivity programs tend to be mislabeled given their short-term cost reduction bias. To realize the productivity benefits to sustain shareholder value, the industry needs to look at operating model considerations and ways of working across the value chain. Retailer and manufacturer collaboration, data sharing, and new economic models are a good place to start given the significance of trade investment and pricing in the overall industry economic construct.

Technology and data analytics have roles here – specifically when there is tighter integration of business outcomes and technology enablement. We see the supply chain as a core element of focus. AI for example can model manufacturing capabilities to identify inefficiencies, simulate improvements and optimize production lines.

To find sustainable, long-term productivity gains, companies must reimagine their process from design all the way through to the consumer. 

Revenue growth management is a critical element of understanding what is working, what’s not working, and being able to adapt and pivot. Agile operations will be more important in the future to enable a flexible RGM structure to respond when consumer demands change. Being agile and having collaborative partnerships can facilitate more fluid channel optimization and the ability to execute dynamic pricing models. In addition to making faster adjustments, brands can improve RGM by better understanding and connecting to what consumers truly value. In an environment where generational changes are impacting what consumers value, value-based segmentation, educational marketing, and innovation in product offerings can help brands better align with new consumers.