Marin is the global leader of the consumer products sector within BCG’s Consumer practice area. He is a member of the Health Care and Social Impact practices, and has extensive experience in growth and competitive strategy, mergers and acquisitions, postmerger integration, sales, marketing, pricing, research and development, new-product development, and operations and supply chain.
What are the biggest changes expected in the consumer products industry? How can companies prepare?
The biggest change is already apparent: the locus of growth is moving to developing and emerging markets, especially to the BRIC countries (Brazil, Russia, India, and China) and the “next billion consumers” there. Indeed, as growth drivers in developed economies shift to price and differentiation and as consumers in developing and emerging economies become more affluent, we expect that the bulk of industry expansion will occur in the latter markets through a combination of volume and price growth.
The strategic implications of this shift are profound, affecting almost every aspect of the business systems and organization of consumer products companies. The need to focus investment in new, high-potential areas—combined with rapidly changing competitive dynamics and increasingly intense pressures from suppliers, competitors, and retailers in mature economies—underscores the challenges companies face. Most companies are already coping with these issues and making them a focus of senior management. Ultimately, however, success will be determined by smart decisions on where to compete and how to win in those markets.
Today's global economy presents many challenges for businesses and can put pressure on a company's margins. How can consumer goods companies manage fluctuating commodity costs and the resulting risk? How can they respond to shortened product-life cycles and increased stock-keeping-unit proliferation?
Our analysis and experience suggest a significant increase in the volatility of key commodities for the foreseeable future. Even though prices have fallen from the record highs of 2007 and 2008, the recession does not reduce the risk of volatility. Indeed, the lack of instability across most commodity markets for almost 25 years is itself actually the most unprecedented volatility to have occurred.
As a result, most of today's senior managers and their procurement teams do not have experience working in a mercurial environment, and most organizations are ill equipped to deal with it from the standpoint of operations, organizational structure, tools, metrics, or incentives. Nevertheless, we believe that with appropriate focus and investment—particularly in understanding the underlying economic drivers, dynamics, and data of their most important commodity markets—our clients' ability to manage these risks will prove a source of long-term competitive advantage.
The decreased return on investments in innovation represents a crucial strategic challenge for our clients. Whether the cause is shorter life cycles, less revenue per new product, higher launch costs, lower success rates, or lower margins from private-label pressure, it is imperative that our clients respond holistically to this challenge.
In our experience, companies need two elements to successfully adapt their innovation process:
A project-based view that looks at the fundamental cash-based economics of a project from innovation to market, identifying ways to reduce costs, shorten the time to positive cash flow, and increase market return
A strategic view that rigorously matches their innovation portfolio with their business strategy to maximize advantage and returns as well as balance appropriate risks
With these two views in place and the appropriate accompanying changes to processes, people, and consumer insight platforms, our clients can succeed.