Home » Operations » How to Optimize Costs and Growth with Demand-Based Approaches

How to Optimize Costs and Growth with Demand-Based Approaches

For many companies, cost-cutting efforts quickly translate into a competitive “race to the bottom” in which retailers, manufacturers and consumers alike all lose out on greater growth and access to exciting innovations. It’s a dangerous cycle, but it doesn’t have to happen.

Really understanding demand—what consumers are truly seeking and willing to pay for—and then aligning all activities to that demand drives growth while saving 20% or more of total costs—costs that are often completely overlooked through traditional cost-savings mechanisms.

We’ve seen this level of savings across enough client engagements to recognize the pattern, and the potential.

1. Optimizing the supply chain. It’s not shocking that when a plethora of new products are released in the pursuit of incremental shelf space and market share, supply chain suffers. In no time at all the added complexity strangles supply chain efficiencies and costs sky rocket. Rationalizing those costs however should not be approached through an arbitrary percent reduction. Rather, SKUs should be rationalized using demand-based approach. Relying on consumer research that highlights who your most valuable customers are, and what is motivating to them, ensures the best remains and the unnecessary gets eliminated. Without that knowledge, cuts are conducted blindly. As Hershey’s CEO J. P. Bilbrey reinforces, “Our new approach has lowered inventories, reduced SKUs, reduced complexity, created tremendous efficiencies, and generated greater cash flow. I’ve never seen a jump in performance like this before…”

2. Distribution/retail investment. Just as not all consumers are created equal, not all retailers are created equal either. Understanding which customers shop at which retailers for which products, and the relative profitability of each intersection converts retailer profitability from a question to a certainty. When the customer team at Hershey took this approach, this knowledge enabled retail partners and customer/category management teams to size opportunities for stores with similar shopper profiles and develop, test and implement solutions that monetized each opportunity. These new shopper insights showed retailers how to drive growth across stores and within stores. Applying a demand lens to the challenge found the money to fund growth by identifying areas where investment could yield dividends—and other areas where investment was unwarranted. Fish where there are fish, as some would say.

“Our new approach has lowered inventories, reduced SKUs, reduced complexity, created tremendous efficiencies, and generated greater cash flow. I’ve never seen a jump in performance like this before.”

3. Media spend. Focusing on millennial consumers? Golden movies may not be your best advertising opportunity. An extreme example? Maybe, but not as much as you may think. Too often media spend is a blanket purchase, with little precision and particulars. Armed with a deep understanding of demand however, the team at Hershey’s was able to optimize media investments by identifying the right audience and delivering the right message to them. In most cases, these efficiencies equate to 20% of total media spend meaning the same media impact can be attained while spending 20% less or media impact can improve by 20% while holding spending constant. That’s real money that is otherwise being left on the table.

4. Innovation. This is perhaps the most obvious area where demand-led insights change the game. At Hershey’s a series of successful new innovations with lower cost and higher consumer interest replaced the complex, high cost, low interest initiatives being planned. It was sweet success rooted in consumer demand. Focusing conversations with consumers on what they desire, and what motivates them as opposed to what the company can deliver changes the conversation and the paradigm and unlocks innovation with real ROI.

Applying a demand lens highlights both growth opportunities and the savings opportunities that remain invisible to traditional cost-cutting efforts. This is because applying a demand lens leads you to do things differently, rather than simply focusing on doing the same thing more cheaply.

About Jason Green and Dan Vucovich

Jason Green is the CEO of The Cambridge Group, as well as the leader of Nielsen’s global Growth and Demand Strategy practice. His work focuses on developing customer-driven strategies, new product development, positioning, and consumer segmentation for consumer goods, retail and services industries.. Dan Vucovich is the former SVP, President U.S., The Hershey Company