Generating profitable growth in “COMMODITY BUSINESS”

Yesterday, I had occasion to meet few of my ex-colleagues over lunch, One topic we debated was “why sales force in commodity industry talk of ‘price’ lever only and not “distribution and placement to generate real revenue growth”. In other words, what it takes to transform commodity product lines to behave like classical branded FMCG where “placement and promotions” are equally relevant and important levers to capture market share and generate profitable growth.?

Below is the conclusion of our intense debate –?

1.?????Everything is a commodity. Even Sales Officer of Mercedes remarks upon not meeting sales target “Audi gave attractive deals to customer??”.??In other words, price is relevant. However, there are other influencing factors which create attractiveness in deals for consumers and value chain participants. Articulating overall value proposition to consumers and value chain participants is super important notwithstanding what product you deal in.?

2.?????Depending on sectors’ evolution curve and state of maturity, influence of value chain participants varies and so does their mechanism to compute their respective ROI. The way middleman compute their respective ROI in industry like edible oils will be way different than how that fraternity compute their ROI in packaged snacks for example. Hence, calibrating your channel reach and value proposition with industry operating structure gets paramount.?

3.?????Further, pace of evolution in industry operating structure is determined by transformation agility of lead players. In other words, if a particular industry operates with principle of daily price transfers to customers than adopting vanilla flat price operating mechanism will invariably pose challenge to garner market share and vice versa.?

4.?????Information technology and in particular digital stacks and available interfaces is opening unbelievable opportunity to transform both industry operating structure + degree of influence of middleman + the way players price, place and promote products. Leading the way to unleash the potential of this digital evolution will 100% create new industry trend setters and leaders.?

5.?????Last is mindset of sales force itself. In general, people are recruited from within the same industry. While transferrable skills are good to have, however, when it comes to business transformation, diversity becomes must have.??Which means, recruiting sales force from different industry types in order to fast pace alignment, learning and application. “Resistance within is bigger enemy than acceptance outside”.?

Trade doesn’t seek price. They seek ROI. And depending on inherent industry operating structure and pace of its evolution, innovative value propositions and deals are required to be curved by using information technology in a manner where all 3 enablers of growing market share viz., price, placement and promotions are effectively put to use for transparency in ROI of trade and profitable growth of company

Second piece is industry margin structure. Simply put, “industry margin structure” is a function of industry “cost to serve + WACC per unit”. Hence, in order to meet short and long term goals of company it is crucial to unlock pillars of marketing mix in consonance with this margin structure.?

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