A CPG Survival Guide
3 ways to help your CPG survive and thrive
Life and Death
In the fall of 2002 I found myself at the wrong place at the wrong time. I was in an apple orchard playing with some friends when one of the kids in the group took a bow and arrow (no idea where it came from honestly) and fired it across the orchard in my direction. I remember some yelling and then feeling an impact. The arrow hit me directly in the head. Miraculously, however, when the arrow point made contact, I had turned my head in just the right position for the arrow to cut across my forehead, instead of going into my eye or temple. Under the circumstances, it was a little difficult to find my way out of the orchard. I count myself lucky that in the end, I had some stitches, but no other harm done.
Why do I tell this story? Because when running a business and especially when running a consumer brand, arrows get fired your way. Bad stuff happens and you can't prevent that. But what you can do is use certain principles to position yourself in such a way that increase your chances of survival and maybe even success.
The three principles I'm going to cover in this guide are:
Have a strategy
Be product-first
Chase the right distribution
Have a strategy
Having a strategy means understanding what game you are playing and how you will win.
Strategy is not:
Sales goals (especially unrealistic ones)
Vision, mission or other vague, un-actionable, fluffy language
A plan that ignores market or competitive factors
Richard Rumelt, in Good Strategy/Bad Strategy, provides what I think is an excellent formula for building a strategy. These are the three parts of his framework.
Diagnosis - An understanding of the consumer, the market, competition and other players. These are things that must be understood to be successful in your space.
Guiding policy - this is your response to the diagnosis. It is a framework for making choices and taking action. It gives direction.
Coherent actions - these are specific steps, initiatives or maneuvers that carry out the guiding policy.
Having a strategy is not a nice-to-have. It is a must. Good strategy makes decisions easier and effort more focused. It prevents a business from wasting funds or diluting their scarce attention and energy.
In a later article, I’ll provide a step-by-step guide on how to craft a CPG strategy.
Be product-first
Profitability and survival in CPG rely heavily on having an excellent product. Let me illustrate why.
As the graphic above shows, customer lifetime value (CLV) needs to be higher than the cost of acquisition (COA) if a brand is to be profitable. CLV is made up of average purchase price, number of purchases, and the period for which the customer continues to buy. It turns out that creating a product that customers love helps all of these. If a customer LOVES a product they are more likely to buy more of it, more often, and for longer periods of time. Not only that, great products tend to drive word-of-mouth, which is likely the cheapest way to acquire new customers.
So, as you can see, being product-first is the best way to single-handedly increase your brand’s profitability. But, how do you do it? What does it really mean to be product-first? Here are a few things product-first brands do:
They have a clear value proposition
A value proposition is the combo of who you are selling to and what problem you solve for them. Great products solve problems or address unmet needs for specific groups of people. You can’t solve a problem you don’t understand.
They obsess over details
Once a clear value proposition is established, a brand can then begin the process of building a tailor-made customer experience around that value proposition. Product-first brands know that no detail is too small (if the detail adds real value for the customer). Adding higher quality ingredients when your customer doesn't care is not what I'm talking about here. I'm talking about obsessing over the details that help your customer accomplish what they want to accomplish. For example, if convenience is part of your value proposition, don’t make your packaging inconvenient.
They prioritize product spend over marketing spend
Product-first brands divert funds to perfecting the product experience for customers. In food products you could say this is like putting your money where the customer’s mouth is. Product-first brands know that an ounce of product quality is worth a pound of marketing.
Chase the right distribution
When choosing distribution for your product, you can create either a flywheel of growth or decline. The flywheel of decline goes like this:
Take whatever distribution you can get
Generate horribly low sales velocity at store
Find it difficult to get in with great retailers because velocity is so low
Repeat
As if this wasn't bad enough, choosing bad distribution also creates a lot of markdowns and chargebacks because the product is just sitting on shelves not selling. Of course, this doesn’t help profitability.
The fly wheel of growth however looks like this:
Choose the right stores for your product
Generate high velocity relative to category
Find it easier to get buyer meetings due to great velocity
Repeat
This cycle has the added benefits of better shelf placement, lower cost of doing business, and better performing promotions.
Survival of the… best positioned
Small changes in position make a big difference. In my case a few inches was the difference between stitches and a far worse outcome. CPG survival can also sometimes be a matter of a few inches. Having a strategy, being product-first, and chasing the right distribution are small but impactful principles that I hope will greatly increase your chances of survival. So here’s to living to tell the tale.
Take care✌️,
Jordon