'Control the Controllables' to Drive Growth

In today's uncertain economic environment, meeting the demands of consumers, customers and Wall Street analysts is no easy task. The senior executives at the clients we serve must contend with the slowing economy, reduced consumer spending power, and significant cost increases across the P&L. These increases include higher ingredient and packaging costs, higher transportation costs and higher plant operating costs – to name a few.

To grow profit in this environment, CPG companies face a stark choice: Volume-driven earnings growth or cost cutting. Too often, CPG companies choose the latter.

In times like these, many CPG companies tend to view brand-building activity and spending as an expense vs. an investment. In doing so, they justify cutting these "expenses" as a surefire way to hit the quarterly numbers. Viewed in this context, profitable growth via brand building is a high- risk endeavor with an uncertain payback and remains beyond the direct control of operating managers. But, there is a better way.

Best-in-class CPG companies view brand-building activities as a high-odds means to consistent, volume-driven earnings growth in good economic times and bad. They focus relentlessly on the growth levers they have direct control over, which fall broadly into the following five categories:

• Positioning Effectiveness
• Advertising/Consumer/Trade Spending Effectiveness
• Improved Innovation Productivity
• Strategic Pricing
• Customer Strategies (including Assortment, Shelving and Price Promotion)

We call this approach "Controlling the Controllables."

Over time, these best-in-class CPG companies come to expect and hold their organizations accountable for profit growth from these activities. They attach profit targets to each activity. They build an organizational capability in each of the above strategic areas in order create durable competitive advantage, regardless of the economic climate.

In short, the five strategies listed above become the foundation of a company's strategic plan. They enable operating executives to demand and realize consistent growth from their base businesses year in and year out.

We have helped many companies gain the experience and confidence they need to rely on their brand-building activities for repeatable, volume-driven earnings growth. How do they do it? The first two of the five strategic categories are outlined below. In future newsletters, we will cover the remaining three.