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What Makes a Personal Care Company Successful? - Part II What Makes a Personal Care Company Successful? - Part II
by Murray Hunter
2012-12-22 10:14:47
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Capabilities and competencies

A firm must have the capabilities to be able to exercise the necessary market competencies to be successful in the marketplace.

First of all, a firm must be able to enter and operate within the particular market channels it has selected. This requires developing good working relationships with chain store buyers and wholesalers at salon level. In today’s highly concentrated store ownership a good relationship with buyers can offset some of the disadvantages of being a small company within a sea of multinationals. There is also the option of using a sales broker with ‘these relationships for hire’.

What is extremely important is that trading terms are negotiated and utilized correctly. Trading terms has a great bearing on the range of products carried by the retail chains. Within many chains, central listing and addition to the shelf planogram may not be enough. Sales staff may be required to make personal visits to familiarize store staff with the new products and in some cases assist in merchandising, particularly through independent stores that are members of branded wholesalers.

Remember the old sales days are long gone. Retail chains will not list and carry lines that compete on price with established brands because it erodes gross profit margins. Retail chains will only list products that have an appealing theme to consumers and will maintain and increase gross profit on the shelf.

Product themes must be supported. They should be supported at two levels, if not three.

This first is what is called ‘below the line’ promotion which includes, periodic case deals, discounts, quantity buys, display and shelf promotions at store level. These will usually be negotiated during product listing and again each year during product reviews with the chain buyers. As much as 20-25% of gross sales need to be allocated to in-store activity.  This should be planned and negotiated well or a lot of funds coming straight off the margin of the product will be very quickly wasted.

The second level is what is called ‘above the line’ or media advertising. This will include spending on radio and television, and cinema time, and magazine, and newspaper space. Very rarely would a retail chain list a product without some ‘above the line’ media support. Multinationals would spend between 10-25% of their budgets on media.

Launching a new and maintaining an existing product through media is expensive as it requires cash funds to do so, unlike ‘below the line’ promotion. One of the challenges for SMEs with very limited funds is being able to create and develop an effective media campaign. Here great creativity is required to find as much free media as possible through radio and TV interview, newspaper and magazine reviews, and of course online blogs and other social media. Don’t forget a product advisory website as well. Don’t make the mistake to skimp across this area lightly, particularly if you have a new brand to support. The correct promotion brings very positive results which you would not readily be able to achieve sales wise through other methods.

Don’t forget social media. Social media is not as yet a primarily means of promotion but very supportive in relaying interviews and reviews that you have got from the mainstream media. Also remember unsatisfied customers through social media have direct access to the rest of your customers like never before. Handle any customer complaints promptly and satisfactorily and maybe an initial customer complaint can turn into something beneficial.

Make and buy – some considerations

The production costs for mass produced high volume products are at the point where it is difficult not to make the decision to source from overseas. Look at the costs of implementing GMP and meeting EPA regulations and sourcing your product offshore looks even more attractive.

Finding a supplier that you can work closely with and develop some mutual loyalty is a challenge. Australia and New Zealand are small markets compared to North America and Europe. Where you may require 1-2 20ft containers per month for a product, US personal care marketing companies may buy as much as 20 times that quantity. So it’s not hard to understand you may not get the attention in places like China you feel you deserve. So you have to work hard on getting a contract manufacturer’s interest and build up that relationship. As Sun Tzu said an army s only as good as the supply chain it uses, so an excellent supply with a close working relationship will be a great advantage. This in the long run will allow you to focus on sales and marketing, and the big bonus here is that through the savings you make on offshore manufacture, more can be spent on brand development through advertising.

Some low volume, and/or specialized products are best kept in-house, especially if there are some unique characteristics to the product. In these cases you need to invest on the engineering side of the product manufacturing process and lower the labour and handling costs as much as possible. You don’t need me to tell you what the hourly factory labour rates are.

Create barriers to entry for potential competitors

During my career in the household and personal care industries, for any new product I would try to create a barrier to entry for any potential competitor. Having sole access to any piece of market-space enables one to create a value monopoly, allowing above average profits for a period of time the barrier to entry is maintained. This can be achieved a number of ways. As discussed in the next section, arranging your IP strategy correctly is a powerful barrier to entry, as any configuration is unique, especially if it is difficult to copy. So this may mean a patent on a formulation, process, or form of packaging, the use of raw materials others don’t have access to, or especially close relationships throughout the value chain. Developing barriers to entry may involve building your own plant and machinery for specialized products, or producing your own raw materials such as basic soaps, preservatives, enzymes, and perfumes, etc. Being able to downscale expensive production processes for a fraction of the cost that other companies invest is one of the best ways of creating a powerful advantage other competitors.

Any barrier to entry won’t last forever, so one must continue to develop new barriers and create new products with new barriers to entry. Don’t forget a brand is one of the best barriers to entry. Barriers to entry are powerful sources of competitive advantage that are not fully utilized in the industry today by smaller firms. This is a very important aspect of success and may enable a small company to compete effectively with a multinational.

Recognize what is your IP and use it well

All businesses involve intellectual property. Intellectual property is much wider than patents, trademarks, research and development, and brands; it’s the way you do things, expressed as your total strategy out in the market-place. Understanding this, coordinating your IP and using it to your advantage, is the best way in creating a barrier to entry as we discussed above. Developing intellectual property in this holistic manner is the key to creating the value monopoly for your product and firm that will reap large financial returns.

Intellectual property is a product of competencies. IP can be considered a box of tools that can be coordinated in a particular way to fulfill marketing and protection objectives. If done correctly this will be of immense benefit to the firm and create a strong source of competitive advantage. The array of tools that can be used are listed in table 2.

 Table 2. Intellectual property tools and there assistance in firm strategy

Category

Purpose

Tools

Recognition

To develop customer recognition and transmit certain desired values of the firm and product to consumers.

Trademarks and certain copyright information

Form

To develop recognizable literary and visual forms that add value and assist in creating an inherent desirability to the form of communication between the firm and consumer

Copyrights, trademarks, and registered designs

Desirability

To enable firms to deliver good products with superior performance to competitors, new features, extended product life, etc. so that products are competitive and desirable.

Patents, registered designs, and proprietary knowledge

Emotional connection

To maximize financial returns for production undertaken by the company, add to product differentiation and develop an emotional connection with consumers.

Brands, trademarks, stories, and narratives.

Stay close to the knitting

Peters and Waterman in their classic book ‘In Search of Excellence’ strongly advised that the most successful corporations in the United States during the 1980s were those that ‘stick closely to the knit’. Too many companies that experience some success diversify outside their domains of success and end up with all sorts of problems. For this reason S.C. Johnsons sold off its Agree Shampoo range while it was No. 1 to focus back on its household product range. It is very rare to see a company that is both dominant in personal care and say household products. Successful companies build upon their existing based, rather than build new bases.

It’s about the founder just as much as anything else

There is an extremely close correlation between the founder and a successful enterprise. Without a founder there will be no enterprise and the performance of the founder is actually what creates the enterprise. So no surprises, the qualities of the founder are paramount to success. This isn’t about personality, or particular traits, it’s about a way of thinking.

The most important element is vision. Without vision or a roadmap about what the founder wants to create for the future, it can’t be created. Along with this vision must come a high passion and motivation, almost to the extent of being compulsive. Secondly any founder must have a sensitivity and alertness to the industry. He or she must be able to see things that others are unable to see to pick up unique opportunities. Generally because of this many successful new enterprises within the personal care industry are started by those with prior experience within the industry.

Successful founders possess a strategic outlook that enables them to see where they are going and the consequences of any action they take. For example, they will know how their competitors will react and the financial, production, and inventory consequences of any one action. It is this way of thinking that will guide them and this is accompanied by a strong propensity for action. Founders who think too much about the actions they take may be hesitant and fail to take any necessary steps to solve problems when they arise, or miss immediate opportunities that have large long term benefits (the down side may be reckless decision making).

A good strategic outlook and propensity to act must be accompanied by the relevant skills and abilities. These may include technical skills in product development, interpersonal skills in sales, and the ability to work with others. A person cannot do everything by themselves so must be able to gather and work with a team. The founder must have the personal creativity necessary to utilize all these skills in the pursuit of his or her objectives and solving of arising problems and challenges on a daily basis.

Finally the founder must have the courage and determination to follow their visions. So many people hold visions about what could be but never act to fulfill them. The absence of any of the above characteristics would severely hinder any chances of success.

Conclusion – and in the end it’s up to you

 Any business is complex and there are indeed so many factors that contribute to any success. Likewise there are so many factors and miscalculations that can lead to failure. These could be basic business mistakes about holding excessive inventory or strategic issues like selecting market categories that don’t have enough potential customers to make an enterprise viable – a trap many SMEs fall into.

A successful personal care company is about products, channels, networks, image, narrative, promotion, competitors, and intrinsically understanding the nature of the consumer you strive to serve. One must think in a holistic way, but also be focused upon all the detail and create and develop the right products, develop the right image and channels, and answer four important questions satisfactorily for maximum success;

1. What is the central theme of your product?

2. Are there enough customers?

3. What channels do you need to go through to reach your potential customer? And

4. How much competition will you face?

The human race has sent men to the moon, cured many diseases, mapped the human genome and descended to the deepest depths of the world’s oceans, but nobody can be really too sure about the reasons why one business is successful and another business is a complete failure. What really makes a shampoo, fragrance, or spa a success? People who say they know are really guessing. We can only really tell what the next big thing is when it becomes the next big thing.

However we know that the reason for a business success is based on very tight, but not necessarily apparent factors, of which the successful entrepreneur may not even understand. Who can tell exactly why Lady Gaga is a success? You can give me a number of reasons but can’t tell me which ones are most important. If you could predict the future hits with any certainty – no doubt your already a multi-billionaire and not reading this.

Business success is about the future and there is no way to predict the future accurately. So any new business is developed along the lines of trying something to see if it works, and then keep doing that thing if it actually worked. Success doesn’t come from beautiful business plans, it comes from experimenting until – BINGO!!! You’ve got it. Then you have your own magic formula that works only for you and your situation.

There is a unique and hidden success formula waiting for you to find in your business. You may stumble upon it very quickly or never find it at all. There are plenty of business books out there with the 10 rules, habits, or points that claim to lead to success. The factors mentioned may exist but not necessarily be the true reasons behind your success. Having a lucky charm may have just as much influence over the matter.

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Part I - Part II


      
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