Cheap is the New Cool – “Back to Basics” is Back in Fashion!

Are we buying a brand experience? A lifestyle? Are we conscious
of what a chosen brand communicates to others about our personal or
family status?  No, we are buying the cheap one!

In a mass, collective tipping point, it is no longer a sign of
sophistication to pay extra for premium brands, it’s not just
a sign of “excess” but of “excessive
stupidity.” For instance, at dinner parties, friends trade
stories of cancelling unnecessary magazine and membership
subscriptions or, moving their phone service to cheaper options.
Tips on consumption avoidance are now the new badge of a
sophisticated citizen. The goal is now to acquire the quality brand
at “recession-busting” prices or to purchase value
brands. The wife of a friend recently shared the news that store
brand chips were just as tasty as premium label.

The social acceptability of consumer attitude change such as
this is a brand managers’ worst nightmare, and it is
happening. This is not in the marketing handbook, but then banks
are not supposed to fail either. Private Label is now “all
the rage”. 

Change is upon us. Consumers in the middle class are changing
their buying behavior at a breathtaking pace. Consumer Packaged
Goods (CPG) companies have a once in a lifetime opportunity to
recast the competitive landscape and encourage brand-switching to
the masses, provided they recognize this business trend:
It is going to be about price, with quality as a
“given” product attribute.

Demand is up for branded staples and private label products so
business can be brisk, but margins will be necessarily tight and
will get tighter unless the cost per case is lowered at the
plant.

What are many doing about it? Getting with the program, acting
like the consumer and getting back to basics: Capital is scarce,
and for most companies, any investments made must now come from
cash flows not debt. That means some stuff has to be cut in favor
of activities that impact operating margins.

Projects with uncertain ROI and a broad categorization of
“strategic” are largely speaking “out” and
getting back to basics, conducting value analysis and
micro-managing and improving the profitability and operating cost
of what really matters, (the stuff that is left), in the factory is
back “in.”

The Japanese call it “Gemba: Go to the place.” Get
back to basics. See what’s going on in the plants and where
the profit is lost today on each production run. Companies are
tightening their operating practices – from the senior vice
president to the shop floor worker – driven by operational
measures focused on waste at a line-level and lost uptime. This is
all being done right now and no longer planned for future
improvement initiatives. .The recent study referenced in my last
entry indicated a nearly 10 percent of over-reporting of
efficiencies by CPG plants.  This translates into real
currency being left on the table. The same research showed that the
many corporate projects for data capture at plants were not
impacting profitability because they did not involve operators and
supervisors. These findings show that decisive action, in the form
of fast, proven and cost-efficient workforce-led measures and
action, need to be taken. That will allow manufacturers to take
that hypothetical cash left on the table. And in today’s
economy, that cash just may come in handy!