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Sales and products

Challenge

The Company is an East European manufacturer of consumer goods. The Company encountered the following difficulties:

  1. Chain stores were constantly increasing their market share, which led to a drop in the Company’s revenue in the traditional segment of wholesale distribution.
  2. The Company cooperated with chain stores, but it did not consider the terms of cooperation to be advantageous, as chain stores required low prices and deferred payments, therefore the Company did not believe it was necessary to develop this sales channel.
  3. Taking into account modern trends, the Company launched its own online store to sell its products to end-consumers. However, the Company was not able to ensure fast and inexpensive deliveries, and therefore the share of sales through this channel was insignificant. Moreover, distributors believed that in this way the Company became their competitor, even though the sales volumes of distributors were incomparably higher.

The Company tried various options to correct the situation, but it failed to succeed. In particular, the Company hired sales representatives in two neighboring countries, redesigned the packaging and expanded the product line. However, investments in these initiatives did not pay off.

Analysis

Experts from KVAN Consulting analyzed the situation and made the following conclusions:

  1. Only 15% of SKUs from the entire product line were sold in significant quantities and, apparently, generated revenues for the Company.
  2. For a long time, the Company has not optimized its procurement and manufacturing processes and has not taken steps to reduce costs. The Company believed that success depended not so much on reducing costs as on increasing sales and margins, but the increased importance of chain stores in sales did not allow it to achieve these goals.
  3. The range of the Company’s products has not been revised for a long time, and new SKUs were added intuitively—the Company’s management “believed” that they would be popular.
  4. Sales representatives in neighboring countries were uncontrolled, they often complained about the difficulties and did not bring the expected result.
  5. The Company shipped products with significantly deferred payments, but very often bought materials against prepayment, which led to cash gaps and difficulties with the payment of incoming invoices.

solution

Taking into account the reseach findings, experts from KVAN Consulting took the following actions:

  1. Manufacturing processes were revised using the mapping workflow methodology, which allowed the Company to reduce production costs, improve equipment performance due to higher utilization and, thus, lower production costs.
  2. The Company modified the contractual relations with most suppliers and was able to achieve significant payment deferrals. Such an approach enabled the Company to minimize the cash gap and to streamline the payment of incoming invoices.
  3. Consumer surveys helped understand that the Company’s products were obsolete, they were in demand only among conservative and loyal consumers whose number was getting smaller every day. Results of the focus groups promising new directions for making changes, and the engineers and technologists of the Company were able to quickly offer new product samples that showed excellent results during the focus-group testing.
  4. Market research in the Company’s home country and in neighboring countries showed that chain stores are “an inevitable evil,” and that they not only help increase revenue, but also increase brand recognition. As a result, the Company released a simplified modification of its product focused on the chain stores, and its distributors continued to sell the product that consumers preferred to purchase in non-network specialized retail stores, so that consultants could help them make the choice. Reduced production cost and payment deferrals provided by suppliers
  5. Company’s website has been completely redesigned, and now it is more focused on supporting the core product and on selling exclusive limited edition versions intended for presents. The product could be picked up at the nearest specialized store. Thus, retail stores began to be used as pick-up points for Internet orders. Moreover, the Company began to sell additional third party SKUs through such stores according to the inspiring concept of the “long tail.”
  6. Market research in neighboring countries showed that the products sold there also required some modernization. However, production personnel enthusiastically mastered the ideas of lean production, so all processes became more flexible and effective every day, and the idea of producing several versions of the same product simultaneously did not frighten anyone.
  7. Sales representatives in neighboring countries were placed under more stringent conditions from the point of view of control, they began to plan their work clearly, and the Company was able to establish regular reporting and online conferences. Unfortunately, one of the representatives was fired, because he could not adapt to the new working conditions, but all the others were able to succeed in the new environment and quickly began to bring good results.

All tasks were solved by several working groups comprised of the Company’s staff under the guidance of experts from KVAN Consulting. As a result, revenue growth was 14%, and profit growth was 22% since the start of the project, and the Company is going to continue successful transformations.

 

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