brand -strategy-nigeria

Opportunities & Strategic Options For The Industrial Sector In A Depressed Economy

/
July 1, 2019
Visitors have accessed this post 175 times.

EXTRACTS FROM KEY NOTE SPEECH AT INSTITUTE OF STRATEGIC  MANAGEMENT , NIGERIA(ISMN) 13TH ANNUAL CONFERENCE, 6TH JULY 2017

The Nigerian economy slipped from highly favourable growth rates 2.5 years ago, into an economic recession in Quarter 3, 2016, and the lowest rate of growth since 2005.  Although forecasted to rebound and be positive in Q3, 2017.

Low commodity prices, in particular oil prices, have dragged revenues down and weakened the Naira considerably, with unpredictable rates, in addition to other factors such as falling oil production, import restrictions and persistent foreign currency shortages/difficulty in accessing FOREX.

High loan interest rates; rise in inflation since Q1, 2016, from single digits in Q4, 2015(9.8% (food)/9.6% core) to a high for food: 18.4% in Q1, 2017 (Q2, 2017: 17.6%); core: 17.4% in Q1, 2017 (15.4% core); weakened consumer disposable income and decline in consumer confidence in the light of uncertainty; high rates of unemployment/under-employment; increased pressure from tax authorities to close gaps in budget deficit.

Economists say we are in a season of stagflation defined by persistent high inflation, increasing unemployment/under-employment and stagnant consumer demand.

As a consequence of this ‘new normal’, consumer confidence and intention to spend in the near term has waned, with consumers reprioritizing what they spend money on: spending more on what they consider as essentials such as staple foods, transportation, telephone airtime, and school fees; and spending less on discretionary items such as luxury products, branded consumer goods and outings.

Customers have redefined what value means to them and broadening their choices. The tribe of bargain-hunters has increased seeking better value-for-money and SWITCHING to more affordable, (not necessarily ‘cheap quality’) options. For example, the online hotel booking site, hotels.ng reported increase in traffic and bookings as customers search for increased value for every Naira spent.

Customers are SQUEEZING by rationalizing frequency and quantity of usage. For example, households are limiting the number of hours that generators are powered in the event of public electricity power outage; some families have reduced consumption of cocoa beverage from twice a day to once a day, whilst others rather than use 2 cubes of sugar per mug are reducing to one cube (and not due to health consideration!). This brings back memories growing up in the 70s when there was an economic downturn and my mum would allocate weekly rations of milk and sugar to each person in the family; it was your hard luck if you exhausted your ration before the week ran out!

Consumers are also SWAPPING to other categories.

Strategic question to is how to offer increased Value-for-money to consumers?

Impact on industrial sector: Decline in revenue; low capacity utilization; cost pressures; cash flow constraint; decline in PBT/PAT; ‘rightsizing’; staff turnover/morale; non-Ease/difficulty of business.

In the midst of the ‘gloom and doom’ what options are there for the industrial sector? There are signs are that the economy is starting to recover, and now is the time to position strategically. Companies that neglect strategic thinking in favour of short-term tactics run the risk of undermining their chances of advancing their business when the economy improves, as well as endangering their ability to weather the storm.

As Albert Einstein said, ‘in the middle of every difficulty lies opportunity’.

Strategic Issues center around: Revenue; profitability; market Share; stakeholder value and sentiments: shareowners; staff; community; government

STRATEGIC OPTIONS

1A. Drive ORGANIC Revenue growth via Marketing effectiveness and Sales execution

The Ansoff matrix suggests four alternative marketing strategies:

a) Market penetration – involves selling more established products into existing markets, often by increased promotion or price reductions or better routes to market.  What new markets can be opened to offset declining revenues in existing ones? Is e-commerce an option?

When a product is unavailable, shoppers are more store loyal than they are brand loyal, opting to buy substitute brands rather than visit another store or retail location to find their brand of choice. 68% buy a substitute brand; 31% visit another store (Ref. Nielsen).

For manufacturers it becomes even more critical to ensure products are available in the right channels and stores to avoid the risk of losing a sale. Manufacturers need to identify the wholesaler and retailer catchment areas which service the greatest proportion of consumers, in order to optimise supply. This could mean more regular supply of smaller quantities to support retailers with strained income levels, or alternative pack size variations to suit retailer and consumer budgets.

Shopping has shifted to proximity-based, smaller, informal channels, with more frequent trips, as consumers search for the best deals to match their wallets. Manufacturers need to match product (format and price) to place, with optimal levels of supply to avoid missing vital sales.  . Retailers are highly influential in stocking and ranging decisions. Manufacturers need to optmise distribution, stock supply and retail execution through greater collaboration with retailers to sustain diminishing demand. (Ref. Nielsen).

b) Product development – involves developing new products or services and placing them into existing markets. As conditions improve consumers will aspire to better quality products, but require more flexibility in price and quantity to meet immediate daily needs. Product portfolios should be reassessed to suit consumers altered needs to rebuild brand loyalty.

c) Market development – entails taking existing products or services and selling them in new markets. (e.g. export)

d) Diversification – involves developing new products and putting them into new markets at the same time. Diversification is considered the most risky strategy. This is because the business is expanding into areas outside its core activities and experience as well as targeting a new audience. It also has to bear the costs of new product development.

e) Brand building: More than ever before, Affordability, Awareness, Availability and Assurance (Trustworthiness) are key factors for winning with consumers and shoppers. Data from Nielsen indicates that Familiarity (37%), Affordability (35%), Availability (31%) and Recommendation/Word-of-mouth (25%) are top considerations that determine consumer choice.

This raises the need to seek and execute low cost communication methods in campaigns.  

1B. INORGANIC GROWTH via Mergers & Acquisitions: buy or combine with other existing businesses

2. COST LEADERSHIP/BOOST OPERATIONAL EFFICIENCY

Caution: invasive cost-cutting decisions designed to deliver short-term benefits will harm the long-term competitiveness. Right-sizing/Redundancies should be last resort. Also, don’t be too quick to cut down marketing spend. Reduced marketing activity can affect share and presence

Consider business process re-engineering/improvement. Consider outsourcing non-core functions. Sell/drop non-performing assets. Product/SKU portfolio rationalization. The BCG matrix is a useful tool. Use of technology. Sourcing strategy. Backward integration?

3. FOCUS

Every customer is a data point which can be turned into information and insight. A big challenge for businesses is to identify the best customers and effectively deploying the marketing mix to them so that spend is optimized. This calls for clear segmentation, targeting and positioning. No brand or business can successfully be everything to everybody. The most successful businesses and brands in various sectors are those who occupy differentiated positioning in the minds of well-defined target customers. Consider regional play.

LAST WORD: KEEP CUSTOMER AT THE HEART OF STRATEGY.

Author – Lampe Omoyele

Leave a Comment

Your email address will not be published.