Understanding Consumer Demand: The Retail and CPG North Star
I was recently involved in an interesting conversation with my colleagues regarding why we do what we do. This dialog was inspired by Simon Sinek’s book and Ted Talk on the same subject: before the what and the how, we must understand the “why.”
Regardless of the functional area, retailers and CPG companies are fundamentally driven by an overarching objective: to understand and fulfill consumer demand for their products. The strategies and tactics taken to achieve this objective may be different, and of course, there are important ancillary goals such as bottom-line profitability and shareholder value improvement targets. However, none of those can be optimally achieved without first deeply understanding consumer demand. This singular view must be the north star that guides all actions of a retailer or CPG company.
What seems like an obvious concept manifests itself as dozens of disparate projections in many organizations. Most companies plan to one demand signal, manage pricing to another, fulfill to a third, operate to a fourth, and so on. These discrepancies lead to misalignment on goals, business process inefficiencies across the organization, the inability to fulfill consumer demand effectively, and poor customer experience.
An additional consideration is the impact of inventory decisions on environmental sustainability. Disparate projections of demand lead to substantial amounts of waste, particularly in grocery and fashion retail. Further, too much or too little inventory limits a company’s ability to be financially resilient, impacting its ability to quickly adjust and adapt to risks and opportunities.