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“Not all sales are created equal. We're kind of starting a new startup cycle. At the same time, I don't want to say ending the old cycle, but you're slowing down the traditional cycle. We have to invest ahead of the curve, or we won't be around to use what we already have.”— Chris Perry, Chief Learning Officer, firstmovr
For today’s brand manufacturers, building a profitable business requires both a mindset and metrics shift.
At least that’s the perspective of Chris Perry, chief learning officer at firstmovr, a consumer packaged goods (CPG) and ecommerce strategy firm. Perry has spent an inordinate amount of time thinking about and strategizing on profitability for leading brands, the digital metrics that drive profitability, and the strategies brands can implement to achieve it.
Perry joined a recent episode of the “Unpacking the Digital Shelf” podcast, “Profitability Month Q&A,” to answer the burning profitability questions that are top of mind for commerce leaders and professionals.
Here’s his perspective on the steps brands must take to drive profitability across both digital and physical commerce.
The first question Perry tackled addresses the critical areas brands should prioritize to improve both efficiency and profitability.
Perry says retail media and supply chain optimization should be two critical priorities for brands. He adds that brands need to adopt more of a startup mindset and embrace new channels and go-to-market models to increase efficiency and grow their business.
“There are all these net new things that right now have been tacked on, but obviously, knowing that there is a channel shift of dollars, it'll also be an infrastructure shift and a resource shift,” Perry says.
For the last decade, many brands focused on advancing their brick-and-mortar maturity because that’s what drove sales, but as digital commerce becomes a growing share of their business, they’ll need to operate a hybrid online and offline business where everything is interconnected, and sales on one channel often influence sales on another.
“We have to invest ahead of the curve, or we won't be around to use what we already have. What got us here, got us here, but it won’t get us there,” Perry says about the future of commerce.
Perry also spent a lot of time discussing retail media and its potential impact on profitability.
Retail media can be a source of ire or a growth opportunity for brands, depending on whom you ask. Perry tends to believe it’s the latter.
However, for brands to wring as much value as possible from this channel, they need to make a sustained investment in it and view retail media holistically — not just from a profit and loss (P&L) standpoint, but from an incremental value perspective.
“Retail media may be that demand generation investment required to earn the right to be in store, and not to mention its influence on the broader space,” Perry says.
Retail media is valuable to brands in several ways. It can make them more visible to consumers in an increasingly competitive retail environment. It also can drive incremental sales and brand awareness among new audiences.
However, one of the main challenges most brands face with managing retail media largely has to do with where it sits within their P&L. Perry says some companies put it in the trade or merchandise spend category since it could be deemed retailer-specific spend, whereas other companies may place it elsewhere.
“It's where it sits at the top or at the bottom [of the P&L] that impacts other KPIs,” he says.
Regardless of where retail media resides on the P&L, Perry says brands must take more of a holistic view across channels and products before they begin making investment decisions.
Finance, sales, marketing, and ecommerce teams need to work more collaboratively to rethink their P&L approach and determine where this spend falls within their P&L, who's responsible for it, and what digital metrics they’ll use to track and measure success.
Optimizing their supply chains to drive profitability is a top priority for brands.
However, building an efficient, profitable, and resilient supply chain has gotten more complex because of factors, such as:
Perry says even with all these complexities, everything comes back to taking a holistic approach and making strategic long-term investments — whether that means focusing on the digital shelf to nurture better relationships with important retailers or testing new pack sizes on specific channels.
All of these efforts require an investment in building more robust supply chain capabilities, so brands must take the long view when it comes to boosting efficiency and profitability across their supply chain.
“We've got to look at the supply chain, retail media, and content, among many others, as the right-to-play investment that then later pays back.” — Chris Perry, Chief Learning Officer, firstmovr
Changing consumer behavior, especially during the pandemic, may have artificially boosted profitability for some brands. Consumers made impulse purchases, shifted their spending to different categories, and discarded brand loyalty in favor of price and availability.
The challenge brands now face coming out of this crisis is how to convert these fickle shoppers into repeat customers and make categories that traditionally have been impulse-oriented into profitability drivers.
“One challenge that's going to be present is, as we're learning from Amazon and increasingly other retailers, the SKU itself has to survive,” Perry says.
What Perry means is that brands must be even more strategic about where they sell their products.
“We have to think about the SKU in general. We have to think about profitability in any category, but for impulse, the SKU by itself for the retailer has to be a winning SKU,” Perry says, adding that a win in this area could mean the SKU is profitable for the retailer and not for the brand, but is still beneficial for the relationship. It also could have a halo effect that creates other cross-selling opportunities or pays off in the form of greater brand awareness.
As Perry suggests, what worked well for brands in the past may not be as effective in the future, especially in today’s fragmented omnichannel environment.
To mature their business, brands need to think and act holistically across their entire business, bring different parts of the business together to identify their core strategic objectives, pinpoint the right measurements to test and learn, and then continuously adapt and improve from there.
Going forward, to win on both the digital and physical shelves, brands will have to fight against inertia and boldly adopt new strategies that move their business forward.
“It's an exciting time,” Perry says. “It's just that we have to retrofit ourselves.”
To hear more of Perry’s insights on how brands can boost profitability, listen to the full episode.
