Making the best of a difficult trend
When a global trend is damaging a business, it can be hard to know what to do. And when revenue and gross margin show a steady decline for reasons that are understood but cannot be changed, what do you do to ensure your organization better fits the economic climate?
There are many methods that companies seeking to protect and boost margin can consider. Businesses can analyze costs to identify potential savings, they can try to create better products or they can change their product portfolio in order to better respond to customer demand.
The company was overpricing around a fifth of its products to make up the margin lost by underpricing over half of its products.
Other options include focusing on the quality of the sales force, creating new customer relationship processes and developing promotional efforts. Sometimes, however, such efforts are not enough. A final option, which could have a huge impact, such as changing from one strategic positioning to another, might be an unnecessarily invasive approach for what is otherwise a healthy company, and could result in risks such as damaged reputation or a perceived loss in customer value.
Such a situation was faced by one multinational animal feed firm. The Brazilian arm of this organization was looking at an increasingly challenging future. Across the world, since 2010, customers had been buying animal feed with less and less added nutrients, such as enzymes and amino acids. And yet, the high-nutrient additive feed was where the company had traditionally found its biggest margin.
Faced with such a bleak picture for its business model, the company asked EY to help find out how it could protect its margins and create added value for customers in the changing market. The article on which this abstract is based explores some of the background to this subsequent investigation.
A severely damaging external trend may lead a company to launch desperate initiatives to make internal improvements, even though the issue is coming from the outside. But an external problem often demands an external solution: in this instance, a customer-oriented approach that could deliver yield management improvement without damaging the company’s value proposition. This is never a trivial response but, when applied carefully and consistently, it may promote additional customer value and sustainable growth.
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