Case Study MS070

Consumer Products

 

Case author

Professor Eugene Ohu, PhD, PGDip Edu, BPharm

Learning objectives After you completed this course module, you will be able to conceptually solve holistic management problems within a case study of consumer products and services.
Topic

NollyFlix, a pioneering video on demand (VOD) platform was just about to end a whirlwind year. NollyFlix was a progression from Kanayo's earlier enterprise, NollyFilms, which operated as a YouTube channel. NollyFilms provided Nigerian films to a global viewership, especially people who could not easily find physical copies of the many Nollywood titles that cost between $2 and $3 on DVD. Over the previous three years, both platforms had amassed over 500 million views globally. Kanayo, the CEO of NollyFlix, received global recognition for the innovative service; several articles were written about him in the New York Times, the Wall Street Journal, Time magazine, and the Financial Times amongst others...

Workload units 2
Reading extract Consumer Products Case Study

 

Some introducing thoughts on consumer products

The consumer products industry consists of various goods, such as food, beverages, toiletries, small appliances, consumer durables, consumer electronics, and cosmetics along with other generic household items. To help define the borders of the consumer products sector, it can be described as any good or service purchased by an individual, especially in the form of food or common household item. This is a global industry that grows in demand when more commodities are needed, with more substantial growth in emerging or rising markets. To simplify things, the consumer products industry is often divided into two categories, durable and nondurable. Durable consumer products, like home furnishings, have staying power with the consumer while nondurable products, such as personal care items, do not have a life expectancy of more than three years.

This industry accounts for two-thirds of the global trade volume, making it incredibly powerful. To add to its significance, nearly all products in this sector have a close relationship with other industries. The consumer products sector acts as a driver for many industries, most notably retail and advertising. The retail and advertising industries are also important to the consumer products industry, because they often invest in consumer products companies. Because of its diverse and expansive reach, the consumer products sector has multiple drivers. The primary factors that drive its demand are home sales, domestic economic activity, and consumer income and spending. In other words, the consumer products industry relies heavily, more so than other industries, on the state of the local economy and individual finances. Factors that drive profitability are efficient operations, effective marketing, increasing store traffic, efficient inventory management, and sufficient order fulfillment operations. Lean, efficient operations along with proper marketing to reach specific demographics make for profitable companies.

Within the last two decades, there has been an increasing reliance on technologies in the industry. Technology has brought along methods of interaction through the internet and cost-effective benefits that help keep operations efficient and keep products in a reasonable price range for consumers. More specifically, there have been a few technological systems or advances that have provided a substantial effectiveness to the consumer products sector: customer relationship management applications, interactive websites, and radio frequency identification. Customer relationship management (CRM) applications are typically programs that collect information and analyze data about customer behavior and trends. This is an incredibly useful tool for companies within the industry, because it allows companies to better understand how to tailor their goods and services to their target market in order to increase market presence and sales. Interactive websites allow a company to reach a much broader and larger market. Many websites allow consumers to purchase goods directly or play product based games. Radio frequency identification (RFID) is a huge resource in supply chain management. It is used to tag and track product shipments and gather analytics, helping boost the overall efficiency of a company's supply chain.

Aside from the technology oriented trend, the consumer products industry tends to see a rising number of companies engage in alliances, acquisitions, and mergers. Many companies in this sector see this as a way to expand into new markets, reach new demographics, cut costs, reduce capital outlays, limit operating inefficiencies, and above all, reduce risk when creating new products.

Since the Industrial Revolution, the American and European markets have seen a steady increase in the reach of the consumer products industry. However, in more recent years, the American and European markets have grown increasing competitive, forcing manufacturers to turn towards emerging or rising markets in "boom nations" such as Turkey, Russia, Brazil, India, and China. While the benefits are obvious for the direct manufacturers, there also lie many risks when producing internationally. Bringing manufacturing to emerging markets may add to the boom nation's economy but takes away from the consumer economies of the American and European markets that these manufacturers are trying to reach, which may drive overall consumer products demand down. In addition, emerging economies tend to have different laws in place than developed ones, - not to mention that these nations are prone to corruption in government - leading to possible impedance in the profitability of a company or business.

The consumer products industry is relatively concentrated with a few major players controlling most of the activity in the sector. Total sales across all companies near one trillion USD, and most companies included in the consumer products sector also are included in various other industries. The top five companies in terms of sales of consumer products include General Electric (United States, 143.30 billion USD), Procter & Gamble (United States, 84.70 billion USD), Unilever (Netherlands, 66.10 billion USD), Itochu (Japan, 55.00 billion USD), and Christian Dior (France, 38.40 billion USD). Although these are the five largest in terms of sales, there are dozens of companies that comprise the rest of the trillion USD in sales.

Development and production of consumer goods directly depend on the product being manufactured. Because of the wide range of products included under this sector, research and development are diverse.

Food and beverages come from a wide range of locations, usually specific to the origin of the food or beverage being consumed. Local food and beverages typically have more demand in their local economy, yet some local delicacies are exported to consumers throughout the world. The food and beverages of American, European, Asian, and other emerging markets are incredibly diverse, so harvest/manufacturing, packaging, shipping, and retail are specific to the actual product. Foods and beverages with high demands in the global market need efficient supply chains to mass produce these products and deliver them to consumers in order to become profitable.

Consumer durables, consumer electronics, and generic household items have more of a structured development and production across the board than food and beverages. Many products are manufactured in the largest markets, America and Europe, but recent trends suggest that many manufacturers choose to develop their products in emerging markets such as China or India. This is due to lower factory and employee costs in emerging or rising markets compared to the American and European markets. As these emerging markets grow and mature, their demand for consumer products increases. Many of the companies that total over one billion in sales of consumer products are starting to extend their reach to the emerging and growing markets in Asia and Eastern Europe. Once manufacturer is complete, the products are sent to various shipping and distribution centers around the world to locally distribute the goods. Efficient supply chains and distribution methods along with inexpensive manufacturing make for a profitable product.

 

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