Scott Lerner is CEO at Better Choice Companya growing pet health and wellness company, with over 20 years of experience in the CPG industry.
However you look at it, we find ourselves in a challenging and unpredictable economic environment. While economists avoid the word “recession” until it’s necessary, 62% of consumers believe the US is in recession, according to a report by First Insight (registration required), which surveyed 1,000 people in April. And companies are feeling the pinch.
Inflation, retail spending leveling off due to an overabundance of inventories, high food and gas prices, supply chain problems, rising interest rates — all of this is creating a perfect storm that makes business leaders wonder, “How do I protect my business when the economy is volatile?”
We need to create efficiencies. Maintaining and controlling cash flow is critical during economic instability. When a company experiences financial difficulties, customer relationships are affected. Cost savings, surcharges and anything to make up for lost revenue can affect your base. Loyal customers, however, are less likely to stray. You already have their confidence. In 2020, when it seemed like it couldn’t get any worse, 57% of consumers said allowed staying true to a brand amid the chaos.
A flexible channel strategy is essential to protect your business, your brand and maintain loyalty. It enables you to move products efficiently and diversify the possibilities to reach the consumer. It also allows you to maintain and control your cash flow. Here are three reasons why it works:
1. You have the flexibility to better control your inventory levels.
Being in multiple channels allows you to funnel products based on consumer demand and go where the best margin is. Suppose you sell direct to consumers in addition to traditional brick and mortar retailers. You can transfer inventory to another channel if a product in a store isn’t selling fast enough. With multiple options, there are more opportunities to deplete inventory and maintain margin. It also provides flexibility in managing raw material cost increases and protects your consumers from any disruption.
Selling internationally also gives you the option to move inventory. For example, my company has sometimes been able to divert surplus products to international markets. As a result, our worldwide sales are now exceeding expectations.
2. You can create economies of scale in your marketing spend.
When you create more opportunities for people to buy your products, there is less waste. You can also be more creative with ongoing promotions. For example, you can create a TikTok ad to attract consumers online and then do the same in-store. You can bundle products as needed and promote them online. One of our products had a long inventory, so we increased the promotion level on our direct-to-consumer site. We emailed potential customers who might be interested in the product line (ie people who had purchased our other complementary products). If our products were only sold in brick-and-mortar stores, we wouldn’t have had the same opportunity to cross-market.
With an omnichannel strategy, you have more conversion tactics at your fingertips. For example, my business can use the marketing tactics available from our online partners and tap into their customer base. In-store at retailers, we rely on active recommendations from sales associates and general marketing campaigns. Every opportunity helps take the brand to the next level and drives consumer loyalty.
3. You can increase the speed to the market.
Multiple sales channels allow you to quickly bring new products to market or test them at low risk and cost. For example, we recently merged a brand in our portfolio and were able to integrate it quickly. It was a purely direct-to-consumer brand, but since we have multiple channels, we were able to make it available immediately through third-party e-commerce partners. When you have a direct-to-consumer platform, you can control how and when you talk about your products and test which strategies work. If it is successful, you can push it to multiple channels for optimal success.
Of course, an omnichannel approach is not without its pitfalls. Precision is key. You need to manage your inventory levels and forecasts carefully. If you overestimate, you’re sitting on excess product, which is cash that can’t be used as working capital.
In addition, it is important not to compete with yourself. If you have multiple brands and products, keep them specific to the channels where they play the best. For example, we mainly sell products in brick-and-mortar retailers and other products online. They each target a different consumer. If your products mix together too much, you can start a war between retailers and cannibalize your profits.
Keeping your business healthy is vital when the economy is in flux. Companies need to control working capital and ensure that balance sheets are in good shape to counter recession trends. And an omnichannel approach can help with that. In times like these, cash is king. More cash results in more security for your business and allows you to focus on your relationship with the consumer. Happy customers equal repeat customers, which we all need when the economy is on shaky ground.