Are u from Consumer Durable industry, Know the ways to increase Your GP !!!
Gross Profit is a result of two things,
- Cost price.
- Selling price.
To have a better margin, you should either
Increase the selling price Decrease the Cost Price
Overview of Consumer Durable Market –
Consumer durables is one of the largest and fastest growing segments within India’s consumer market. It consists of two main categories
- Consumer Electronics.
- Household appliances.
As a country with a huge population, and growing household income and purchasing power, India is the second largest market for major appliances and the third largest market for small appliances.
But, as these are the goods that a consumer need not buy frequently, Margin pressure and softer sales is a big concern for the industry.
- Here are the ways, that helps a consumer durable market to increase its margins
By reducing the costs
A) Avoid markdowns by improving inventory visibility –
Markdowns are notorious profit-killers, so avoid them whenever possible. Start with the effective inventory management. Have a handle on the merchandise you have on hand, as well as what your fast and slow-movers are. This will help the company to make better decisions around purchasing, sales, and marketing, allowing to sell more products and reduce the need for markdowns
B) Streamline your operations and reduce operating expenses –
Minimize operating expenses, excess staffing can be removed. If you’re not using an efficient point-of-sale to tie inventory, sales, and marketing under one system, consider making a switch to a low-cost system. This makes your entire store and staff run more efficiently.
C) Identify and eliminate waste –
Finding areas of waste in your business and eliminating those wastes can save money and add to your bottom line. The world of lean manufacturing recognizes the 8 types of wastes , that are costing businesses money. It involves D – Defects, O – Over production, W – waiting, n – Not utilizing the talent, T- transportation, I – Inventory excess, M – Motion waste, E – Excess processing.
D) Optimize Vendor relationships –
Negotiating better contracts with the suppliers helps to reduce the costs of goods and widen your margins. Building stronger relationships with the vendor, takes the things a step further.
E) Increasing Order Quantities –
Increasing order quantities help the companies to reduce their cost of purchase, in turn gives a effective GP margin.
By increasing the sales :
A) Price Change –
Raising your prices at the right time will enable the industry make more money on each sale, thus widening your margins and improving your bottom line.
B) Enhance the distribution channels –
Channel expansion creates opportunities to reach new customers, build brand recognition and increase profits. Optimizing the Warehouses, Utilizing the direct vendor shipments, Controlling costs of distribution, are some of the aids.
C) Retain existing customers –
Start with Upselling, Cross selling to the existing customers, someone who makes a purchase from you has already been qualified, they have engaged with your brand. Giving them more receptive offers increases the chances of upselling.
Coming to the Crux –
D) Product Mix –
- It includes total of products and services offered by a company.
- A Successful product mix can help a business to adjust changing consumer demand/preferences while reducing the product risk and reliance on a single product or product line. This, in turn, generates substantial profits for the firm.
- Width: Total number of product lines that a company offers.
- Length: Total number of products offered by a company.
- Depth: Number of variations of each product within a product line.
Show the difference :
Making a Smart Move :
Companies like Toshiba, is moving away from home appliances to laptops i.e to a higher margin categories.
Innovative and Unique products :
LG, for example, has introduced “Power cut ever cool refrigerators” whose technology keeps them cool even during long power cuts
Importance of Product Mix :
- Expanding the Product width can provide a company with the ability to satisfy the needs or demands of different consumers and diversify risk.
- Expanding the Product depth can provide the ability to readdress and better fulfil current consumers.
- Product mix strategy enables a company to focus efforts and resources on the products and product lines within its offerings that have the greatest potential for growth, market share, and revenue.
Actual Strategies followed :
1. Panasonic – Mansish sharma (MD)
- Focus 0n B2B
B2B products helps to increase margins as there is no Ad budgets and distribution expenses.
- Increase the Local production
To drive the cost efficiencies, panasonic made an investment at production capacity in India.
2. Whirlpool –
- Tried to boost exports and substitute imports.
- Companies are therefore shifting focus to categories that have not been impacted by the sluggish buying trends.(Flat TV’s, Smart Phones)
- R&D head opined Innovation is key to success in tough times, so whirlpool started offering the unique products with advanced features.
3. Voltas –
Unlike earlier, Voltas shifted focus to Below the line activities and digital media.
4. Haeir – Bakshi
Haeir is expanding its retail networks to keep sales pumping, expanded 170+ retail stores in two years. Also invested in BTL activities.
You have got your gross profit percentage, but do you know whether it is pitching up regularly? Whether it is reaching the expected margins? How about your gross profit margin from last month?
- It is important to track these sort of things regularly, MIS acts as a solution here.
- An effective management information system identifies and collect data on all the important metrics of the operations of a company.
- Periodic MIS helps in better track of numbers, so that it helps management to take relevant decisions from time to time.
Businesses shall have a robust MIS to monitor the GP performance along with timely execution of corrective actions. It shall adopt multiple strategies to maximise GP.