New report examines benefits of outsourcing sales, marketing
sales and marketing is expected to grow even further within the
next few years, driven by the ability of external food brokers to
find ways to reduce costs and improve marketing effectiveness,
according to a new report.
Released at the recent Grocery Manufacturers Association (GMA) Merchandising, Sales and Marketing Conference, the new study found that most participating companies saved up to 30 percent in costs by outsourcing their sales and marketing.
In addition to reducing costs, external food brokers, or Sales and Marketing Agencies (SMAs), have helped consumer packaged goods (CPG) companies to improve marketing productivity, enhance core capabilities and ensure product availability in a multi-channel marketing environment, said the report, entitled "Value of Outsourcing Sales and Marketing".
Based on the findings of an empirical study of the prevalence of practices, and its consequent impact on meeting performance objectives, the report aims to identify best practices in outsourcing sales and marketing tasks that increase efficiency and effectiveness of the CPG industry.
Participants in the study included food giants such as Kraft, Masterfoods, the Coca-Cola Company, Nestle, ConAgra Foods, PepsiCo and Sara Lee.
And most participants agreed that using SMAs instead of direct sales teams for certain transactional aspects of their businesses kept costs down. This is primarily because of scale advantages of the syndicated business service models wherein SMA overheads and operating costs are spread over multiple products and manufacturers, according to the report.
"Their costs were also lower because SMAs were better able to cope with the fluctuations and 'peaks and valleys' of work force demand, especially for retail projects," it notes.
A manufacturer's decision to outsource is usually based on the needs of specific product categories. Products with scarce shelf space and that require constant attention are considered prime candidates for outsourcing, such as frozen foods and chilled items.
SMAs were generally considered superior to direct sales teams in providing more frequent retail coverage, more effective shelf task performance and the ability to generate greater "share of the voice." As a result, retail selling and retail support functions were the most outsourced tasks across all CPG companies.
Most companies, except those who were minimal outsourcers, rated SMAs superior on most functions relating to headquarter selling, retail selling, retail support and merchandising, promotion management, sales administration, category management, and marketplace intelligence gathering and monitoring.
According to the report, SMAs currently represent about 54 percent of all CPG company retail sales revenues in the United States - equivalent to $116 billion in actual cash value of commodity revenues for CPG companies.
"Given the trends of increased outsourcing, the level of market representation by SMAs is expected to grow by 15 percent per annum (starting in 2005) for three years and by 10 percent per annum thereafter. Thus, by 2010, SMAs would represent $213 billion - almost double the business - in CPG sales to the retail channels," it said.
The additional gain in representation of CPG revenues is largely expected to come from three sources - shifts from CPG direct sales to agencies; growth in new categories of products such as organics and naturals; and the significant growth of such channels as dollar stores and lifestyle stores.
For an executive summary of the report, click here.
