The business strategy for the FMCG Sector has evolved to being consumer centered, i.e. with better knowledge of consumer behavior regarding the products, the manufacturers try to bring in profit by producing goods in line with the latest buying trends in their target market. With so many suppliers producing similar goods, and with the consumers having multiple options at their disposal, the cost of doing business in the FMCG sector is going up.
Trade Costs
FMCG companies that operate on a global level have to deal with concerns related to trade costs. Top multinationals like Unilever, Coca Cola, and Nestle are affected by the sales and growth of their subordinate markets. A decreasing consumer demand due to weaker economy, consumer dissatisfaction, and reliance towards local brands calls for greater promotional efforts – increasing variety and relevance – in an effort to draw customers. Nevertheless, the FMCG sector, especially the food and beverage portion, does allow a better trade and integration of markets across borders.
Margin Pressure on Brand Owners and Retailers
Brand owners rely heavily on the potential market of their sellers (or “gatekeepers”) and cannot afford for such negotiations to break down. On the other hand, as long as a healthy consumption from the buyers maintains the spirit of competition among the suppliers, retailers continue to reap benefits with low input costs. In a supply chain, a major part of the margin is already being taken up by retailers and distributors, which is evident when the retail prices are not necessarily lowered in spite of low buying prices.
Price Negotiations to Maintain Competitiveness on the Shelf
While it is the stores that get to decide the shelf space order in terms of profitability, the growing competition in the industry is quickly changing the scenario. Consumers today do not buy the first thing they lay eyes upon, they stand rooted in the aisle fixating on the cost price of all brand options for a product.
Apart from the assortment and marketing categories for products in different shops, discount chains particularly make the competition more aggressive between the suppliers because of the compact shelf space, thus reducing their cost price effectively for an entry on it.
Another factor is the presence of private labels. Consumers benefit more when private and national brands compete for their products having the branded goods invest more in promotion and advertising for access. They may replace manufacturers’ brands because they are cheaper to buy. Retailers can only get profit from private labels if they are being produced in large volumes.
The companies, emphasizing their use of advantage, tend to get people engaged also by means of initiating a price negotiation directly with them. Altering the pricing structure or getting them involved with increasing family pack or other bundling deals are some reliable ways when targeting an average middle-class consumer.
With such value-pricing techniques, saving up on the cost of packaging and transporting, manufacturers are able to achieve a higher profit margin than trial packs. Increasing sales point towards increasing loyalty and consumption thereby helping them maintain their popularity among the rest on shelf. What is your opinion on the matter?
