POSTED BY: MIKE KELLY

Figures released by the ONS in May show that food and non-alcoholic drinks prices have fallen by 0.6%, and while this might be a welcome statistic for consumers, it spells trouble not only for the supermarkets, but for the FMCG manufacturers stocking the shelves. As the likes of Tesco seek to maintain revenue, it seems inevitable that FMCG manufacturers can expect increasing pressure for deal selling, squeezing margins as supermarkets pass on costs. Knowing that this is coming, we take a look at how FMCG manufacturers can not only look to weather the storm, but thrive in challenging conditions.

Shielding strategically important skus

When an increase in deal selling becomes inevitable, it is essential to make sure (as much as is possible) that it happens on terms acceptable to both the retailer and the manufacturer. Innovation can help suppliers to take back some of the initiative and one of the many benefits of launching limited edition and new variant skus is that it gives FMCG manufactures the flexibility to accommodate an increase in deal selling, while crucially making it more possible to ring fence strategically important skus, thereby protecting the value of the brand while still ‘playing ball’.

There are a plethora of brands which have thrived from supplementing their core skus with wild and wacky or exotic variants, from Walkers Crisps (taken to new heights with their ‘Do us a flavour’ campaign) to Dairy Milk’s break from tradition with their ‘Creations’ variants, to name but two well-known examples innovative FMCG brands. Not only does this allow FMCG manufactures to accommodate retailer demands, but it also encourages creativity and offers opportunity to stretch and revamp the brand, and if successful then there is every chance the variant can be a long term addition to the portfolio (Diet Coke immediately springs to mind).

Stretching the brand price architecture

As consumers become trained to look for deals, it is increasingly important to offer a comprehensive price architecture to satisfy consumer demand at a range of price points. Smaller (or conversely larger) pack sizes can help FMCG manufacturers to meet key psychological consumer price points, without needing to deal sell.

While the benefits of stretching a brands price architecture are clear, failure to implement this strategy successfully can carry ramifications, potentially causing consumers to either downgrade from what they perceive to be less attractively priced (though quite possibly more profitable) skus, or it can lead to skus struggling to sell at certain price points. 

Getting the balance right can be difficult, but research tools can help to reduce the risk. It makes it possible to test a huge range of possible price/ sku combinations, offering a robust insight into the likely market impact of introducing new brand price points, and making sure the right pricing strategy is employed before going into market.

Justify value

Inelastic demand, the dream for all FMCG manufacturers. While this may be an unattainable goal, strong marketing activity can undoubtedly insulate a brand from price fluctuations brought on by price wars. An ever growing number of studies highlight the link between emotional connection with a brand and sustainable revenue growth, even during tough trading conditions. 

Commitment to a clear message, which meaningfully differentiates the brand from the competition, and which is delivered via a consistent advertising campaign can give retailers the confidence to sell products at their full price.

However, finding the killer message is not easy, and investment up front in claims validation can reap dividends when activity goes live, and products are launched into market. Through a combination of bespoke claims validation carried out early on in the product development process, along with sophisticated post launch performance tracking tools, it is possible to identify motivating messages early on, and then track performance on going making it possible to carry out correctional activity if and when necessary.  Armed with such compelling research findings, convincing retailers to resist deal selling can become a much easier task.

While consumers can breathe easier following the recent upturn in the economy, implications for FMCG manufacturers are less clear, and those brands who embrace the upcoming price wars and associated  challenges will ultimately be the ones who come out of it the strongest.

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