In our previous article, we explored why FMCG companies have embraced cost-justified pricing in the wake of the COVID-19 pandemic, and why it’s time to start looking forward. Now, let’s look at the impacts a cost-justified pricing approach has had on retailers and shoppers – and how FMCGs can create value for all parties by putting themselves in their shoes.
Over the last few years, we’ve seen a sharp increase in inflation and cost around the globe. Cost-justified pricing has helped FMCG companies pass the impacts of those shifts down to shoppers and retailers. That said, as a result, margins are under pressure, fatigue is high in both groups, and they’re now pushing back on FMCGs that attempt to raise prices further.
Understand shifting behaviours
Consumers and retailers can only tolerate sharp price increases for so long. Faced with consistently increasing prices, they’ll change their buying behaviours – which is exactly what we’ve seen happen throughout 2023.
According to data from Kantar’s own Global Issues Barometer, 27% of consumers have made general cutbacks in response to inflation, and 26% have started actively seeking cheaper promotions when shopping.
Purchases of some products are more heavily affected than others. Between 2022 and 2023, the percentage of people who said they could afford snack items as part of their shopping fell from 75% to 52%.
In response, shoppers have adopted different buying strategies to cope with inflation. In addition to cutting their spending and avoiding luxury items, many have shifted towards discount and private label products to avoid purchasing branded goods at higher prices.
To sidestep those challenges, FMCG companies must put themselves in retailers’ and shoppers’ shoes and take steps to understand what their buyers really need from them. Only then can they deliver a triple win for their retail partners, shoppers, and themselves.
Put yourself in retailers’ shoes by tracking the KPIs that matter to them
For manufacturers, the first step towards building pricing and promotion strategies that align with retailer needs is understanding and measuring the KPIs retailers use.
Metrics like incremental retail margin are hugely important to retailers. Manufacturers who can integrate key retailer metrics into their own KPIs, gain a more holistic view of how to leverage profit pools best and build promotion strategies through the lens of their retailer customers. From there, they can start unpacking advanced metrics like promotion incrementality and exploring which promotional strategies deliver true category expansion.
Visibility into the metrics retailers care about, and how your promotion decisions affect them enables you to consider the four Ws – why, what, when, where – from a retailer point of view.
That opens the door to deep manufacturer-retailer partnerships. When you build promotional strategies that drive expansion for retailers, rather than just increasing sales for yourself, they’ll appreciate your effort. This fosters a culture of data and insight sharing that helps both parties drive revenue growth.
Link your promotion strategy with shopper impact to deliver more of what consumers really want
Aligning promotion strategies with shopper needs is a little more challenging. While it’s certainly possible to track broad shifts in buying habits, every consumer’s response to rising prices is likely to differ slightly. Some will make sweeping cutbacks to their spending, while others will remain flexible in terms of what they buy and when.
At times like this, manufacturers should reset their promotions mechanics to focus on mental and physical availability. By ensuring your products and promotions are present and available, during decision-making and at the point of purchase, you increase the chance of reaching the right consumer with the right offer at the right time.
To support that strategy, manufacturers should also build up a deep understanding of their pricing potential. Pricing potential analysis can help you see which of your products align with specific consumption occasions, so you can create promotion strategies that fit customer buying habits.
It’s possible to promote products that carry a justified premium in places where your customers have high spending power while promoting SKUs perceived as low cost and high value by consumers elsewhere.
This deep alignment of pricing and promotion with consumer needs, spending power, and product perceptions is essential for driving mutual value for consumers. When it’s translated into the right promotion strategies, every consumer can immediately access the products that align with their needs and occasions – satisfying them while driving revenue for you.
When you combine the visibility of retailer KPIs, shopper impact, and revenue growth opportunities, everybody wins
To deliver a triple win for consumers, retailers, and their own organisations, all RGM teams need visibility into the key metrics that matter to each pf these groups, and a view of how promotion strategies can affect those metrics.
With that visibility in place, teams can make balanced RGM decisions that drive the right outcomes for everybody – engaging consumers, satisfying retailers, and delivering category expansion and revenue growth.
This is where technology comes into the picture. With a future-ready RGM platform capable of delivering contextualised views of diverse metrics and analytics insights, you are able to assess promotional strategies from everyone’s perspective and make decisions that deliver value for every party.
In the next article in this series, our colleague Evert Verlinden will explore the role of technology in delivering RGM excellence, and how evolving your digital mindset can help you balance current and future competitive advantage.
In the meantime, you can view all the recommendations from our recent global RGM study here. Or, if you’d like to learn more about Kantar XTEL’s platform-based RGM approach, and see how it could help you see things from retailers’ and consumers’ perspectives, visit our solutions page and contact us.
3 steps to put yourself in your customers’ and retailers’ shoes
- Start tracking top retailer metrics, like incremental retail margin and promotion incrementality, to see how you can deliver real impact for retailers.
- Refocus promotion strategies around mental and physical availability to ensure the right products are available both during buying decision-making and at diverse points of purchase.
- Bring retailer, consumer, and RGM insights together to make balanced pricing and promotion decisions that create value for all parties.