Consumer products manufacturers can enhance their revenue and profit growth by reassessing their pricing and promotional strategies, according to Interlaken. The company has found that moving away from heavy discounts on products can benefit all parties involved: manufacturers, retailers, and consumers.
Despite the pressure from retailers to promote and offer discounted prices on their portfolios, many manufacturers are facing the reality of increasing input costs. However, there is evidence that consumer buying behavior is gradually shifting away from an indiscriminate search for the next deal.
While headline price changes still impact consumers, many are beginning to move away from being solely driven by low prices. In fact, consumers often perceive price increases to be higher than reality. A recent Wells Fargo US food consumer survey found that 78% of respondents reported material grocery inflation over the last six months, while actual prices were only up 0.2%.
As many consumer goods categories rely heavily on promotions, average selling prices (ASPs) are often significantly lower than recommended retail selling prices. With the reduction in consumer bargain-hunting behavior, manufacturers can increase margins by raising ASPs through more effective use of promotions.
By creating more balanced promotional plans, manufacturers can expertly trade off promotional frequency and depth to still offer value to consumers while preserving margins for themselves and retailers. This type of plan can be particularly effective in low growth categories and in markets where big retail is dominant, such as the US, UK, Australia, and Germany.
For this approach to succeed, manufacturers must do six critical things:
Use smart analytical techniques to understand consumer needs, behaviors, and economics.
Develop strong promotional evaluation and modeling capabilities to understand the impact of individual promotional mechanics on manufacturer economics, retailer economics, and consumer behavior.
Create strategies that result in a positive economic equation for retailers and convince them of this.
Understand competitor behavior and create risk mitigation plans against contingencies.
Balance total brand support carefully between promotions, above-the-line spend, and shopper marketing activity to shift emphasis from “trading” to “brand building.”
Work collaboratively across functions, including Marketing, Sales, Strategy, and Finance to deliver all of the above.
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