As inflationary pressures curb consumer spending and modify their shopping behaviour, it is increasingly critical that FMCG manufacturers ensure their trade promotions are carefully planned and effective.
“Manufacturers of branded products are facing pressure to keep customers loyal to their brands, so it would be easy to over-promote to attain this” explains Shane Scacco, Apac head of sales development at Telus Consumer Goods, a global software provider for consumer goods manufacturers with solutions including trade promotion management and retail execution tools.
Along with minimal growth and margin pressures, the biggest challenge FMCG manufacturers are facing right now is how to influence how consumers spend on groceries as they look to save money.
“The quest for value is being embraced across every demographic”, says Scacco. “It’s affecting even the more affluent, high-income earners, whether singles, dual income households without kids, or families.” Everyone is feeling these pressures from a macro perspective, so everyone is noticing that their basket of groceries has increased in price.” The latest ABS data pegs annual food inflation in Australia at 7.5 per cent.
“With grocery spending taking a high share of their income across the market, people are being forced to consider sourcing less expensive brands or goods when they shop in stores. Consumers’ buying habits are changing and many people are looking to move away from brands they have traditionally purchased, trading down to save money. Or they are buying fewer items, or less frequently, or in some categories holding off purchasing altogether.”
Meanwhile, for consumers, the quality of private label products is increasing in comparison to branded products and private labels are available at a lower price. “For the retailer, private labels generally have a higher margin, and it can often be harder for the branded products to compete on margin. That puts pressure on product ranging.”
“It is up to manufacturers to work out ways to differentiate and convince consumers to stay loyal to their products.”
Manufacturers need to look at innovative value-creating solutions
Scacco says manufacturers need to respond to the current market by looking for innovative ways to create value.
“There are different mechanisms to do that. For manufacturers, it’s about understanding and changing consumer behaviour to run the right promotions so that if you are trying to increase your share as a brand, you might run a penetration strategy or promotion. You might do a ‘buy one, get one free’ offer to lure new buyers. Then it is about understanding the market in terms of how frequently you should be running promotions and the level of reductions you should be going down to so that you don’t make consumers loyal to the brand only when it is discounted. Australia already has one of the world’s highest levels of brands sold on promotion, at over 50 per cent in many categories. We don’t need to exacerbate the problem.”
He advocates for “smarter promotions,” such as marketing two items together at less than the individual price of two, rather than deeper discounting. That way, brands are boosting customer loyalty by incentivising them to spend more rather than simply offering deeper discounts that a rival brand might match the next time the consumer shops at the supermarket, or which risks re-anchoring the perceived branded product price downwards in consumers’ minds. Other value-creating mechanisms include intra-or cross-category product bundles, inclusion in loyalty programs for rewards, free samples, and additional content such as recipe books and tutorials.
In an era of cost-of-living pressures, Scacco believes consumers are smart enough to notice manufacturers doing things like reducing pack sizes in an effort to disguise price increases, a practice known as ‘shrinkflation’.
“Consumers are savvy in terms of weight reduction on products at the same price. In this environment, consumers are looking to manufacturers to create value packs and other ways that a larger purchase offers better value for the consumer.”
Brands also need to ensure they are running promotions at the right time and taking them to market quickly and achieving a balance between short-term offers and longer-term runs. Scacco calls it the ‘sweet spot’ promotion – one that both delivers value to consumers and builds brand loyalty, whilst proving profitable to both the manufacturer and retailer.
Telus Consumer Goods has tools that help brands find this sweet spot and manage trade spend, which is one of the largest expense lines on any manufacturer’s profit and loss.
“Manufacturers have to invest promotional spend with their retail customers. We look at how they spend it to maximise the sales efficiently and effectively, which is the key,” explains Scacco. “For a manufacturer, it is really important to have tools to simplify planning and execution for every aspect of the promotional strategy. The importance of smarter tools for promotional planning, budgeting and optimisation has never been more critical to enable manufacturers to evaluate their results so they can improve their promotions and come back and partner with the retailer again more effectively,” he continues.
“When a promotion is in-store you want to ensure all the elements or activities are executed correctly – in the right place, at the right time, and in the right shelf position. A manufacturer’s sales force needs to be armed with Retail Execution tools that track and monitor stock availability, optimal shelf placement and promotional point of sale, and other mechanics – ensuring what is known as ‘The Perfect Store’ strategy. Telus Consumer Goods arms the sales representative with its Rapid Image Recognition technology so with just a picture of the shelf or display, in-store staff can validate product assortment, assess promotional performance, track compliance and take immediate corrective action,” says Scacco.
“Moreover, it is critical that retailer store managers are aware of those promotions and you are getting the on-shelf real estate that you’ve invested in, to optimise your co-management with the retailer.”
“The opportunity costs of not getting it right are large,” says Scacco. “The supply chain is in a better state than it was just after Covid, but the ability to forecast and manage inventory are probably two of the biggest challenges for manufacturers today. Getting your products to the store at the right time and having enough inventory to match the promotion so you don’t run out of stock is supercritical.
“That’s where these tools help give you visibility and accuracy.”
