 "Discount carrot: Promotion key to protect market share")
In the previous three parts, I covered the right strategies on pricing, distribution and innovations to be adopted by the FMCG sector during tough times.
Today, in the last of the four-part series, I will take a look at promotions and how important they are during a recession.
Promotions are a fact of life and a common currency in consumer industries. Consumers are constantly looking out for discounts and promotions, and more so during a slowdown.
In the current economic scenario, the consumer expectation of valuable promotions increases as they expect retailers and manufacturers to share their pain.
Discounts and promotional offers are temporary means to achieve strategic ends such as inducing competitive reaction. Promotional offers could also be for rewarding loyal customers, passing on costsavings to consumers and inducing trial.
The current squeeze is a perfect storm of cost and demand drivers in a combination not seen before and it is causing consumers to consider affordability above all else in their purchasing decisions. Most companies adopt the strategy of 'buy more to save more' to boost sales during a slowdown. While price correction is clearly a focus area, FMCG companies should also build on 'tactical' promotions - bundled offers to beat the recession.
In many ways, discount is a starting point as it helps create buzz and excitement and ensures higher sales. Consumers might curtail consumption of high-end products but not mass or daily-use products. During trying times, 'buy more to save more' diktat will always work. Promotions help boost sales, and as and when a price-reduction is possible, the companies pass on the benefit.
There are two main approaches to promoting products - "push" and "pull". The push strategy is closely related to the "selling concept" and involves hard sell and aggressive price promotions to sell at a specific purchase occasion. In contrast, the "pull" strategy emphasises on the consumer, creating demand for the brand so that consumers will come to the store with the intention of buying the product. The pull strategy works well during recession.
Intense competition is also driving the increased use of promotion mechanics over the last couple of years.
Typically, FMCG manufacturers tend to invest around 15-20 per cent of their total marketing budget in promotions. This spend is seen to increase, as consumption slows, in order to sustain sales levels.
Consumer expectation is further enforced by newer transactional vehicles, such as the Internet, where additional discounts are offered against modern retail or high-street store prices by vendors keen to increase sales volumes, while reducing infrastructure and distribution costs.
It is highly unlikely that promotions will go away. The idea is so deeply entrenched in the retailers' competitive arsenal that the practice is likely to increase markedly, with the greater burden of the cost falling on the major brand manufacturers.
Driven by category competition, retailer and consumer pressure, and the increasing popularity of private labels and budget lines, FMCG companies will need to drive even more innovative promotions to protect market share and brand value.
Today, in the last of the four-part series, I will take a look at promotions and how important they are during a recession.
Promotions are a fact of life and a common currency in consumer industries. Consumers are constantly looking out for discounts and promotions, and more so during a slowdown.
In the current economic scenario, the consumer expectation of valuable promotions increases as they expect retailers and manufacturers to share their pain.
Discounts and promotional offers are temporary means to achieve strategic ends such as inducing competitive reaction. Promotional offers could also be for rewarding loyal customers, passing on costsavings to consumers and inducing trial.
The current squeeze is a perfect storm of cost and demand drivers in a combination not seen before and it is causing consumers to consider affordability above all else in their purchasing decisions. Most companies adopt the strategy of 'buy more to save more' to boost sales during a slowdown. While price correction is clearly a focus area, FMCG companies should also build on 'tactical' promotions - bundled offers to beat the recession.
In many ways, discount is a starting point as it helps create buzz and excitement and ensures higher sales. Consumers might curtail consumption of high-end products but not mass or daily-use products. During trying times, 'buy more to save more' diktat will always work. Promotions help boost sales, and as and when a price-reduction is possible, the companies pass on the benefit.
There are two main approaches to promoting products - "push" and "pull". The push strategy is closely related to the "selling concept" and involves hard sell and aggressive price promotions to sell at a specific purchase occasion. In contrast, the "pull" strategy emphasises on the consumer, creating demand for the brand so that consumers will come to the store with the intention of buying the product. The pull strategy works well during recession.
Intense competition is also driving the increased use of promotion mechanics over the last couple of years.
Typically, FMCG manufacturers tend to invest around 15-20 per cent of their total marketing budget in promotions. This spend is seen to increase, as consumption slows, in order to sustain sales levels.
Consumer expectation is further enforced by newer transactional vehicles, such as the Internet, where additional discounts are offered against modern retail or high-street store prices by vendors keen to increase sales volumes, while reducing infrastructure and distribution costs.
It is highly unlikely that promotions will go away. The idea is so deeply entrenched in the retailers' competitive arsenal that the practice is likely to increase markedly, with the greater burden of the cost falling on the major brand manufacturers.
Driven by category competition, retailer and consumer pressure, and the increasing popularity of private labels and budget lines, FMCG companies will need to drive even more innovative promotions to protect market share and brand value.
The author is president, Nielsen India