Pricing and Advertising in the FMCG Industry

Pricing in a market with a duopoly is tough – especially for FMCG brands like Coca Cola, Birds Eye and Nestle.

Its a vicious cycle

Everyone including manufacturers get caught in a vicious cycle. Retailers squeeze brands for promotional spend and brands are reliant on retailers promotions for sales.  If a manufacturer doesn’t play by the retailers rules, they risk losing sales and if they don’t hit an average stock turn, they risk losing distribution or deletion.

Advertising and the price conundrum

So money is spent on mass advertising and connecting the brand to consumers. Trouble is that the advertising is often bland. I am not saying it’s the agencies fault or the clients – sometimes its a combination of both. Sometimes the client insists on trying to communicate too much, other times the execution from the agency is poor.  Often it just doesn’t connect with consumers or consumers incorrectly attribute the advertising to the wrong brand.

The big question is – has it led to additional sales?

In the roles I have had over the years, television often become the default advertising option for brands – even when media and advertising agencies are challenged to come up with something different. We all know television has great reach and has the added advantage of being visual. But it is actually effective? Has it actually led to a brand being able to justify a price increase and hold market share without discounting.
Advertising agencies like to demonstrate powerful creative. Media companies like to sprout that they reached x% number of people, x number of times.   Great. They achieved their objectives.

What they can’t answer however is did it make any sales. Can the brand lift its price without losing sales?

Here is the fundamental problem – there is no doubt that advertising helps keep a brand top of mind but once people are aware of your brand, what happens next. Do they actually buy?

I have worked on some big brands. Trouble is that in 15 years of marketing I’ve yet to see a brand make significant increases in sales through advertising on television or even magazine or even outdoor. The exceptions to this are:

  • Brands are discounted over the advertising period creating an increase in sales that is not necessarily linked to the advertising
  • A low budget consumer promotion I ran on television that drove sales for a new product I launched

Price has often been demonstrated as a factor in whether a brand makes it sales or not.

Reasons often cited by sales is that they didn’t meet forecast this week because a retailed canned a specific promotion.

Consumers say price isn’t a major factor in decision making

This is interesting because often in market research, consumers often  say that price isn’t the main factor in their decision making purchase. Price often comes further down the list, after brand name, pack size etc. But when consumers are confronted by two strong brands that they know, like and trust in the same pack size, price is often the next key determinant.

I challenge any brand that if their advertising is failing they have yet to make a significant difference in the lives of consumers. They have yet to build in sufficient value.

The key is to build value

While there is a segment of the market that always looks for discounts, feeding the discount beast will always come down to being the lowest cost producer and something will often have to give (e.g. quality or even service). Build in value and differentiate yourself from your competitors. Otherwise you will be more like a commodity.

Someone once told me the the story of the two barbers across the road from each other.

  • They both charge $25 for a haircut.
  • One day one of the shops puts out a sign:
    • ” Discount – $10 haircuts”.
    • Game on.
  • The other store owner puts out a sign:
    • “We fix $10 haircuts”
    • Game over!

There is a powerful lesson in that analogy. Build in value to your brand. Anyone can offer haircuts for $10 but their aren’t too many brands willing to stand for something.  Take a stance.