– By Manish Aggarwal
For the FMCG sector, inflation is a factor that can hardly be ignored; companies are under pressure to rework their pricing strategy and yet feel uncertain about raising product prices, because while the move may protect their margins, it will lose them market share. Consumers, who are also facing inflation on several fronts, may react to this hike by curbing their purchases or going for lower priced alternative products. This is especially true in developing countries such as India, which is characteristically quite price sensitive. When inflation is at play, it’s important to zero in on effective measures that support sales and help companies boost them.
Also Read: India’s CPI inflation surges to 5-month high of 7.41% in September; above RBI threshold for 9th month in a row
Consumer preferences is paramount
Every FMCG category is unique as is the way factors will affect pricing strategy for all, be it in terms of macro-economic trends, market maturity, competition, etc. In order to boost sales, maximise profits and ensure correct pricing, the most important factor to consider is the consumers’ preference for the particular FMCG product in question. In Asia and specifically in India, on the whole, average per capita income ranges are moderate and hence small unit packs are preferred by most parts of the population though they are less cost-effective in the long run. This is also the reason why consumers are sensitive to price changes, so it’s ideal if any other resolution can be found to the option of price hike.
Key resolutions for FMCG companies in current inflationary market conditions
FMCG manufacturers are opting for one, some or a mix of the discussed resolutions to adjust to the current market conditions. Some of the primary resolutions are:
Launching or increasing supply of ‘bridge packs’: In times of inflation, some families are forced to downtrade or switch from their favoured, expensive brands to cheaper alternatives or from larger packs to smaller ones, in a bid to conserve cash. So, if the beloved brands are available in the market in affordable low-unit price or bridge packs, consumers can opt for these while being able to maintain their household budgets. Hence, several Indian FMCG categories offering bridge packs in the range of Re 1 to Rs 10 believe that these account for over 25 to 35 per cent of their overall sales.
Reducing product grammage at sacred price points: Certain price points such as Re 1, Rs 5 and Rs 10 are sacred in the eyes of the average consumer and any other measure is preferred by the smart FMCG player to raising these prices. In order to protect these popular price points, one great measure is grammage reduction. So instead of offering 150 gms of the product at Rs 10, the company can offer 135 gms under inflationary conditions. Consumers would prefer a little less product in hand at the said price rather than pay more for the same amount of product. Also understood as shrinkflation, this concept is a widely practiced one in FMCG circles.
Single-digit price increase on certain large packs: For certain FMCG categories, such as large packs beyond a certain weigh demand a price rise to break even under the ongoing inflationary currents. As a last resort, such a hike may be unavoidable and they may still be preferred in certain markets. Urban consumers usually enjoy higher per capita income and have more spending power than their rural counterparts. And they are also ones who prefer purchasing bigger units to save money and the environment in the long run. Hence, this market will be able to absorb the necessary price change.
Some other non-essential ways to reduce cost prices include companies opting for more economical or recycled packaging, calibrating advertising and marketing expenditures, etc. But in the mainstay of the game that is the FMCG segment, in order to continue to boost their sales companies have to necessarily adopt a strategy inclusive of bridge-pack centricity, protect sacred price points even if they have to reduce grammage for the purpose, and take calibrated pricing actions even if that means judicious price corrections.
(Manish Aggarwal is the Director at Bikano, Bikanervala Foods Pvt. Ltd.)