Admark’s Weblog

Posts Tagged ‘Inflation

Okay the situation of inflation is glum, in India, that is. But the FMCG companies are showing some 32 teeth on their wide faces. Everyone is experiencing double digit growth rates including that behemoth HUL. Anyways cutting to brass-tacks, here is the low down. Customers are down-trading on certain categories typically which are not amenable to “value calculations” and not down-trading on other “value conscious” categories. But at the same time consumer spending is not going south, YET.

But what is the relation to anesthetizing pain? Read this –

[Consumers are] not weighing the current gratification vs. future gratifications. They experience an immediate pang of pain [when they think of how much they have to pay for something]. That perspective has a lot of implications. For example, it helps to explain why credit cards encourage people to spend; they anesthetize the pain. – From neurosciencemarketing

What does this imply for machinations during these times when inevitable price increase across certain categories is being seen already? Well first one –

· Forget individual transactions, they cause more pain.

· Focus on single price for multiple items

Bole toh? Every time I, imagine me being a family man, go to buy my favourite biscuit I see and say “kitna costly ho gaya hai, kuch aur sasta khareedte hain”. So instead if I am offered something, larger, which covers my consumption for few weeks hiding the increased costs behind the larger pack I might buy it.

Offer bigger packs in times of inflation and probably the other way round during normal times, that is.

Bigger packs of not just the same items but similar items as well [bundling ?]

-Egghead

PS – I love the word “anaesthetize”. I think thats the reason why modern warfare works better medieval warfare, discounting for the impact of technology. More on that and marketing later.

Advertisements

There’s a lot of hullabaloo regarding the inflation and how it beckons doomsday for the Indian industry. Well, the FMCG industry seems to have tackled it pretty well till date. So here’s a review into their strategies.

Inflation hits the FMCG industry in multiple ways. While the price of raw materials keeps spiralling upwards, the end consumer does not have the ability to take the burden of this price increase completely. To add to this is the pressing need to pay higher salaries, which forms a large part of the fixed cost in this industry. With the increasing clutter and reducing wallet strength of customers, inflation brings an era of high spends on advertising too. It’s not a happy scene everywhere. An Assocham report shows that net profit margins of Marico and Dabur India ltd. recorded a decline of –11.1 per cent and –5.55 per cent on sequential quarter basis owing to the rise in their wage costs by 18.29 per cent and 48.71 per cent respectively.

The good news, however, is that the FMCG industry is growing by 18.8%, partly due to increased prices and by more than 8% volume growth. The strategies have been manifold, tapping opportunities at every part of the value chain. For example, to prevent down trading, the companies have introduced packs with lower SKUs so that the per unit purchase does not pinch the consumer’s wallet. For example, Henkel has introduced a new 400 gm pack of Henko washing powder at Rs 40 and withdrawn the 500 gm pack that used to sell for Rs 46. Some companies with huge war chest have been able to maintain the prices which they are identified with. For example, Parle Agro has not changed the price of Frooti in spite of upward pressure on prices. Soap companies have shifted to cheaper options of raw materials to source their products at a competitive price. Companies are also reworking on their packaging, product line while aggressively pursuing branding exercises to be differentiated in the market.

While the examples show how the smartness with which the industry faces inflation, the question remains if this buoyancy will continue if the effects of inflation are passed on to the consumer in priority sectors like oil and LPG. Will the consumer still buy without any worry?

-Nemo