Manufacturers need to maintain continuous, data-driven conversations with retail partners around assortment, pricing and promotion strategy to drive long-term growth and solid partnerships.
It’s equally important for manufacturers to work closely with retailers for win-win strategies that take into account the impact of incrementality and expandability of the categories across new and declining trends.
As some markets gradually settle into some sort of new normal, it’s likely time for retailers and manufacturers to think about what assortment, pricing and promotions will look like for the remainder of the year. Amid the COVID-19 pandemic, the retail market has been dynamic and full of chaos:
- There have been dramatic changes to the macro environment
- Traveling constraints and city lockdown caused heavy pressure of supply chain
- Rapid and long-term changes of consumer needs and behavior have shifted the consuming paradigm
- Category performance has fluctuated
- Omni-channel consuming behavior accelerated and become the norm
These factors are causing great pressure in retail operation management, and consumer packaged goods (CPG) manufacturers and retailers are grappling with how to react with better assortment in a more holistic view of pricing and promotion. Polls conducted in various Nielsen webinars have elicited similar feedback from manufacturer and retailer participants. Here are two examples from neighboring markets: In Vietnam, only 8% of webinar participants said they will maintain assortment strategy in response to the pandemic; In Malaysia, more than 46% of webinar participants stressed that assortment is the first topic to prioritize to help them adapt to changing consumer behaviors.
Here are some assortment, pricing and promotion tips to help you think through how to engage consumers in the new normal.
Assortment: The key to respond to rapid changes of consumer behavior
Many CPG manufacturers experience challenges with responding to new trends and market conditions. They also feel challenged to preserve their brand while exploring new pricing, promotion, assortment and space strategies without eroding margin or market share.
The right aisle, shelf and combination of SKUs can greatly influence consumer decisions and impact your product’s velocity. Seventy-four percent of manufacturers say it’s a priority to identify retailers that present opportunities or risks in assortment as well as in pricing and promotion, according to a survey conducted by Nielsen’s global Sales Effectiveness team. Adding new SKUs isn’t always the answer. We found from some key studies that adding new SKUs actually cannibalizes existing portfolios and reduces a portfolio’s sales performance.
It’s equally important for manufacturers to work closely with retailers for win-win strategies that take into account the impact of incrementality and expandability of the categories across new and declining trends. With the right data, manufacturers can show retailers how to optimize their brands, the category and either fill an assortment gap or improve a retailer’s current assortment.
Assortment strategy refinement and collaboration between retailers and manufacturers has never been as critical as it is amid the unprecedented practices initiated by governments (city lockdown, social distancing) and the heavy pressure on supply chain management.
Intense Pricing and Promotion is Diluting Profit
Consumers’ thirst for price promotion never ends. Nielsen analytics team around the world has found that intensive but unnecessary price promotion has resumed as the pandemic easing. A precise but smart pricing strategy to reduce unnecessary trade spending on price promotion in the new normal is a must to improve your financials.
Taiwan shoppers’ craze for price promotion, and the craze has been a pain in the neck of manufacturers and retailers for sustaining profitability. According to a Nielsen price and promotion study, the price elasticity (sales unit change rate in response to price change rate) of over 100 Nielsen tracking categories in Taiwan’s hypermarkets, personal care stores and coop chain super markets is -1.9 in unweighted average. That means 1.9% of sales unit gain or lose can be expected if 1% of price change is made.
The horizontal axis and vertical axis are the price sensitivity(price elasticity) of each product in your portfolio, and each of your products is landing in one of the four quadrants.
Smart Pricing and Promotion Strategies in Response to the Market
By calculating the price sensitivity information from historical sales data, you can understand where the product lines in your portfolio land in the four quadrants. For products that land in the Price Fighter quadrant, you may consider to intensify your promotion activities to drive sales more efficiently; for those products that land in the Hi-No quadrant, you may consider raising their prices to drive extra margin, given their lower price sensitivity.
Pricing greatly influences consumer behavior. Over 80% of manufacturers find it challenging to price competitively while managing their goals and objectives, according to a global client survey conducted by Nielsen Sales Effectiveness team. In thinking about your own pricing strategy, are you confident that you have the right people, process and technology to make informed decisions in a timely manner? Modern manufacturing processes use up-to-date market data to review performance regularly. It’s also imperative to strike a balance between maintaining the price point befitting your brand and executing necessary adjustments to lift your competitive edge.
To improve your negotiating power, it’s critical that manufacturers can confidently convey their trade dollars are creating value for retailers, and use data and analytics to back up your plans. One-third of CPG manufacturers don’t do this because they believe investing in promotions is wasteful. Many variables affect the effectiveness during the planning and activation of any promotion, from timing, trade vehicle and audience targeting.
You need to leverage data-driven business intelligence to identify your brand’s most important promotions and key indicators over time, and then dive deeper into why these promotions compel shoppers to buy your product and understand how promotions subsidize your sales. These insights will help you plan and execute promotions that drive purchase decisions.
As the retail environment in Taiwan gradually enters a new normal, manufacturers need to maintain continuous, data-driven conversations with retail partners around assortment, pricing and promotion strategy to drive long-term growth and solid partnerships.