FOCUS 28
Short-term expectations
Most consumer-facing fi rms do not have a pricing function but do use pricing as a tactical lever to drive volume. Take the snacks market. In 2009, a little more than half the crisps sold were sold on some sort of deal. Today, that fi gure has risen to 70%. The depth of discount has increased too, typically to around 40% of the list price, double that of four years ago.
This is the case despite the fact that many chief executives understand that, over the long-term, this is unlikely to add to either the bottom or top line because, especially in developed markets such as the UK, volumes are fl at. So a discount could give a brand a short-term uplift over a month or a quarter, but this is likely to be evened out over a longer period as competitors get involved.
Over the past few years, economic austerity and the resulting promotion culture, combined with an erosion of brand loyalty for household goods, means that consumers have their eye only on the price. So fi rms are effectively funding promotions that allow retailers to sell brands more competitively only to see customer loyalty either stand still or diminish.
So, why do they continue to do it?
Companies (particularly PLCs) do this to meet fi nancial reporting deadlines and to please shareholders, who are typically fi xated on short- term results even though these behaviours will inevitably contribute to a race to the bottom.
It’s a tricky balancing act. Companies must compete in the short-term while investing in their brands. This is the only way to grow the value of the business and achieve sustainable profi ts; and they need to do both also to avoid becoming known as a business whose categories are only bought on deal. I’ve heard UK bosses of the multinationals protest about discounts, only to receive a knock-back by cynical, short-term stakeholders.
Average Realised Price
What is missing in many of these fi rms is an intelligent and analytical approach to product mix, margin, and customer channels. UK chief executives need access to this science in order to defend the business. Britvic have this function in place and are therefore able to maintain their effective pricing. The chocolate and biscuit fi rms are also good at this. They’ll do different pack sizes depending on the store, or sell an individual chocolate in a high street shop for the same price as a multipack in a supermarket.
It sounds almost trite to say this, but different price points can grow average realised price, which is a measure used by both Britvic and Burtons, the makers of Maryland Cookies.
70%
of crisps sold today involved some
sort of deal (compared to just over half in 2009) UK snack market (Nielsen, July 2013)
© 2013 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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PRICING
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