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F
rom what I’ve seen working with these fi rms, product pricing and promotion decisions are typically based on the belief that lower prices always drives higher sales volumes.
However, FMCG companies often overlook the fact that every product has interdependencies and these decisions are too often made without a broad understanding of how they will affect sales of similar products in a company’s own
portfolio, as well as those in competitors’ portfolios.
Without data and pricing analytics to model the revenue and margin impact of promotions across the portfolio, these fi rms will continue to be the submissive partner in their relationships with retailers and cannibalise their own market share in the process.
Retailers in charge
Large retailers, by virtue of their size and volumes, currently wield all the power in their relationships with FMCG companies.
Keen to have as wide a range of products as possible and quick to identify products and prices that are successful at competitors, retailers force FMCG companies into distorting their product and pricing structure.
But this is not a criticism of retailers.
The laws of economics dictate that it is natural for retailers to want to offer customers greater choice and better price than their competitors.
There are certain cases where introducing additional products for a retailer’s shelf will not only squeezes margins for the FMCG fi rm, but in fact will lose them money.
A margin-eroding move
Similarly, giving into retailer demands to fund extra promotions in reaction to promotions occurring at other competitor retailers could well be a margin eroding move as evidence suggests that promotions in one retailer do not always have an impact on volumes at the other, especially when in different channels.
This is why FMCG companies need to have pricing analytics at the centre of strategy to resist demands from retailers that lead to internal competition between their own brands and products.
Organisational structure in many FMCG fi rms also needs to change for higher quality decisions around promotions and pricing to be embedded.
© 2014 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.
Organisational structure in many FMCG fi rms also needs to change for higher quality decisions around promotions and pricing to be embedded.
DRIVING VALUE
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