26 Mar 09

'Winning in a downturn'

Mortgage meltdown, low interest rates, a crashing car industry and tumbling financial markets are all reasons why analysts across the globe have written such dramatic stories of late. It is clear that the global economic downturn will have far-reaching implications. But what can consumer goods (FMCG) manufacturers do to protect themselves?

No one is immune in a global recession. Even multinational manufacturing companies in Asia whose local results remain strong are being asked to deliver greater profits by parent companies needing to balance against sagging profits in Europe and the United States.

The recession is affecting retailers too. Large retailers are losing sales fast or cutting prices to attract shoppers. To recoup, they are demanding extra funding from their suppliers. One Tesco supplier in the UK acknowledged being asked to reduce prices by as much as 10 per cent. And the CEO of Reckitt Benckiser lashed out at Tesco after it extended payments to non-food suppliers from 30 to 60 days.

Our clients have been telling us that retailers in Southeast Asia are demanding extra payments from their suppliers and encouraging them to lower their prices in-store.

This is forcing manufacturers to re-evaluate their spending patterns. There already is evidence of cost cutting. In the first half of 2008, spending on advertising dropped 1.6 per cent. Reports suggest a further decline of 5.6 per cent in 2009. This seems likely, judging by the second-half summaries of 2008 showing the smallest spending on advertising since 2001.

Cutting budgets can be dangerous as it potentially hits revenue in the short term and brand strength in the long term. In the 1930s-era depression, Kellogg’s continued to support its brand, Post cereal did not. Who now knows of Post?

How can FMCG companies maintain investment, support retailers and yet still deliver global corporate profit requirements?

They first need to be aware of the measures retailers are resorting to: secondly, to focus their limited resources and find the most effective place to spend it.

The best response is to then understand which spend works hardest for you and for your customers.

Our clients and other industry research acknowledge that 50 per cent or more of media expenditure is wasted. Our analysis suggests that 70 per cent of promotions result in a net loss to manufacturers, and our research indicates that 30 per cent of sales calls are unproductive. Thus, any cutting should be precise and clip the waste – the ineffective spending. By identifying what works and what doesn’t work, it should be possible to make cuts without overly hitting revenue.

Many large organizations are now focusing their marketing on in-store activities in an attempt to change shopper behaviour. However, what isn't clear with the increasing variety of in-store vehicles available is what is most effective in actually achieving the goal set by brands and retailers alike.

Where are the best opportunities?

With our expertise in understanding shopper behaviour and using our proven tools and techniques to pinpoint where in-store marketing should be targeted to give the highest return on investment, engage can advise companies on making these investments.

In addition to cutting ineffective spending, manufacturer activities should focus on changing behaviour – not attitude. By truly understanding what changes behaviour, be it consumption or shopping, companies can focus on what really creates value. In our experience, this is just as likely to be the mundane things like placement or facings as it is a new product or new technical advances.

Companies need better insight in terms of which shoppers to target, what the path to purchase of those shoppers is and where in that path to purchase is the potential to affect change. Thus, shopper research and effective analysis are crucial. However, most current research methodologies are insufficient to respond to the needs because they rarely measure causality. Without this, it is almost impossible to define what would change behaviour and therefore improve a brand’s fortunes.

Marketing efforts must be directed at both creating consumer desire for a brand and maximizing every purchase opportunity. This enables channels to be prioritized and for in-store marketing activities to be wisely configured so that appropriate investments are made in the retail customers that will deliver mutual benefits.

engage has developed Purchase Activation™, an integrated system of analytical tools and approaches that help identify which consumers and shoppers are most important, where they shop and where their behaviour can be influenced. It identifies what will positively affect shopper behaviour and drive consumption and recognizes the activities that are worth investing in. It also identifies the retailers that can help you drive sales.

If you would like to learn more about engage, who we are and what we do, please visit our website.

(www.engageconsultants.com)

Or if you would like to learn more by speaking directly to one of our team you can send an email to us () or call us directly (+66 2 259 5600).