Three ways consumer packaged goods companies can strengthen pricing and promotions

Consumers in the age of COVID-19 have gotten used to waiting. With favorite snacks, pantry staples, preferred brands of socks, and other such items sometimes still in short supply many months into the crisis, people are stocking up when they can. The surge in demand has given consumer packaged goods (CPG) companies a brief respite from the price sensitivity that’s typical of recessions, creating a window of opportunity for them to rethink pricing and promotions. But the window is closing.

If you’re a CPG business leader, it’s urgent that you drive greater value along a consumer’s path to purchase — whether it’s at home, on the go, or in the store — by applying an experience lens to your promotional investments. PwC research across product categories indicates that consumers are willing to pay up to 16 percent more for better experiences. So, taking this approach could help you not only weather the current storm but emerge stronger from it.

There are three specific opportunities you should focus on to strengthen your pricing and promotions capabilities.

Optimize and tailor your strategy. Whether you’re a retailer or manufacturer, take a fresh look at how you display and promote products across your brand portfolio, SKUs, and channels, and the occasions a consumer buys for. How frequent and deeply discounted are your promotions? Historically, trade promotions — or those executed between the manufacturer and retailer — have been a prisoner’s dilemma. Although many yield a low or negative ROI for manufacturers, if you are a manufacturer, you’ve probably had to invest in them because your competitors do, and because you and your retailers rely on them to move a lot of product. Within this challenging context, many CPG manufacturers have invested in building stronger planning, analytics, and execution capabilities to boost their ROI on promotions.

Now, as the economy reopens and you look ahead to what will be the new equilibrium for consumer and competitive behavior, there is an opportunity to further adjust your strategy. Focus extra attention on tailoring a pricing and promotions approach for your premium and value-focused brands, prioritizing those shopper solutions that deliver a better experience. CPG companies that do this will enjoy a greater profit stream from which they can invest in innovation and other strategically important capabilities.

Leverage digital to more precisely target your pricing and promotions. As consumers move online for more of their purchases due to COVID-19, it’s a good idea to enhance both e-commerce experiences and those that start online and close in the store. You can also more narrowly target which segments of your customer base receive promotions via digital media. Today, most promotions are communicated at the shelf, via price-label changes, which are typically executed the same way across all of a retailer’s stores. A more targeted brick-and-mortar approach is too labor-intensive to be practical. But in the digital world, targeting is easier. For example, you can insert personalized coupons and circulars into digital advertising or embed promotions in addressable ads, which allow you to show different ads to different audience members who are viewing the same content.

It’s urgent that you drive greater value along a consumer’s path to purchase — whether it’s at home, on the go, or in the store — by applying an experience lens to your promotional investments.

These strategies can deliver a substantial increase in ROI, both because you won’t have to discount as deeply for an audience you know is already interested in certain products and because tailoring content and calls to action will drive up conversions. You can then leverage more targeted spending on paid media and other direct marketing expenditures to support your more targeted approach to pricing and promotions.

Additionally, CPG companies that adopt innovative approaches to retailer collaboration will not only win the digital shelf and shift the curve for their commercial ROI across paid media, promotions, and other direct marketing expenditures; they will also enhance their relationship with consumers by delivering a more compelling experience.

Leverage digital to enhance consumer engagement and accelerate growth in direct-to-consumer e-commerce. Consumers are often willing to commit to buying a brand via subscription because they get value from both the savings inherent in a subscription offer and from not having to shop again and again for the same product. The economics of subscriptions also make sense for you, as a CPG company leader, if you can achieve savings via less severe discounts than you’d otherwise offer and build more value in brand loyalty than you’d spend to acquire subscribers.

If you’re a manufacturer, your historic focus has probably been on e-commerce through retailers that sell a broader basket of goods than just your own brands. Looking ahead, you still have additional opportunities to target a portion of your digital advertising, promotions, and other direct marketing investments to drive subscriptions in partnership with retailers. You also have an opportunity to increase your direct-to-consumer subscription offerings, which are more strategically attractive now, given that the sorts of things people have been stocking up on from home during the COVID-19 crisis are well suited to subscription services. Getting this balance between retail and direct-to-consumer sales right, both in your collaborations with retailers and your direct-to-consumer efforts, will require strong data and analytics capabilities.

Regardless of which of these three pricing and promotions opportunities you invest in, you’ll benefit from broadening your focus beyond commercial ROI to a more complete picture of your return on experience (ROX) — or the return you get on experience-focused investments. Making the right trade-offs across occasions, SKUs, and channels helps you to better curate your promotions to consumers’ interests and fuel category engagement and brand preference. But doing this requires an equal focus on brand love and commercial activation. Data signals for experiences (“X data”) can be a powerful component of your insights engine when combined with operational and financial data that come out of your technology systems and from third parties (“O data”).

An ROX system of metrics fuses X and O data to enable a faster feedback loop between insights and action. Your X data can include not only consumer data signals (e.g., social sentiment) but B2B data signals related to the quality and ease of execution (e.g., pulse surveys). ROX also provides additional high-value data points that can be used to optimize budget allocation across your brand portfolio, track the impact of investments into specific objectives along the path to purchase, and optimize campaign performance for different occasions.

Having this experience-centered system of metrics, and using it to guide and measure the effects of your investments in these three focus areas of tailored strategy, targeted tactics, and digital-led direct-to-consumer growth, will help ensure that you’re on the path to optimizing your pricing and promotions strategy.

PwC US director Soumya Datta also contributed to this article.

Published at Mon, 16 Nov 2020 06:00:00 +0000