After two years of availability and supply chain concerns dominating the agenda in CPG, the focus is now firmly shifting to prices.
Although availability remains important, we’ve seen a marked change in our clients’ commercial objectives in the past six months, with pricing and strategic revenue management now top issues for many.
One of the reasons pricing is becoming more pertinent is that CPGs have simply run out of rope amid continued, soaring inflation. Some of the tactics they’ve been able to rely on in the past to protect margins, such as shrinkflation, are no longer an option. Any obvious opportunities to slimline pack sizes, tweak ingredients or weights have been realized by now – and you can only shrink your products so much before they stop being viable.
In the UK, promotional changes due to the government’s clampdown on products high in fat, sugar and salt (HFSS) have further complicated matters. Although a ban on HFSS multibuy deals has been delayed by a year, to October 2023, several major retailers – including Tesco and Sainsbury’s – have committed to going ahead from this October regardless. This has left CPGs with even less scope to offset the impact of inflation through promotional tactics.
Everyone is now staring at the same triangle and wondering who is going to take the hit: the retailer, the manufacturer, or the shopper?
CPGs are understandably on edge about having to take the brunt of it. Tensions between retailers and suppliers are already running high, and there’s still more inflation to come. Some of our clients are now on their second significant price increase conversation with retailers for this financial year – a situation that’s normally unheard of.
So, how should CPGs approach these extremely difficult conversations? What pricing opportunities should they focus on right now? And how can digital shelf analytics help?
Knowledge is power. To win in the current trading environment, CPGs must go into negotiations armed with detailed knowledge of what’s happening not just to their own prices but those of their competitors.
It may sound obvious, but it’s a common blind spot. Brand owners often get lost in the weeds of their own strategic pricing objectives and don’t pay enough attention to what their rivals are doing.
Fortunately, this is easy to fix. By using digital shelf analytics such as our Winning Campaigns, Deliver Value That Counts, and Smart Pricing & Promotions tools, CPG teams can quickly get a category view on pricing and track how their competitive set is performing.
Smart Pricing and Promotions, for example, enables CPGs to see category promotions at a glance, as well as the baseline products related to those discounts. By examining a category’s pricing and promotions calendar on a weekly, quarterly, or annual basis, CPGs can spot opportunities – and potential problems – ahead of time.
More and more CPGs are waking up to the power of price alerts. They’re a simple-yet-impactful tool for keeping on top of a fast-changing pricing environment. Every time your competitor changes price, you automatically get an email in your inbox telling you about it.
This frees up valuable time for teams. Monitoring pricing and promotions can be fiddly, time-consuming work. At a time when team sizes and resources are under pressure, leveraging price alerts helps CPG teams spend more time on the stuff that matters, such as strategy. They should be part of every CPGs’ strategic pricing toolkit right now.
At this value-sensitive time, it’s important to ensure pricing architectures contain no errors.
Smaller packs that accidentally deliver better value than larger packs undermine CPGs’ strategic pricing objectives and risk damaging consumer trust. Thankfully, they’re easy to spot and fix with digital shelf analytics.
Understanding the pricing architecture of a category can also help in range reviews. Winning in the current climate is all about identifying the right opportunities. Do you have the right products in the right tiers and price brackets? Are you getting products ranged that are delivering the right margins? And do you have the right mix of products for eCommerce versus bricks-and-mortar stores?
We know CPGs are weighing up radical decisions about ranges at the moment, in some cases choosing to stop manufacturing unprofitable products completely. Having a clear overview of the category architecture can help with these decisions and ensure CPGs are playing in the right fields.
For many CPGs, private label is normally an afterthought. But this is changing fast.
As inflation bites, consumers are rapidly churning out of brands and trading down to private label. In the UK, sales of value private-label products have grown by 12% in recent weeks. Private brands also gaining share in the US – and not just in traditional private-label categories such as cheese and deli.
Private label is also gaining share elsewhere. We’ve recently detected a big shift in private-label products holding top positions in retail search results.
The message to CPGs is clear: private brands are no longer on the periphery. They’re often a key competitor now and need to be treated as such. When monitoring pricing trends, CPGs should pay just as much attention to private label as they would to competitor brands.
While pricing understandably dominates conversations right now, CPGs mustn’t lose sight of eCommerce fundamentals.
Search still matters. Images still matter. Product titles and descriptions still matter.
If you stop paying attention to the basics, you’ll lose your position in search – and there’s no point having the right products at the right price if they’re not visible to shoppers.
We are encouraging CPGs to pay extra-close attention to the search performance of their highest-margin products at the moment. Are you investing your SEO efforts in the products that will make you the most money?
It’s a tough market for everyone, and pricing battles won’t get easier any time soon. But having clear objectives, backed by smart use of digital shelf analytics, will help CPGs mount a powerful case on pricing.
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As tensions run high between retailers and suppliers, CPGs need to be smarter than ever about strategic pricing. Here’s how to use digital shelf analytics to hold your own in tough negotiations.
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