The most successful CPG companies are more likely to take consumer price sensitivity into account than their competitors, according to a new study from The Nielsen Company.
CPG Winners Measure Elasticity More
Overall, 82% of respondents categorized as CPG winners consider consumer price elasticity when setting prices, compared to 67% of other respondents. In addition, winners are far more likely to consider price elasticity at the national (82% compared to 63%) and especially regional (55% compared to 20%) levels. However, winners are slightly less likely to consider price elasticity at the market area (9% compared to 10%) and category (36% compared to 40%) levels.
Winners are also more likely to measure price elasticity at the SKU level (64% compared to 53%), but less likely at the brand level (55% compared to 57%). Only 9% of CPG winners don’t measure price elasticity at all, compared to 13% of other CPG companies.
Winners Invest in Dedicated Resources, Integrate Teams
CPG winners invest nearly 50% more, normalized based on sales, in resources devoted to pricing across functions. In addition, winners are two times more likely to have a dedicated revenue-management group to ensure that pricing receives the appropriate level of attention and analytics support.
Winners are also twice as likely to integrate everyday pricing and promotion roles in a team that resides either in an existing centralized function (for example, marketing or finance) or in a revenue-management group at the center. Nielsen analysis indicates this approach provides multiple benefits to the CPG manufacturer, including alignment of pricing and promotion strategies and the establishment of a single source of accountability for all pricing activities.
Winners Offset Pricing with Trade Investments
Study data indicates trade spend as a percentage of adjusted gross sales increased significantly from 2008 to 2009 for all CPG companies. However, between 2008 and 2010, slightly more than half (53%) of winners increased trade to partially offset price increases, compared to 32% of other CPG companies.
Furthermore, study data suggests winning CPG companies make it a priority to evaluate the performance of their trade investments at frequent intervals. Approximately two-thirds of winners conduct such promotional performance reviews at least quarterly. Winners use more metrics on average; specifically, volume and trade investment trends, overall account return on investment (ROI) versus plan, as well as account profitability and growth.
By contrast, less than 50% of other players assess their trade investments at least quarterly. A third of other CPG manufacturers have no formal post-promotional review process. Because winning organizations consider these assessments a priority, Nielsen says they more often allocate resources within corporate headquarters to complete these post-promotional analytics, instead of assigning this task to a field analyst or account representative.
Future Plans Also Distinguish Winners
In addition to following similar patterns in the past couple of years, other study data indicates CPG companies fitting into the winner category also have similar plans for the next 12-24 months. For example, half of winners will boost field sales and merchandising resources, one-third will increase the use of brokers, and one-fourth will cover more company outlets with combined company/broker resources.
About the Data: Approximately 220 CPG executives from more than 50 companies with close to $160 billion in US manufacturer sales in the food, beverage, personal care, and home care categories were surveyed in spring 2010.