In 2022, U.S. inflation soared to its highest rate in 40 years before leveling off. This left consumer packaged goods (CPG) companies wondering, “Is it over yet? Can we go back to our normal routine now?”
Answer: not if you want to remain a top, competitive brand with strong margins!
CPG companies must always re-evaluate the depth and frequency of temporary price reductions. They should compare competitor pricing whenever possible. And they must engage in more agile re-negotiation with chain accounts and suppliers. Of course, this should happen before their scheduled periodic category management reviews.
Align Policy Change with a Strategy
At Salient, we often field inquiries from CPG companies, such as:
- Do I increase prices when my competitors haven’t?
- Should I stop discounting as often or as deep?
- Should I conduct a test market price change to judge the real-world impact?
Through our history of working with CPG companies, we’ve learned a simple truth. Enacting sweeping policy changes without consideration of each channel’s unique strategy causes confusion. These changes often alter the consumer’s perception of a product’s value. And the changes can be immediate and long-lasting.
The most successful CPG companies align price changes with their retailers’ strategies. Questions they ask include:
- What type of shopper are they targeting?
- Is the strategy discount retailing or destination retail?
- Is the product a commodity or high-end, niche, emerging brand?
- Is one channel likely to start cannibalizing another?
At Salient, we’re objective data people. So we recommend that you look at more than the immediate elastic demand response. Keep measuring consumers’ ongoing behaviors after their knee-jerk reaction to price changes. Demand often bounces back and major margin gains dwarf small volume decreases. One thing is for sure: competing on price alone is a quick way to exit any market!
Learn From Others’ Successes
PepsiCo is a prime example of success during the recent inflationary period. Early on, many of their bottlers recognized that new Mountain Dew flavors were performing well in test markets. They made sure to provide extra pallets to many large Walmart stores. They also helped store managers understand the opportunity and switched up display plans. As a result, new brands like Major Melon®, Spark®, and Voltage® produced profitable product movement.
At the same time, PepsiCo recognized a gap in their portfolio – a high-demand lemon-lime flavor. To fill this need, they introduced a new soft drink called STARRY™ in January of 2023. The goal was to compete against Coca-Cola’s Sprite and Dr Pepper’s 7Up.
It didn’t matter that consumption of carbonated soft drinks was down across the market. PepsiCo realized an alternative way to win. They relied upon product innovation, less discounting, and moderate price increases. And it all started with close collaboration with their chain accounts and suppliers.
Use Data to Understand Opportunity
A key reason why PepsiCo companies were successful during this volatile period was their use of data. Salient’s software and industry experts helped them identify trends early in the game. PepsiCo bottlers benefited from better insight into their sales velocity and distribution. And Salient’s solution helped them report on successes with their product launch.
“We have seen significant improvements in our operating margins and efficiency,” said Derek Hill, V.P. of Corporate Planning for Pepsi Bottling Ventures. “Salient’s solution helped cut costs by nearly three cents per case. With 55 million cases shipping a year, that’s an annual savings of $1.25 million!” According to Hill, Salient also helped reduce the new product sales execution cycle from six weeks to about two weeks. Read the complete success story.
Focus on What You Can Control
We respect that wholesalers and retailers can’t control all market dynamics. They can’t dictate what products are available. Sometimes suppliers can’t keep up. Finding labor to keep pace with fulfillment poses a challenge in many regions. And sometimes consumers panic, but return to normal patterns after a short time.
However, the most successful organizations we see focus on what they can control. They can tailor the product mix and change service frequency. They can focus on sales execution. And they may have to pass price increases onto customers. To do this right, successful companies rely on data visualization to pinpoint opportunities and measure the impact of change.
Talk to Salient
Salient develops industry-tailored analysis to help CPG companies understand demand and price elasticity. We help them identify cross-selling opportunities, voids, and potential to increase profitability. Our valuable insights span many areas of sales and operations.
Would you like to learn how Salient can help your company during periods of inflation and price volatility? Request a call with one of our experts.
