Changing consumer trends are throwing old guard consumer-products manufacturers for a loop as inflation refuses to rise high enough for another price increase.
Procter & Gamble, for example, just announced that prices fell two percent overall with the biggest backslide coming from Gillette. Unilever and Nestle have been able to raise prices, but only a fraction of a percent, the weakest growth for Unilever since 2010 and for Nestle since 2000.
Competition, Consumer Behavior Shaping the Market
Brand loyalty is becoming an outdated concept.
With the rise of internet sales and the ability to price compare items from across the globe using nothing but a smartphone, the Millennials that so many brands are trying to court are turning their backs. Amazon.com is adding further fuel to the fire by selling an increasing number of household staples under its Amazon Basics brand.
What does this mean for the big guys? They need to add more value and meet the customer where they are, rather than trying to force higher prices year after year.
“Changes must be made and the cost structure demands are real, “ Chief Executive of P&G, David Taylor said in an interview with The Wall Street Journal. “What we anticipated is not sufficient. We need to do more.”
Walking the Line Between Price and Volume
As brands find it difficult to increase prices in the United States, they’re also surprised to be walking a thin line in international markets. Some, like Saudi Arabia, Egypt and Nigeria, come with some expectation of volatility. Those markets saw price slashes on Gillette products, P&G reports, further contributing to the company’s weak showing.
Unilever was able to raise prices in international markets that included Turkey, Mexico, the Netherlands and Eastern Europe. Since fewer of the products Unilever produces are also made by Amazon or distributed by mass discounters like Aldi, it was at less risk from these market woes.
Nestle, on the other hand, blamed its weak hand on lower inflation in its emerging markets, which include Brazil, Western Europe and Eastern Europe. It was able to raise prices slightly in North America, but not enough to offset losses.