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Creating Competitive Advantage
In the recent uncertain economic times it has become imperative
for marketers to better understand the dynamics of their brands
in the market place. Assessing their performance versus the
competition within existing distribution, pricing and promotional
environments is critical to evaluating the marketing mix and
further improving performance. Increasingly marketers are
turning to data modelling as a means of measuring price elasticities
for their brands, identifying optimum pricing points in the
market, and most importantly quantifying the returns on their
promotional investments.
Over the past two years ACNielsen has conducted hundreds of
price modelling projects for clients across Asia. The results
reveal much about consumers attitudes towards price promotion,
but also the diversity that is Asia.
The majority of categories have relatively low price elasticity,
with 70% of them below 2.0 and 35% below 1.0. The average
category elasticity is 1.5 which shows that an overall price
reduction in the category of 1% yields only a 1.5% lift in
average sales.
Category Growth or Cannibalisation?
Paradoxically, although many FMCG categories appear to be
relatively price inelastic that doesn’t necessarily
mean that individual brands are not sensitive to price change.
The average brand elasticity in Asia is 2.3 – a 1% price
cut yielding a 2.3% lift in average sales volumes of that
brand.
Therefore, with
an average brand elasticity of 2.3 and an average category
elasticity of 1.5, it indicates that there is considerable
cannibalisation taking place between brands within categories.
Price promotion does not necessarily grow category sales for
the retailer.
Identifying through modelling where the additional (promotional)
sales come from – incremental to the category, stealing
from other brands, or a combination of both, can be crucial
for both the supplier and retailer to understand. Only then
can both parties agree mutually beneficial promotional programmes
for the future.
Food & Beverage Brands Have
Higher Average Price Elasticities Than Either Personal Care
or Household Brands.
Although Food &
Beverage brands achieve higher sales lifts on average compared
to Household or Personal Care, a high proportion of these
sales come from other brands within the same category. In
other words, a significant amount of brand switching is taking
place in the short term. This has implications for marketers
in terms of both tactical pricing and establishing longer
term brand loyalty.
Malaysia and Hong Kong Have Highest
Average Elasticities
Geographically there appears to be great diversity across
Asia’s borders with Malaysia and Hong Kong consumers
being the most responsive to price fluctuations. Both countries
have average brand elasticities well above the Asian norm,
indicating that price changes have a stronger influence on
the consumer. In countries like Indonesia, Philippines and
Korea the corresponding statistics are less than 1.5, showing
that consumers are less sensitive to change.
One causal factor for such disparate elasticities may well
be the nature of the retail structure in each country allied
to disposable incomes and shopping habits of the consumers.
In many rural or semi-urban regions consumers simply may not
have the cash available to make multiple purchases of attractive
offers, preferring to buy only when there is a need.
In contrast the more developed retail markets, which are increasingly
dominated by modern supermarket and hypermarket chains, bring
a greater emphasis to price and promotion. In these countries
many consumers consider pricing and convenience to be primary
factors in their purchasing decisions.
The key questions for marketers to consider are: what benefits
accrue from price promotion? And what would be the most profitable
pricing point for their brands? Too often brands are blindly
promoted, without due consideration of the longer term issues
of brand loyalty, brand health and the category dynamics.
Indeed price promotion alone may not give the best returns
on investment. Other forms of in-store promotion such as displays,
coupon redemption schemes, etc are often found to yield much
greater volume lifts. The key is to be able to evaluate the
relative contributions of the marketing mix
Given the dynamism of most markets and the fact that most
promotional effects are short term, ongoing evaluation is
essential. Responsiveness to promotion varies between categories,
across countries, and within countries there can also be large
differences between different store formats and regions.
Promotions provide great opportunities, but also have significant
risks. Data modelling is one tool that can help realise the
best returns on sizeable promotional investments.
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