FMCG pricing during the cost of living crisis
Growing inflation has impacted the cost of living to a great extent in all major economies. The attempt by FMCG companies to stay profitable post-pandemic has met with consumers shifting buying preferences, with FMCG companies investing more in Marketing & Promotions to lure them back, creating another cost spiral !! And as the cost of living crisis hits hard, it might just keep customers buying and staying within their budgets.
We launched an innovative solution to predict shifting consumer preferences over a year ago. It is aimed mainly at predicting product choices, formats and channels driven by market mix and changing environmental factors like a pandemic, weather, mobility, supply disruptions and macroeconomic factors.
Our software launch was well timed, as it has been instrumental in developing accuracy in forecasting and simulation of demand scenarios in current uncertain times.
Forecasting and pricing scenarios are making a significant difference in companies' market performance and profitability, as you can see in this article on Unilever published by The Drum.
Dynamic Forecasting and Scenario Simulation with all business drivers
It's necessary to understand business drivers at granularity. More recently, we began category forecasting with scenario simulations at granularity for more than 20 categories across 11 countries for an FMCG company.
We looked at some examples of category forecasts within our platform and noticed striking similarities between forecasts, drivers and actual market results. These predictive insights about drivers give an excellent basis for developing strategy and pricing.
As an example, let’s look at face care product sales drivers in the UK as predicted by our AI-based software (they’re, as mentioned, very close to actuals): The table below indicates the contribution level from each driver type. The higher this contribution is, the more impact there is on sales from those driver types.
Drivers of face care product sales in the UK:
So, what can we see from the table?
Firstly, the most significant impact on face care product sales is from marketing mix drivers: product, price, place, and promotion. Price in particular, has a very high impact, with sales changing at 2-3 times the change in price.
Following price, the second most important driver is the disposable income of consumers (a big issue at the moment, of course). A change in disposable income can have a huge impact on sales. If the price changes by 1%, the volume of sales changes by 2-3%. Disposable income is a fast-changing factor in the UK in 2022 - with the pandemic ruining some people’s incomes and allowing others to save. Now, wages are not rising in the face of inflation, which will have an impact.
Consumers tend to buy face care products from pharmacies, which means higher mobility to these stores boosts sales. That being said, while distribution does affect sales, its impact is not nearly as notable as pricing.
Macroeconomics inevitably plays a part in sales, but not as much as may be expected. This could be a good thing at present due to the general volatility of macroeconomics worldwide.
Face care is just one relatively simple example of products we can forecast for. The system works for any fast-moving consumer goods. Prediction is essential in this area because things can change quickly. With just-in-time supply chains coming under massive pressure in the last couple of years, we’re in a great position to help companies make sensible decisions before any product is wasted or consumer demand is left unmet.
The Catman AI 2.0 version of our product launched recently and features increased accuracy, scalability at low unit costs, and automated driver & explanation features.
Singular Intelligence is Nielsen Connected partner and has proven the veracity of our forecasting service with Nielsen data. To learn more, please see our joint webinar in March 2022. And if you’re interested in using Singular Intelligence within your own business, why not get started with our current trial offer?