Consumer Goods Categories Research Articles

Incentive Outlay Ratios in Fast Moving Consumer Goods Sector in India

Inflationary trends in the economy have led to increased media costs forcing many companies to increase their expenditure on sales promotion activities. It has been recognized that well-planned sales promotion activities have a strategic role to play in brand building and enhancing customer loyalty. This study examines the nature of schemes offered in the fast moving consumer goods (FMCG) category, finds out the ratio of incentive and outlay (which the consumer is expected to make/pay to avail sales promotion offers), explores the relationships, finds out the rationale behind these offers, and provides guidelines to managers designing sales promotion activities. Eight different product categories were selected for the study. Information on actual offers made in these categories in a quarter was compiled and tabulated through content analysis in terms of brand, maximum retail price (MRP), offer (size of the incentive offered), nature of the scheme, pack being promoted, and outlay. The following findings emerged from the data gathered and analysed: Variations in incentive outlay (I/O) ratios across product categories revealed that non-food category exhibits more variations (range) than food category. The level of incentive offered in non-food category was higher than that of food category. Bonus pack followed by free gift and price-offs were the popular tools used across product categories indicating use of similar type of schemes without much innovation. More often, medium to large pack-size was promoted in all categories except the toilet soap category indicating �load the consumer� as the main objective and thereby warding off competition temporarily. The findings suggest that managers need to be creative to create an impact; otherwise, consumers would tend to be less loyal to any brand in a category and drift from one promoted brand to another. They need to give careful thought as to what objectives need to be achieved from whom (loyal, competitive loyal, switchers or non-users). They also need to do a proper analysis by linking sales during promoted period to overall sales, baseline sales, competing brand sales, and impact on trade and consumer behaviour and evolve guidelines with respect to terms and conditions of the offer in terms of size of the incentive, terms, whether immediate or delayed incentive, what efforts are required on the part of the consumer, etc. Before determining the size of incentive to be offered to the consumers, managers need to consider several factors such as level of competition, available budget for the brand, reputation of the company introducing a brand, consumer behaviour, competitive promotional offers, and level of price of a brand vis-�-vis competition. A study of I/O ratios across product categories reveals interesting practices followed by companies. Exploring reasons behind such practices would give insights to managers as to why practices differ from theory and provide guidelines in managing these activities.

Another look at loss aversion in brand choice data: Can we characterize the loss averse consumer?

Much research has focused on the effects of reference prices on brand choice decisions using scanner panel data. The theory and application are well-documented and accepted. However, researchers have found contrary results on the existence of loss aversion in consumer goods markets. Loss aversion is a phenomenon based on the reference dependent theory that consumers respond more to losses (reference price < price) than to gains (reference price > price). The mixed results on the existence of loss aversion can be a result of not adequately accounting for consumer heterogeneity in response to marketing effects. Therefore, we focus our analysis on loss aversion and adequately accounting for consumer heterogeneity. We estimate a reference dependent model with a mixed logit specification that allows for a continuous distribution of response heterogeneity in the population. We use Gibbs Sampling to obtain individual estimates. Our estimation results from two different consumer goods categories, which show that the degree of loss aversion is small after properly accounting for heterogeneity. Further, we accomplish a posterior analysis and investigate whether the individual response to gains and losses can be attributed to consumer specific characteristics. The relation of the estimated individual specific variables to households' sociodemographic and psychographic variables as well as to observed purchase behavior reveal interesting insights into which consumers respond more or less to price deviations from their reference point. Hence, our results are important for the development of effective pricing strategies and the timing of price promotions.

Assessing the impact of a very successful price promotion on brand, category and competitor sales

Many studies have examined the short‐term and long‐term effects of price promotions. This study adds to previous research by examining, in some depth, the effects of a massively successful price promotion in a consumer goods category. This study sought to determine if this large price promotion had any: longer‐term effect on brand volume; short‐term effect on total category volume for the retailer; short‐term effect on competing retailers; and longer‐term effect on category sales for the retailer that ran the promotion. The results showed that this promotion did not have any longer‐term (positive or negative) effect on the brand, but it did expand the total category for the retailer, albeit temporarily. Sales dropped slightly for one competing retailer at the time of the promotion, but not for the other two retailers in the market. Finally, the study found that the promotion was followed by a decline in total category volume for the retailer, suggesting some degree of purchase acceleration or stockpiling by consumers. The results suggest that the longer‐term negative effect on category volume cancelled out approximately two thirds of the gains of the price promotion to the retailer.

In Marketing Across Cultures: Are You Enlightening the World or Are You Speaking in Tongues?

You probably understand the title of this article if you are a Christian. If you are not, you probably do not. That is how important frame-ofreference is in communication. Humans internalize communications within their frame-of-reference and experience. If communication is conceived outside of that, it often is either misunderstood or not understood at all. Yet, today in marketing, communication mostly is conceived by a small minority for a vast majority of recipients. Recipients will either understand such communication, which means that it will achieve its core objectives to sell or persuade, or they will not understand it, resulting in marketers standing little chance of achieving their objectives. The opportunity cost of marketing therefore is huge: there often is only one chance to convince a market. Despite years of talking about globalization, real global brands with significant market shares all around the world are few. In many places, notably Europe, Latin America, and South East Asia, local brands still do well in many fast-moving consumer goods categories. The implication has to be that many of these brands satisfy local needs, hence retain their local strengths. The global brands that have been dramatically successful mainly stem from the United States of America, Japan or selected European countries such as the United Kingdom, Germany, France, or Italy. Whereas the United States and Japan, tend to dominate with mass global brands including McDonalds, Coca-Cola, Pepsi, Microsoft, Sony, and Toyota, Europe tends to dominate the specialist areas of chemicals, pharmaceuticals, fashion, food, wine, tourism, and luxury goods., A major caveat for globalization is how to straddle, on the one hand, the economies of scale integral to international distribution with sales and local customs, needs and peculiarities on the other hand. It is fair to say that most international brands have achieved global status through sheer trade, distribution and marketing clout, rather than through excellence in matching local needs. In the process, these brands have attained the status of global icons, becoming cultural systems in their own right that speak a universal language from Lima to Jakarta. So, the globalization of business still faces a unique challenge: namely, to successfully customize a message to a specific market in a given socio-economic and cultural context, while retaining the appeal of a global cultural icon. For most fast-moving consumer or mass-consumer goods categories, greater 1 H. McRae, The World in 2020(London: Harper Collins, 1994).

Patterns of purchase loyalty for retail payment methods

While retail payment instruments generate more revenue than many fast moving consumer goods (FMCG) categories, surprisingly little is publicly known about market structure and purchase loyalty. This paper reports a study of shoppers’ use of payment methods in three New Zealand retail categories (n = 310). The study identified shoppers’ “main” and “other” payment methods, and examined relative penetration, patterns of purchase loyalty, and repertoire size. The results showed that well‐known patterns of FMCG purchase loyalty also applied to retail payment methods. These patterns were stable across categories, implying retail payment methods are a mass market rather than a segmented market. The results also showed that, despite New Zealand being one of the most advanced cashless societies in the world, the market for electronic funds transfer at point of sale (EFTPoS) is far from saturated. This knowledge should prove useful for practitioners seeking to understand patterns of competition in retail payment methods, and for academics hoping to apply models of consumer behaviour to financial services.

Why Brands Grow

ABSTRACT What causes brands to grow over time? The article addresses this important question. Measures of market share, market penetration, customer loyalty, and price were gathered in two time periods, five years apart, for 353 brands in 21 categories of fast-moving consumer goods. We used these data to study share growth over time. Key findings include: (1) growth must be earned, even for brands that have been successful in the past; (2) increased penetration is the key to share growth, and especially dramatic share growth, for all types of brands; and (3) customer loyalty strongly leverages the effects of penetration. This paper extends upon work by Baldinger and Rubinson (1997) in demonstrating that the way to grow brands is via a combination of penetration and loyalty growth.

Measuring the Short-Term Effect of In-Store Promotion and Retail Advertising on Brand Sales: A Factorial Experiment

In a replicated in-store factorial experiment with 12 national brands in six nonperishable consumer goods categories, the authors find price deal elasticities in the [2–11] range, with larger values for smaller brands. Those elasticities increase 20% to 180% when deals are advertised by the retailer; the rates of increase are smaller for the leading brands. The price deal cross-elasticities of the higher priced brands are found to be smaller than those of the other brands; they are in the [2–2.7] range. Optimal retail deal rates are shown to be robust to model specification.

Modelling Price Expectations in Intertemporal Consumer Demand Systems: Theory and Application

ONE of the most puzzling dichotomies in economics is that between the microeconomic theory of consumer demand and the consumption function of macroeconomics. Although there is now a highly developed literature on the specification and estimation of systems of consumer demand equations, this is basically a theory of allocation, i.e., given the level of consumption, how is it to be allocated among the various categories of consumer goods? This literature takes as given the allocation of current income between consumption and savings, and hence contributes very little to the specification of the consumption function. A notable exception to this dichotomy is the Extended Linear Expenditure System (ELES) proposed by Lluch (1973), an intertemporal model of consumer decision making which endogenizes not only the allocation of consumption across commodities, but also the consumption-saving decision, and hence generates a consumption function which is firmly based in microeconomic theory. However, ELES is based on the rather special Klein-Rubin instantaneous utility function, which will be shown below to have quite restrictive implications. In fact, when the problem is set up in terms of the indirect utility function, generalizations of the Klein-Rubin form are easily incorporated into the intertemporal optimization problem. A second generalization of ELES relates to price expectations. Most empirical applications of ELES, for example, Lluch, Powell and Williams (1977), Lluch and Williams (1975) and Powell (1973) have generally assumed static price expectations and have depended upon the continual replanning assumption to justify observed price movement through time. Where price expectations have been considered, it has usually been in an ad hoc manner. Additionally, these models have generally assumed constant (current) nominal interest rate expectations,'which would appear to be inconsistent with an assumption of stationary price expectations, since the current nominal rate of interest will include a premium for inflation. In a previous paper (Cooper and McLaren (1980a)), an initial attempt was made to integrate a model of the formation of price expectations into an intertemporal consumer decision making model at the optimization stage. Two weaknesses of this model were the restriction to the case of a Klein-Rubin utility function, and the inconsistency of the assumptions made about interest rate expectations with those on price expectations. In the following two sections we present a reasonably general model of intertemporal consumer decision making incorporating price and interest rate expectations which overcomes these two weaknesses. Section IV presents the estimating forms based on a particular choice of functional forms, and estimates using Australian data are presented in section V.

Estimation of Demand for Food and Other Products Assuming Ordinally Separable Utility

O RDINAL utility theory has long recognized the mutual interdependence of a large number of consumer goods in the budget decisions of the individual consumer. However, the formulation of empirical models which explicitly recognize the simultaneity of the many price and income effects is difficult because of the number of parameters involved. In a budget of n goods there are n2 price elasticities and n income elasticities. The symmetry of compensated price effects reduces the number to ?n(n+1) +n. The Engel and Cournot elasticity aggregation relationships further reduce theenumber by n+1, leaving (n2+n-2) parameters to be estimated. In view of the rather short span of available time-series data for some important categories of consumer goods, the estimation of so many parameters may be difficult. One could take a single-equation partialequilibrium approach and eliminate many parameters by assuming their importance to be negligible. Examples of this approach are found in the many early works of Moore, Leontief, Marschak, Schultz, and Wold and Jureen. One of the difficulties in this approach is that although each individual omitted parameter may be negligible, their combined effect may not. An alternative approach, taken in recent papers by Strotz [5, 6], Frisch [2], Pearce [4], and Barten [1] is that of postulating a utility function U(X1, X2, , Xn) for which one can specify particular effects on the marginal utilities Ui= [aU(X1X2, . . , Xn)]/OX of certain goods in response to consumption changes in certain other goods. Several intuitively tenable postulated relationships have been defined which reduce the number of parameters to the desired level while still preserving most of the simultaneity of the system. Frisch assumes that the marginal utility of a good i is not affected by the level of good j, for all i Wj. With Uij=0 for all i-j, all cross elasticities can be expressed in terms of income elasticities, a money flexibility term, and expenditure weights. Only n+1 parameters are necessary to solve the entire system.