Understanding the strategies adopted by FMCG firms can help save a bunch of money in your monthly bills.
FMCG (Fast Moving Consumer Goods) companies have managed to become one of the most successful firms on this planet, in terms of sales growth and profitability. This is great news for the shareholders but not so sanguine for consumers. Although the products sold by FMCG firms are fairly mundane — soaps, toothpaste, soda etc. — they add up to significant amount of annual consumer spend and are highly profitable to the firms that sell them. Some reasons for the enormous success of FMCG sector compared to other industries are: 1) The products have low price per unit, so consumers don’t feel the pinch; 2) Their smart marketing strategies make the consumers feel that the product is indispensable and encourages higher consumption even when it is absolutely unnecessary; 3) Consumers believe that the products offer so much more in “features” than what they pay; 4) The product features are insignificant in terms of cost-to-manufacture and may not even be “real” for that matter, enabling a high profit margin for the firm.
vA great example of an unnecessary but hot-selling product is “cola”. There are only two cola companies and they keep getting bigger. I can’t think of any reason why soda should cost that much…but there is a tacit understanding between the players to not tamper with the price (thanks to the duopoly). Combine this with ubiquitous celebrity-ridden advertising (where men jump out of skyscrapers to grab a bottle) and every time you feel thirsty, you want to have cola instead of water — to the extent of addiction. This is despite the fact that the latter would actually quench your thirst better while the former only leaves you de-hydrated. Ever calculated how much money you spend on cola in a year?
Let’s take another example, toothpaste. The most basic white toothpaste (with no stripes, or any other bells and whistles) would suffice. Many scientific studies have proven that it’s the manner of brushing that matters more than the kind of toothpaste you use. But we have all kinds of fancy pastes in the market — some claim to have seductive power, some even offer the moon on your teeth! And, we buy the more expensive varieties without realising that they are not necessary and may not be of any more help than their cheaper cousins.
Ask any good dentist and he/she would recommend that you just use a pea-sized portion of the paste when you brush your teeth. Yet, toothpaste ads display the entire length of the bristles in the toothbrush being filled with paste (as if the guy’s getting ready to brush a crocodile). I bet most people blindly follow such pictorial depictions and fill their brush with paste (thinking that’s the right thing to do), without even realising that it’s not required! One individual using a little extra toothpaste may not be a big deal to a large corporation that sells paste. But imagine, what if the entire world is using twice or thrice the amount of paste that it needs. That’s 100 to 200 per cent more revenues for the firms that sell them.
You would have never thought that the size of the nozzle could be an important issue in packaging consumer products. When you buy toothpaste, do you think it is better to go for smaller tubes or bigger tubes? Obviously, you would think the large tube works out cheaper. But the reality is a bit different. Bigger tubes have nozzles with bigger diameters. So, in effect, you use more paste per day!
The nozzle issue doesn’t end with toothpastes. It seems to have penetrated hand-washes too. Recently during a Sunday trip to the supermarket with the missus, overcome by the desire to make my presence felt, I did some comparison-shopping to identify the cheapest liquid hand-wash available in the store. But soon I realised it was not so cheap after all. The pump and the nozzle system were just overenthusiastic. Even a small press and it would dispense excessive amounts of the liquid. On closer examination, the nozzle was too big and the pump was too broad, and this made it multiply any pressure exerted on it. Within a few days the dispenser was empty and I had to get a refill (which, as funny as it may seem, filled only three-fourths of the capacity of the original container…what a mastermind). Suddenly I felt the good old soap bars are so much better and cheaper than the fancy liquid hand-washes.
It is common in our country (all over the world?) for women to lay extra emphasis on natural ingredients when it comes to beauty products. As sad as it may sound, the reality is that it is not possible to make an entire bar of soap out of 100 per cent natural ingredients. Most of the stuff in a soap, shampoo or skin cream is made from synthetic chemicals, including the “natural smelling” fragrance that produces better aroma than the real thing! Check the ingredients in your skin product, you will either notice an insignificant portion of the key ingredient that captivated you (e.g. sandal, honey etc.) or find no trace of it! Of course, all this has no bearing on the marketing of the product which revolves around a celebrity wallowing in a tub filled with gallons of milk, hundreds of almonds, kilos of saffron etc. (I sometimes wonder if this is really what women want.) The best part is when the ad goes on to show the entire contents of the tub get condensed into a bar of soap!
Can we ever outsmart the intelligent marketing behind fast-moving consumer goods? I think it’s definitely worth a try.
The writer is a finance specialist and a consultant. You can reach him at: firstname.lastname@example.org or www.shyamscolumn.com