Will price pressures usher in a new era of direct selling?
The promise of owning the customer journey and not being subject to the vagaries of the third-party relationship is one all suppliers must covet.
What do you think are the “toughest jobs in marketing”? Challenges faced by those working in the energy, tobacco, soft drink and payday lending sectors are often cited. How do you overcome the regulatory and reputational hurdles that most marketers will never face and does this make you a better marketer?
FMCG and retail tend not to be represented, but marketers working in either category could find their jobs are about to get a whole lot harder. Last week, it was revealed that Tesco had played hardball when Unilever tried to pass on a 10% wholesale price increase, an attempt to offset higher import costs and the result of the weak pound since the Brexit vote.
‘Marmite-gate’, as it has been dubbed, was over and done with within a day of news breaking, with both parties taking a hit but both, according to our columnist Mark Ritson, having some cause for celebration. Pressure on prices, however, is not going away.
The ‘hedges’ – essentially insurance policies against currency fluctuations – that retailers have in place giving them licence to discount in the crucial fourth quarter only take them up to the year’s end, according to an analysis in the Guardian. Retailers are faced with higher wholesale prices but the continued expectation from customers of price promotions.
For marketers at retail brands, this puts great pressure on their pricing strategy, and more importantly profit margin. For those at manufacturer brands importing to the UK – clothing, food, electronics and FMCG are likely to be most affected, it adds to the capricious cycle of price fluctuations that have a damaging impact on brand equity and loyalty.
If we are to accept this is a short-term reality for retailers, silver bullet solutions are difficult to find. For suppliers such as Unilever, does the opportunity lie in direct selling? The company splashed out $1bn to acquire Dollar Shave Club earlier this year, an online only subscription service that delivers razors straight to customers’ doorsteps for a fixed monthly price.
While this does not yet offer Unilever the same profit opportunity as cordial relationships with retailers, it does offer control over price, brand and distribution.
The promise of owning the customer journey and not being subject to the vagaries of the third-party relationship is one all suppliers must covet. Pressure on the pound will not usher in a new era but it certainly won’t slow it down.