The novel coronavirus (COVID-19) outbreak has dramatically shifted consumption dynamics around the world. As retailers have had to navigate supply chain issues and attempt to avoid consumers overstocking, we have seen a global decline in price and promotional pressure. And that’s good news for markets like Malaysia—a country that had been on a vicious promo spiral prior to the pandemic, as manufacturers channeled investments towards unprofitable promotions in an effort to appeal to deal-seeking Malaysians.
As Malaysia emerges out of lockdown and shoppers adapt to the new normal, we believe that the majority of fast-moving consumer goods (FMCG) companies and categories will experience a reboot, where they may need to reprioritise and reconsider assortment, channel dynamics and pricing. However, some categories may have to reinvent based on new consumer demand and consumption occasions, such as out-of-home/on-the-go snacks, confectionery and soft drinks.
In either of these scenarios, retailers and manufacturers should reassess their approach to price and promotions, especially within categories that are enjoying healthy demand.
Understanding deal-seeking Malaysians
Malaysians don’t just like a good deal. They love a good deal. The 2020 Nielsen Shopper Trends report found that 75% of shoppers go through a lot of effort to buy their groceries at the lowest prices, and the same number take advantage of special offers or deals.
Historically, Malaysia has been one of the most promo-reliant markets in the Asia-Pacific region—42% of sales in 2019 were a result of a price discount. This deal hunting behaviour has contributed to consumer disloyalty, as shoppers have been easily swayed to try a different brand with an appealing promotion.
However, COVID-19 has changed consumers’ priorities, and brands have the opportunity to “reset” consumers’ definition of value by understanding consumers’ needs, as well as their category’s responsiveness to price promotions.
Redefining the optimal promo baseline for well-performing categories
An optimal promotion is one that delivers a high uplift in sales, while maintaining a healthy margin. Categories that are performing well organically (i.e., without promotions) should not need to rely as heavily on promotions to experience uplift.
In Malaysia, the liquid antiseptic category is an example of one that has been over-promoted in the past. Over 20% of sales were a result of a price discount, but the overall category did not see any incremental sales in response to these promotions.
But as Malaysians increasingly prioritise hygiene due to pandemic concerns, demand for liquid antiseptic remains healthy. As such, we believe that now is a good time for manufacturers to redefine the optimal promotion baseline in order to maximise profits and decrease the promotional reliance for this category.
Simulating promotions to deliver ROI for underperforming categories
While categories like liquid antiseptic have performed well during this pandemic, there are other categories that have not. So how can manufacturers and retailers grow sales while maintaining a healthy return on investment for these underperforming categories?
Some may be tempted to incentivize shoppers by offering attractive promotions. But the reality is that price discounts may not be the right incentive to drive incremental sales for your category. In this case, marketers should simulate the optimal promotion levels to make up for the losses that we saw in the first half of 2020 in order to focus on promo mechanics that are truly incremental to the brand, range and category.
In the past, we have seen higher promo reliance in categories where promo responsiveness is typically low, like facial cleansers, where 39% of sales in 2019 were a result of price discounts.
Delivering value is the best defense against price, so rather than slashing prices in this category, brands should look into other mechanics like bundle packs with complementary categories. Manufacturers could also try launching new value-for-money ranges, which can appeal to more constrained shoppers.
Redefining value while meeting consumers’ needs
As supply chains faltered in the initial phase of the lockdown, which led to out-of-stocks, the retail landscape became increasingly fragmented with smaller retailers, direct-to-consumer models and specialty stores stepping in to provide shoppers viable alternatives to their usual retail channels.
With restrictions lifting and stock levels back to normal, consumers will be left with more choice than before. It is therefore critical for manufacturers and retailers to strike a balance between retaining shoppers via incentives while ensuring business profitability and sustainability.
The insights in this article were derived from the following sources:
- Nielsen Shopper Trends Report 2020
- Nielsen Everyday Pricing Analytics, December 2019