I experienced a surprising event yesterday when a particular consumer product that I buy monthly had a sharp increase in price. The price had risen by 80% compared to my last purchase. Upon reaching the point of payment, I discovered this significant increase and decided to change my purchase. I returned the product and opted for a competing brand, which happens to be the market leader, priced 53% lower than the brand I previously purchased. In fact, I ended up buying two of the alternative brand for a little above the price of one of the original product.
This situation led me to ponder on why a market follower would be priced 53% higher than the market leader, who has a stronger brand name. What could be going on in the minds of the owners of the brand? What could be the rationale behind this pricing strategy? Are they disconnected from current market realities? Have they overlooked the declining purchasing power of consumers? Are they aware that such pricing disparities could lead to competitors seizing their market share? Could they not have explored cost reduction strategies to avoid such drastic price hikes?
This appears to be a case of corporate hubris, potentially alienating customers and driving them towards more affordable alternatives. The same way I changed my mind to buy a competing brand is the same way many other consumers would change their mind because application of discretion is the order of the day now with unlimited desires but scarce resources to meet them.
Undoubtedly, Nigeria is grappling with soaring inflation rates, reportedly the highest in the fourth republic’s 25-year history. This inflationary pressure has permeated all sectors, primarily driven by escalating input costs. Organizations are facing challenges due to rising raw material prices, forcing them to pass on these costs to consumers in order to sustain profitability and viability. Consequently, many companies are witnessing shrinking profit margins, and some multinationals are even operating at a loss due to prevailing macroeconomic conditions.
The affordability dilemma faced by consumers is exacerbated by stagnant wage growth and diminishing purchasing power. Even those who have seen salary increases find their incomes eroded by inflation, limiting their buying capacity. For instance, a father who earns N100,000 [$60] monthly will not be able to buy as many things as he used to buy because the prices of goods have increased considerably. He will have to have a priority list, which will determine what he buys or otherwise. This economic reality forces individuals to prioritize their purchases, often sacrificing non-essential items. The scenario poses a significant challenge for businesses offering non-essential goods or services during this period.
Meanwhile, competitors are actively vying for a larger slice of the market share pie. Market leaders are not immune to this competitive landscape; they too seek expansion and consumer acquisition. The fierce competition among organizations underscores the importance of considering consumer behavior and competitor reactions when making strategic decisions.
Neglecting these crucial factors can result to loss of sales and market share.
It is my hope that the organization in question recognizes their misstep promptly and rectifies their pricing strategy; otherwise, they risk substantial losses in sales and market share.
The sales teams are often unfairly blamed for sluggish sales during such periods of turmoil. I recall a similar experience from my tenure at a consumer goods company where an ill-timed price increase led to plummeting sales, necessitating a subsequent price reduction with distributor reimbursements. We had to reduce the price by N100 [7 cents] some months after with a promise to reimburse the distributors.
The above narrative underscores the need for reflection and adaptability in business operations; any hint of corporate arrogance can swiftly erode market dominance. Market dynamics demand vigilance and responsiveness to consumer needs and competitor actions to safeguard one’s position in an increasingly competitive landscape.
The fundamental question persists: Why invite mistakes that could jeopardize your hard-earned market position?
I really learnt a lot. It is good to understand that at such a time as this only cash flow and growth ( customers’ expansion) are the panacea for organizational survival in this hash economic sphere.
You are absolutely right. Cash flow is important but you must be concerned about the drop in sales when you increase price in an arbitrary manner. Put yourself in the shoes of your consumers whose purchasing power has declined considerably
Chief, Could it also be a case that both Brands had reduced prices due to the recent fluctuation in FX where we have seen most FMCG reducing prices. However, the store still had inventory of brand A bought at the old (higher) price and new stock at the lower price of Brand B…
Additionally, If the Top Mgt of Brand A refused to compensate for the price gap but Brand B is willing to compensate then Brand will sell at a lower price despite being the market leader or the “more” premium of the two.
Lastly, If the sales team of either of the Brands are very aggressive on RRP compliance this would be great changer on the pricing also….