P&G, Nestlé bet on brand equity amid rising prices

Major global firms – among them FMCG titans like Procter & Gamble, Unilever and Nestlé – are betting that consumers will put up with rising prices and stick with named brands, in what will be a significant test of their marketing power.

The story, per the Wall Street Journal,  is that, rightly or wrongly, firms are not yet seeing impact of higher prices on consumer preferences, and are therefore telling investors that they expect sales and profitability to continue growing.

The context

• Key to this is Procter & Gamble’s announcement last week that it would raise prices – an important moment in which the firm will show if its brands can maintain market share.
• Inflation is on the rise across many of the world’s advanced economies, with supply-side constraints causing prices to spike for consumers and costs to rise for companies.
• FMCGs are likely in a strong position, however, as even with economies re-opening, people continue to spend more time at home than they did pre-pandemic.
• Nestlé observed people are drinking more of the firm’s coffee at home and they’re drinking better coffee, i.e. they’re spending more.

The trouble with pricing

Pricing should be of profound interest to marketers, given its position among the four key pillars (the 4 Ps) of the marketing discipline as proposed by Kotler and McCarthy. Effectively, brands will have trouble getting people to pay more than their perceived value – marketing activity and understanding is critical here.

Inflation may be rising now, but many people haven’t yet felt it in their pockets. As price pressure grows, many people will trade down to private label or cheaper brands.

It does all come down to whether big brands with established names – often considered a safe bet – will have more success in protecting their margins than smaller brands or brands whose competitive pricing sets them apart.

Price rises can be tricky business, and often rely on elements outside the company’s control, not least the behaviour of competitors. Others, meanwhile, may opt for a quieter defence of margins through the suite of product adaptations that some have called ‘shadow inflation’, and selling a little less product for the same price.

Sourced from WSJ, FT, WARC