6 Sales Problems That Reduced Pricing Cannot Solve

Ever so often FMCG companies struggle to meet product sales targets or they seek to increase their sales in a big way.

9 times out of 10 the go-to solution is to reduce prices hoping that it would skyrocket sales.

5 times out of 10 this is an effective approach.

But there are sales problems that loom beyond the influence of price reductions.

These are six of them:

1.      Poor product quality: Nothing about a product being cheap makes up for consumers getting zero (or next to zero) value because of its piss-poor quality. Such a product is not cheap; it is worthless; a total waste of its consumers’ hard-earned cash. Consumers would be fooled once, but rarely twice. Trust them to also ‘de-market’ this product. Sales would even nose-dive as a result.

Insight: No matter how cheap your product is priced to be, ensure that it provides sufficient enough (excess if possible) value for money as per consumer expectations.

2.      Product/market mismatch: No matter how cheap ice is sold in Alaska for, the venture would make for a losing proposition. But sold in a desert, minting money is the natural consequence. A cheap product sold to the wrong target market would always be too expensive to buy because it would be useless to the buyer.

Insight: Ensure product-market fit is spot-on before attempting discounting.

3.      Poor product availability: Sales performance, as a result of price reduction, in a territory where product availability is zero is zero. Price reduction is useless if the product is not available for purchase.

Insight: Fix production capacity and distribution issues first, before fixating on (reducing) product pricing. It makes no business sense to constrict sales profits (by lowering prices) if sales volumes/revenues are not positioned to go up.

4.      Scandal: A product tainted by serious health, safety and reputational events would be significantly or totally avoided, by consumers, depending on the nature and severity of the issue. In extreme cases, even giving the product out for free would have few (if any) takers.

Insight: A total revamp of the product should first be undertaken spanning redevelopment, rebranding, public engagement amongst others. Price reduction as a stratagem only becomes effective if and when public perception of the product reverts from negative back to positive.

5.      Poor to no product awareness: It would take nothing short of a miracle for an unknown product, in a hypercompetitive Nigerian FMCG environment, to push heavy volumes without any form of product awareness activity. Granted, making the product available is a form of awareness in and of itself, but if the category is competitive (i.e. competitors are spending serious marketing time and resources on awareness and their products are equally available and price competitive), then it makes almost no difference if the unknown product’s price is reduced or not: it would be a sales failure.

Insight: Product awareness is non-negotiable in FMCG. Companies, even those with tight budgets, seeking to grow sales volumes significantly must find creative ways to boost awareness. Consumers buy products that they know well. By and large, they avoid those products that they do not know of or know well.

6.      Channel margin inefficiencies: If reducing prices for consumers means that the margins accruable to the sales channel (distributors, wholesalers and retailers) would also reduce considerably, the channel would stifle the sales growth intentions of the FMCG company. This is Basic Survival 101 (for the channel participants). Considering that most FMCG products are competing with others for the sales channel’s business, this can also be a ‘Suicide Mission’ for the FMCG company in question.

Insight: Consider a win-win scenario where sales channel’s margins are defended (in some cases enhanced) as part of the price reduction regime. The sales channel is the key ‘push’ driver of sales volume growth. If the channel is happy, achieving the downstream goals of the price reduction effort (i.e. sales volume growth) would be a self-fulfilling prophecy.

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