Balancing trade-offs – how consumer products companies are adapting to the new normal

Every year, consumer product leaders gather at CAGNY to share their perspectives on past performance and outlooks on the future. It’s always interesting to hear their focus of attention as much as to identify what’s not being mentioned and addressed. A persistent underlying theme I heard throughout this year’s conference was the strategic trade-offs many have had to make to navigate today’s ongoing disruptions. The trade-offs are multiple and complex (and I’ll explore three below) but there is no opportunity to rest, the “new normal” we long hoped for is one of adapting to polycrisis and sustained agility.

Trading volume for margin – competing with private label

Throughout the conference, companies were making the biggest and most significant trade-offs to meet margin expectations by raising prices. They acknowledged that these actions would result in volume declines as consumers would likely trade down due to the ongoing cost-of-living crisis. To keep their share, ways to combat private label were critical to get right, with innovation and marketing key ingredients. To create new added value to existing products, CP companies are spending more on R&D but at the risk of margins. New products come with a trade-off – retailers often test demand for them first, not giving them the optimal shelf space commanded by known high volume products, and they need their own marketing and advertising budgets to is help win consumers despite the margin expansion. Clearly, these actions are necessary for today but are not sustainable for the future.

Trading ROI today for ROI tomorrow – protecting future value

CP leaders also shared that they are continuing to invest in technology and digital tools to minimize future trade-offs which could include losing share to private label, losing shelf space, and resources spent on failed product/innovations. For example, to understand the potential impact on volume from a future price increase, companies developed their own digital tools to test elasticities. AI was being used to accelerate innovation processes by helping companies make better decisions about which innovations to invest in over which ones to leave behind. And B2B digital tools are helping find a common agenda between companies and retailers by sharing insights that prioritize their brands over private label. The growing use cases of technology are helping companies capture the maximum margin from consumers, improve overall innovation success rates, and prevent any future loss of shelf space.

Trading consumer expectations for market differentiation – creating sustainable products

For CP leaders, this was where they highlighted their latest initiatives to impress CAGNY’s audience of investors and analysts – but even these presented their own trade-offs. Companies are adapting their products to better meet the growing demand to be healthier and more sustainable from both consumers and governments. Whether it’s less salt or sugar in food, plant-based meals, less or no plastic in packaging, palm oil free or zero/low carbon footprint, brands are adapting their products and portfolios. But it’s complicated to recreate the same taste, texture, appearance and quality when substituting one ingredient or approach for another. These new products – often brand extensions – impact the expected experience many consumers often associate with their products potentially trading customer satisfaction for customer expectation.

Premiumization was another initiative that many were pursuing in efforts to expand margins further, often borrowing from or collaborating with sectors where consumers are willing to pay more. For example, personal care products took cues from the beauty industry and beverages collaborated with spirits to create new products. But now we have come full circle and are back to trading volume for margin.

These are such disrupted times for CP companies, it’s no wonder that they’re having to make difficult, complicated and multiple trade-offs, staying nimble is critical to staying visible and relevant. Continually innovating, being prepared to make investment and sacrifices, and pivot from established plans or tried and tested methodology, have brought new meaning to agility long discussed over the past decade. This is further reinforced in my conversations with CEOs for a report my team is writing with the Consumer Goods Forums – they tell me operating in polycrisis conditions and continually making complex adjustments trade-offs is causing fatigue. But I am sure these efforts to increase brand value and margin will be successful, CP companies are well used to adapting to consumer behavior and market conditions. Afterall, they’re adapting alongside consumers who are making their own trade-offs too.