Consumer Price Pushback Ripples Up the Supply Chain

Remember when producer price increases were automatically passed along from top of the supply chain down onto customers? Very easy way to do business. No link on the chain had to take a hit and absorb increases–except for the end link, consumers, who took it in the shorts. Well, forget about those “good old” days of our previously seller-driven economy. Consumers are up in arms and saying, “We’re not going to pay it any more!”

What does that have to do with brands and brand strategies? Much more than you mightyexpect.

Role reversal

No surprise that economic woes are forcing consumers to “shop down.” Shoppers in droves are abandoning top brands for lesser ones or buying generics and store brands. We all saw that coming. But what’s much less transparent is the phenomenon of consumer price pushback against retailers actually reversing the traditional, top-down flow of pricing decisions. Retailers responding to consumer price pressure have started going up the supply chain trying to dictate consumer price points to producers–and with considerable success.

With with pricing among the pillars of brand strategy, brand managers are up a creek without a paddle.

The picture at street level

Today, consumers are price shopping damn near everything, including what we’ve long considered commodity products. Many higher priced brands are taking a hit, or will. In “normal” times, brand marketers would respond with loyalty programs, value-differentiating brand advertising and other “push” communications. But not this time. Not if they’re smart. Because this time, influencing consumer behavior is a.) from difficult to impossible; and b.) not the key issue.

Increasingly, brand managers have to change retail management behavior, and brand advertising does squat to support that.

Case in point

Take high fashion, where retailers are forcing designers and brands to not just lower pricing incrementally, but move to an altogether lower price category. On second thought, I just realized you might not want to read whatever I’d write about high fashion. So let’s take groceries, instead. That’s right up my alley.

Several major supermarket chains, Safeway latest among them, have already told the General Mills, Kelloggs and Krafts of the world to a.) drop their premium prices; or b.) lose precious shelf slots to make way for lower priced goods. A prime example, I’ve been buying for my teenager a premium price, Kraft sharp cheddar macaroni and cheese. His very favorite dinner to make himself when he won't eat what my wife and I are having. And were he to tire of sharp cheddar, our supermarket stocked several other premium flavors. But a couple weeks ago, I hit the pasta aisle, only to discover all the Kraft, premium mac and cheese products, except for the “vanilla” original flavor, replaced by (gag me) Kraft Velveeta mac and cheese. Actually, I should call it mac and “cheese food product” because Velveeta’s no cheese genre. It’s the leftovers from making real cheese plus scorched stuff, all boiled down together into bright orange glop the consistency of Elmer’s wood glue. Can’t use it for carpentry though because it stains the wood.

Anyway, Kraft got the message.

Brand managers between a rock and a hard place

And Tesco, perhaps the smartest grocery biz alive? It’s not only forcing the price issue but well into upping shelf allotments for house brands and generics, which has to come out of shelf space for the big brands. In effect, Tesco and others are forcing big traditional brands to compete with generics and store brands for share of shelf space, without which competing for share of increasingly skinnier shopper wallets is futile. So what’s a poor brand manager to do? Diminish a brand’s cachet by dropping price down to a lower price category? Hey, good luck restoring the original price (and brand cachet) after the recession. Or, how about giving up shelf space and swallowing hard? Good luck reclaiming space after the recession, after consumers have discovered that many store brands taste as good and clean as well as what's advertised on television.

Glad it’s not my problem, but thinking about long-term repercussions and brand manager options will be good brain food.