soaps/detergents companies are focusing on getting the consumer up the value chain. Goingforward, much of the battle will be fought on sophisticated distribution strengths.
Structural Analysis Of FMCG Industry
Typically, a consumer buys these goods at least once a month. The sector covers a wide gamutof products such as detergents, toilet soaps, toothpaste, shampoos, creams, powders, foodproducts, confectioneries, beverages, and cigarettes. Typical characteristics of FMCG productsare: -
1.
The products often cater to 3 very distinct but usually wanted for aspects - necessity,comfort, luxury. They meet the demands of the entire cross section of population. Priceand income elasticity of demand varies across products and consumers.
2.Individual items are of small value (small SKU's) although all FMCG products puttogether account for a significant part of the consumer's budget.3.The consumer spends little time on the purchase decision. He seldom ever looks at thetechnical specifications. Brand loyalties or recommendations of reliable retailer/ dealer drive purchase decisions.4.Limited inventory of these products (many of which are perishable) are kept by consumer and prefers to purchase them frequently, as and when required.
5.
Brand switching is often induced by heavy advertisement, recommendation of the retailer or word of mouth.
Distinguishing features of Indian FMCG Business
FMCG companies sell their products directly to consumers. Major features that distinguish thissector from the others include the following: -
Part - III1. Design and Manufacturing
1.
Low Capital Intensity -
Most product categories in FMCG require relatively minor investment in plan and machinery and other fixed assets. Also, the business has lowworking capital intensity as bulk of sales from manufacturing take place on a cash basis.
2.
Technology -
Basic technology for manufacturing is easily available. Also, technology for most products has been fairly stable. Modifications and improvements rarely change thebasic process.
3.
Third-party Manufacturing -
Manufacturing of products by third party vendors is quitecommon. Benefits associated with third party manufacturing include (1) flexibility inproduction and inventory planning; (2) flexibility in controlling labor costs; and (3) logistics- sometimes its essential to get certain products manufactured near the market.
2. Marketing and Distribution
Marketing function is sacrosanct in case of FMCG companies. Major features of the marketingfunction include the following: -
1.
High Initial Launch Cost -
New products require a large front-ended investment inproduct development, market research, test marketing and launch. Creating awarenessand develop franchise for a new brand requires enormous initial expenditure on launchadvertisements, free samples and product promotions. Launch costs are as high as 50-
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