Competitive Advantages of Fmcg Companies free essay sample

Discuss if these competitive advantages are sustainable and suggest how these companies should further develop their competitive advantages in future. The case study talks about how fast moving consumer goods (FMCG) achieve competitive advantages in marketing. A company is said to have a competitive advantage if the company has greater profitability comparing to the average profitability of his rivals and have better profit growth than other companies in the same industry (Smallbusiness , 2013). Competitive advantage is gained by having the strengths and competencies which are hard to catch up by other companies. Through these strengths and competencies, the business is able to differentiate its products and services, or significantly reduce its costs, or in other ways to stand out among its rivals. The case study mentioned three competitive advantages, namely cost advantage, differentiation advantage and brand recognition advantage. To explain these competitive advantages, first we need to understand the FMCG, which is contrast to the durable goods. FMCG Fast moving consumer goods (FMCG) is also called Consumer Packaged Goods (CPG). FMCG have the feature of quick turnover and comparatively low cost. FMCG including so many products you can find some in super markets such as shampoos, soaps, soft drink, snacks etc. It also includes those non-durables like bulbs, plastic goods, batteries and so on. FMCG have very short usage life, mostly within one year, and a lot of some are disposable. As the single price of a FMCG is low, therefore the profit per item is also low. But the total profit of a FMCG company can be very large because the items are sold in large quantity. There are a lot of well know FMCG brands such as Nestle, Unilever, Procter Gamble, Coca-Cola, Wrigley etc. Competitive advantage and sustainable competitive advantage As the competition in the business world become more and more fierce everyday. While a company may be a market leader today, the status might be changed overnight. Having competitive advantage alone is not sufficient. The key factor for long-standing growth is sustainability, which means the ability to maintain a competitive advantage. Cost advantage Low price is not a sustainable competitive advantage because prices can change almost instantly. FMCG industry is highly competitive. Competitors can also change prices at any time, which means, competitors can immediately copy any price strategy that attract customers. This attracting price buyers’ strategy is not sustainable because price buyers are not loyal, they are looking for the lowest price. Once your competitor figures out how to sell a similar product for less, you will be in trouble. In order to be sustainable, companies need to keep cost low which can be done through operational efficiency. Wal-Mart is an example of cost leadership which is very successful. It is continually focused on efficient performance. Efficiency is the comparison between inputs and outputs. Inputs can be raw materials, labor cost, management cost that is spent on products or services. The outputs are products produced or services performed. Company which are able to achieve high efficiency for the same service or product can have bigger profit margin by widening the gap between product cost and its selling prices. Companies can enhance its efficiency either by reduce inputs or increase output or the two work together. There are many ways to reduce inputs. The first one can be looking for cheaper raw material suppliers. The second is to reduce labor cost by training employees as the time spent on each individual output is decreased. The third is to reduce waste. Reducing waste would increase efficiency. For example, for a bottling manufacturer, during the bottling process, 10 gallons of liquid are spilled every day. If the amount of wasted liquid can be reduced, efficiency will increase. Increasing output can be done by reducing the downtime. For instance, a machine break down is a waste of resources. If the company can find a way to eliminate this downtime, the number of outputs will be increased. Differentiation advanatage In the FMCG industry, one effective way to make a company stand out from so many competitors is differentiation. Differentiation means making the business or brand out by offering unique features, benefits or services. It helps to create a perception of receiving something of greater value than it offered to customers. Nowadays, companies are always trying to distinguish its offering from others. In FMCG industry, RD departments in every company are looking for achieving a competitive differentiation in product features. They can design different product packaging, make a special formula of ingredients for a product, or create a particular brand name or slogan that makes the customers to have the perception that the product has something special etc (Levitt, 1979). In instance, L? Oreal which is an international cosmetics company, has the creative slogan â€Å"Because you are worth it†. It successfully attracted customers, especially women. Believed in the slogan, they have the sense of superiority when purchasing the products. According to Dr. Andrea Grimm, Dr. Astin Malschinger (2010), (Grimm, 2010), there are seven differentiation strategies. The first strategy is product differentiation, which means the product can offer something different than the other product in the same category. Dr. Pepper is other example of product differentiation. It creates a differentiation by a special formula: a different taste. Second strategy is unique characteristics. It is also called extra-large strategy. The goal is to persuade customer that they are able to get something special that other product cannot give them by buying this particular product. That is to say, the product has a unique functionality. This functionality can offer something that other products cannot offer. An example is the Muscle Milk. It consists not only of milk but also added omega oils, Vitamin C which makes it have special functionality. The third strategy is price differentiation. For example, the trend of saving money has led in some countries to the practice of selling sterilized milk at a lower price than that of refrigerated fresh milk. The forth strategy is Niche-offers. It means finding a special niche in the market that is very different form the best-known mass-market products. For example, milk producers in Canada position long-life milk as an attractive product for use in holiday homes and camping sites. The fifth strategy is differentiation through services. The product is still the same, but additional services will be offered. The additional services motivate customers to purchase the product. An example for this is the home-delivery of milk. The sixth strategy is product differentiation through direct communication. If the product has no distinctive qualities, a direct communication with customers can compensate. Communication can be focused on all the different everyday uses of the product as well as the value for money it offers. For example, Fair-trade milk, based on the concept of Fair Trade, milk can be sold for an extra 5% or 10% for the local farmer who produces it. This can be done either through special packing or simply by a sticker on the original product. The seventh strategy is making the difference purely through the packing. When the difference between products in the same category is not much, then packing serves as an important function. It becomes essential that the consumer immediately judges the product by the information on the packaging and the general impression that packaging makes upon the consumer. All the essentials of the packaging, colour, print, form, etc. combine to communicate importance differences in the perception of the consumer. For example, the Australia brand Moove Milk which is a special milk-drink targeted to young consumers. The interesting logo of horns is very appealing to youngsters and caters for their taste. They use vivid colours to represent the different flavours of the product. Brand Recognition FMCG companies can achieve sustainable competitive advantage through brand recognition. Branding plays a very important role in FMCG industry because there are too many products in the market. It plays the role as a powerful tool to create differentiation and higher store presence. It is essential for companies to have their bands identified from others because the highly competition in FMCG industry. A brand operating in FMCG industry is very necessary and has high return though it cost a lot to establish the production of FMCG brand as the mass production total cost is very high. But companies can enjoy the benefits of economies of scale. As internationalization develops, brands can be built worldwide. Companies have to take the global implications of marketing into consideration. Gaining a brand leadership in the global market is crucial for a company to be successful. In the FMCG industry, the brand loyalty is very low because many brands offer similar product quality. The best way to communicate with its targeted customer is advertising. Successful brand advertising can build the connection with customers. A successful brand can create a strong, positive and lasting impression to customers. As a FMCG company, creating a trust towards its brand in minds of consumers is essential. This trust is established by offering better product quality and customer satisfaction. When the trust is built, it can result in customer re-purchasing. The brand trust can reduce consumers’ time for making decision. Consumers do not have to go through the time consuming process in consideration, because the brand name tells them the information about the quality, price, and features of the product. Advertisements can help build brand recognition in customers. A successful FMCG company can use their band recognition as leverage to enter into a new market. For example, MacDonalds and Coca Cola use their brand names can easily establish themselves in foreign markets.