Market Research > Industries > Consumer Products

Market Research: Consumer Products Poised for a
Rebound in 2010

By Carrie Mellage, Director, Consumer Products


No doubt 2009 will likely go on record as one of the toughest years in the world’s economic history, leveling a serious blow to the consumer products industry. Struggling with declining sales and profits, many retailers have shuttered doors or closed down completely. However, if history teaches us anything it is that “This too shall pass.” New U.S. GDP figures already show a promising 3.5% growth rate for the third quarter, and we’re seeing signs of a slow (and hopefully steady) recovery. As we look ahead to 2010 in this issue, we’ll examine the burning question: what can consumer product companies do to get a jump on the recovery and get ahead in the coming year?

In nearly every sector, 2009 was unquestionably a rough year for the consumer markets. The news was dismal from both manufacturers and retailers:

  • Store closings (C.O. Bigelow, Crabtree & Evelyn, and Ann Taylor, to name a few)
  • Complete shutdowns (Linens ‘N Things, Fortunoff, and Illuminations bid a final farewell)
  • Discontinued brands (the legendary Max Factor and Prescriptives is no more)

Stymied by a steep increase in cost of goods sold for most of 2008 and followed by sharp sales declines in 2009, many marketers were forced to cut ad spending considerably. This leveled a serious blow to a number of magazines; some of which – including CondeNasts’ Modern Bride, Elegant Bride, and Gourmet, as well as Domino and Vibe – were forced out of print due to low ad spending. The news, however, has been relatively good for the consumer, as many of the major manufacturers turned to offering hefty promotions to retain and attract new customers.

The Bright Side
Fortunately, the news for marketers hasn’t been all bad either so long as one knows where to look. The naturals segment remains a relatively high-growth proposition from both a product and packaging standpoint in personal care and in home care. Sales of natural personal care products in the United States have grown by about 8% in 2009 – down from 15.3% in 2008, but still well ahead of the overall market. Meanwhile, U.S. sales of Seventh Generation natural household cleaning products more than doubled in 2008.

Around the world, consumers seem to have fallen in love with the idea of preserving the environment through the use of natural (or naturally-inspired) products or concentrated formulations that reduce wasteful packaging – and marketers and retailers have responded. In the BRIC countries (Brazil, Russia, India, and China), the growth in naturals has been spectacular, with each market adopting its own unique perspective on this trend. In Brazil, the naturals movement is about biodiversity and the rainforest connection; in Russia, the emphasis is on Siberian earth minerals; India’s surge is based on traditional Ayurvedic principles; and China’s long heritage of herbal medicine serves as a foundation in this high-growth market.

Value brands and value channels have weathered the storm quite well, albeit at the expense of luxury brands and retailers, as consumers look to cut costs at every opportunity. Perhaps the biggest indicator of this trend has been the incredible surge in sales of private-label products. In many product categories, private-label products registered double-digit gains – as much as 30% in laundry detergents and liquid soaps – while the product categories as a whole barely treaded water or even lost steam.

U.S. GROWTH OF PRIVATE LABEL VS. TOTAL CATEGORY, 2008

Already a number of earnings reports have indicated that 2010 will be the Year of Recovery –Procter & Gamble and Estée Lauder have both posted better-than-expected quarterly results. By far, the key to success in the coming year will be to take action – serious action – to turn these tip-of-the-iceberg glimmers into sustainable growth.

Innovation: The Key to Recovery
Innovation in both product development and marketing strategy will be a key component in getting ahead of the curve as consumers begin to feel more comfortable. It took the industry about five years to recover from the last major recession (1990-91), and even then it was innovation, particularly in the mass skin care category, that lit the path to recovery.

While the new GDP recovery numbers are promising, there is some evidence that the recovery may be coming at the expense of “intangible investments” like research and development and new product design. In other words, in an effort to cut costs and quickly restore profitability, some companies have slashed investment in areas that drive innovation, which could come back to haunt them in the very near future.

To prevent this innovation backslide, new product activity must be dusted off and pushed forward to renew consumer excitement in shopping, spending, and trying new products. By invigorating the market with new formulations, novel delivery systems, and updated packaging, branded companies can differentiate themselves against the private-label surge. It may seem tempting to pull back brand support to trim costs, but marketers must continually re-invest to maintain a competitive edge and stave off pressure from private-label competitors.

Beyond product innovation, marketers must leverage the power of the Internet and social media to connect with consumers. As a sales channel, the Internet is no longer insignificant in the personal care market with online sales tripling over the last five years. Consumers love the wider selection, competitive pricing, and the convenience of shopping online, especially for replenishment of higher priced items.

Social Media: Opening New Doors
The explosion in social media has made the prospect of entering 2010 without a social media strategy in place akin to entering a dark cave with a candle – sure, there will be lots of opportunity out there, but you’ll be missing out on it. A number of savvy brand marketers have already begun to tap into this ubiquitous – and entirely affordable – new media and have discovered the awesome power of engaging consumers on a more personal level. From fan sites on Facebook to tweeting on Twitter, social media is all about creating connection in an atmosphere of mutual benefit for both buyer and seller.

Cosmetic brands have used the YouTube platform as a how-to channel for demonstrating proper makeup application techniques -- Lancôme’s demonstration of how to apply its new vibrating brush mascara and Maybelline’s mineral makeup foundation video are two examples that drive consumer interest and investment in the products. Meanwhile, Gillette’s provocative “How to Shave Your…” YouTube video series takes a somewhat tongue-in-cheek look at personal grooming. Frankly, from a cost vs. benefits perspective, it is impossible to ignore the potential return on investment from a single YouTube clip gone viral.

Global Market Perspective: A Must for Success
From a manufacturing and distribution standpoint, marketers must become well-attuned to the competitive landscape – on a global scale – and keep a watchful eye on changing cost structures, competitors’ activities, product development, and consumer trends. With the worst of the recession behind us, access to accurate and timely data about the markets and consumer behavior will be critical in remaining agile to stay one step ahead of evolving opportunities. With retailer inventories tighter than ever, marketers must be able to anticipate changes in demand and up-and-coming trends to maintain a proactive – rather than reactive – posture.

Ironically, even though the economy seems weak, now is the perfect time to explore a global strategy. The market has suffered the most in mature countries, but growth in nearly all product categories in developing countries like Brazil, India, and China remains quite robust. Tempting as it may be, now is not the time to restrain international expansion; instead, embrace it as an opportunity to gain an early foothold as these economies take off. With a strong presence on the ground in these regions, Kline’s international experts know the culture, understand the competitive landscape and can provide invaluable insight that can maximize the opportunities and minimize the risk.

Certainly 2009 may go down in history as one of the worst times in our modern economic history. However, in retrospect, it may also be celebrated as a turning point, one in which the troubled economy forced marketers, retailers – and consumers – to rethink and retool their operational strategies. As we kick off 2010 with a much more optimistic outlook, it’s a safe bet that we’ll soon view 2009 as a period of necessary “growing pains” that ultimately propel the industry forward.

 

 


 


 
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