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Monday, December 20, 2010

The 2011 choice: Higher prices, or lower margins?

I’ve been out of the country for the past eight days, with limited access to email (or news, for that matter). So I have some catching up to do here… but year-end trend reports and studies leave me with plenty of raw material to work with.

The first item that caught my eye when I got “back on the grid” last night was this quarterly report from McKinsey: The Commodity Crunch in Consumer Packaged Goods (click here to see it). It suggests that the cost of raw materials will continue to rise, and that companies are quickly approaching a tipping point where those increased costs will have to be passed along to the consumer.

Implications: During the recession, many companies did their best to absorb cost increases, so as to appeal to already value-conscious consumers. But as world demand for commodities grows, we can expect the laws of supply and demand to further push prices… so there will come a time—soon—when companies simply have to ask the consumer for more money in exchange for goods.

Has your marketing message focused on price for so long that this issue exposes you to risk? Is it time to focus more on the value your product or service adds to the consumer’s life… and less on the price one pays for it?

Mike Anderson

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