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Eleven risks for consumer products companies - 9. Competitive intensity - EY - Global

Eleven risks for consumer products companies

9. Competitive intensity

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Competition is increasing as global players and local companies begin sharing the emerging markets playing field.

To gain a competitive advantage, companies are focused on emerging markets and expanding product lines.

"Cost to grow" is rising

When companies start targeting the same opportunity set, they risk increasing competition for themselves, which increases the "cost to grow." This is happening now as consumer product companies' focus on emerging markets.

The higher cost of doing business will manifest itself in increased:

  • Marketing speed
  • Media inflation
  • Pace of innovation
  • Trade spending in the marketplace

New global challengers are moving center stage

Competition is increasing as global players and local companies begin sharing the emerging markets playing field.

In response, consumer product companies from emerging markets are developing global ambitions.

One outcome of this is consolidation. But with capital now a scarcer resource and companies concerned about the negative impact on return on invested capital of very large acquisitions, the expectation is that the main focus of acquisition activity will increasingly be on the emerging markets.

Focus is shifting away from prices and back toward brand innovation and marketing

As competition is increasing, the vehicle for competition is also changing.

Companies will continue to increase spending, while looking for "healthier" ways to grow. These include marketing and brand innovation.

Companies must ensure that they extract the best return on investment from their advertising and promotional (A&P) spending as there is scope to improve returns.

Companies need to focus on optimizing the execution of their marketing strategy. For example, by greater use of real-time online data to analyze the relationship between advertising and sales, and by investing in the promotional potential provided by new social media, the return on spend can be improved.

Achieving organizational fitness also helps generate the cash needed to fund a higher marketing spend. Scope exists for further improvements in supply chain efficiency, both within existing organizations and from the potential for cost synergies from merger activity.

But whether facing competition from private label or new global challengers from the emerging markets at home and overseas, it is clear that consumer products companies cannot expect a slackening of competitive intensity.

 


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