Referring to Millward Brown’s research, identify the competitive advantages of FMCG companies. 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.
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.
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...
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