The world economy is in a state of uncertainty characterised by rising inflation is attributed to the lingering impact of Covid-19 pandemic on global supply chains and the protracted conflict in Ukraine.
The surge in prices of goods and services is driving individuals and households to cut back on spending as the cost of living crisis hurts even the developed economies.
The decline in consumer spending means reduced production by the manufacturing sector to curb excess inventory and manage escalating costs of production, resulting in loss of jobs and revenue for companies.
Manufacturers thus engage the survival gear through cost reduction while devising strategies to sustain consumer confidence to remain afloat in the hostile economic environment.
Consumer confidence is “the degree to which people feel confident about how well the economy is doing, which influences how much money they are willing to spend.”
There is a direct correlation between the state of the economy and level of consumer spending. The ‘consumer confidence index’ tool is used to gauge how much people spend on goods and services vis-à-vis the market conditions.
For example, the Ipsos consumer confidence index this month is at 47.2 per cent, down from 50 per cent in 2018, signifying a general fall in optimism around the world. The survey covered 29,000 adults in 29 markets and was conducted online.
With the International Monetary Fund warning of an economic recession, things can only get tougher for manufacturers. A Deloitte report shows manufacturing falls by 11 per cent during recession. On the flip side, manufacturing is among the fastest to rebound after a downturn, its resilience down to certain dynamics of consumer behaviour.
With families’ economic situation deteriorating as expenditure exceeds disposable income, consumers are switching from higher-end or larger products to lower-priced, smaller units in order to survive. The ‘downtrading’ phenomenon occurs when consumers’ purchasing power is under pressure.
But this presents an opportunity to manufacturers to offer consumers quality products at the desired quantity and price point. Downtrading does not necessarily mean the buyer is willing to compromise on quality; they are seeking more affordable options to sustain their lifestyle while spending less. Transitioning to budget-friendly products is not new in Kenya, with the ‘kadogo’ economy having been around for years.
This is where individuals purchase a smaller unit of a brand at a price that suits their pocket. This is how many consumer brands have been able to attract and retain a loyal clientele even in the lower income bracket.
A 2018 analysis by the market research firm Nielsen shows over 70 per cent of fast-moving consumer goods (FMCGs) in Kenya are priced below Sh55. Interestingly, much as consumers are increasingly becoming price-conscious, they are also looking for value and willing to pay more for quality products.
Quality is everything. As Henry Royce, co-founder of the famous automaker Rolls Royce, said, “the quality will remain long after the price is forgotten”.
- Mr Malde is commercial director, Pwani Oil Products Ltd. [email protected].