Purchasing resources for Consumer Products

Consumer Products Business Guide: Manufacturers and Resellers of Consumer Products

Consumer products include every item that is produced for the end-consumption of the people. In terms of production volumes as well as sales revenues, these products have the largest share among all product categories. However, entrepreneurs must understand that the toughest market competition is also faced by these products only. It is extremely difficult to new entrepreneurs to enter the market for consumer durable or non-durable products. These products are usually associated with strong branding, which takes many years to cultivate. The world’s largest consumer product manufacturers such as Procter & Gamble, Unilever, Microsoft and Sony command a loyal market share because of the strong brand image that they have built over decades.

Marketing competition for resellers such as department stores and smaller retailers is equally stiff. Branding becomes very important for this business segment as well, and it requires carefully managed quality, variety and pricing strategies to survive in the market. Both manufacturers and resellers of consumer products are required to make large investments because these are capital-intensive businesses. Economies of scale play a key role to achieve the world’s best quality at the world’s lowest prices in a global economy. As a result, the market for consumer durables and non-durables is largely controlled by multinational companies with extensive economies of scale at their command.

Benefits

Large Market

One of the key advantages of doing business in the consumer products segment, whether as a manufacturer or as a reseller is that there is a large and readily available market for most products. Globalization has led to the emergence of new markets with exploding demand for all kinds of consumer durable and perishable products. With the rising purchasing power of developing economies, the consumer appetite for such products continues to grow.

Low Entry Barriers

Unlike industrial products which usually require specialized technical knowhow, many consumer products do not require exceptional technological strengths. Clothing, footwear and food products, for instance, are highly traditional segments where technology does not have much role to play. Raw material and labor for such products is easily available. From a reseller’s point of view, the entry barriers are even lower.

Longer Product Life Cycle

Unlike many industrial and technological products, consumer products have a much longer product life cycle. Once the manufacturer or the reseller has invested in creating a strong brand image in the market, they can continue to reap dividends for years to come. New entrants do not enjoy the same advantages of brand identity and consumer loyalty as commanded by an established brand.

Simpler Production Processes

Many consumer products such as soap, shampoo, cornflakes, garments and pens are easier to produce, and do not require very large investments in production processes and technology. Every market has multiple segments, and a smaller entrepreneur may cater to the lower segments of the market that are looking for a cheaper product. As per the research data released by the Asian Business School in Manila, in emerging markets more 60 percent of the market share in consumer products continues to be controlled by second and third tier manufacturers and resellers.

Pitfalls

Excessive Competition

Due to the low entry barriers to consumer product business segments, there is extreme competition in this product category. Large manufacturers and resellers have to compete against the low-priced challenges of smaller entrepreneurs. It becomes difficult to survive in a saturated market environment, and many companies in this category go out of business every year.

Low Profitability

Consumer product segment faces a constant challenge of price wars among various competitors. Buyers are increasingly well-informed and highly discerning about their choices. The markets are almost completely buyer-driven when it comes to consumer durables and non-durables. As a result, despite large sales volumes, the net profit margins in this business are low.

High Costs of Marketing

Unlike industrial and technological products, consumer products cannot survive without effective brand promotion and marketing. The marketing cost component of any consumer product is very high. Therefore, even if the production and distribution costs may be low, a business requires large working capital to sustain an effective marketing campaign to promote a consumer product.

Changing Consumer Preferences

Consumer markets have become highly dynamic with rapidly changing consumer tastes and preferences. Fashions change very quickly, and the business must remain constantly on the edge to survive and adapt to the changes swiftly.

Pricing

Pricing is probably the most crucial element for any consumer product. Manufacturers and resellers must be extremely sensitive to the prevailing price trends and price behavior of the competitors. Effective price strategies must be in place to ensure that the company continues to earn a healthy profit margin, while passing on the optimal price benefits to the consumers at the same time. This delicate balance must be maintained at all times to survive in this extremely challenging business segment.

Consumer products business segment continues to excite millions of new entrepreneurs around the world. The business opportunity is vast, especially after the era of economic globalization and reduction of international trade barriers. However, the manufacturers and resellers must be aware of the challenges of competitive pricing, brand power and marketing creativity that are critical to achieving success in this product segment.