Major Factors Influencing the Fast Moving Consumer Goods - Dissertation Example

?Running head: Major Factors Influencing the Fast Moving Consumer Goods (FMCGs) Industry in Nigeria Major Factors Influencing the Fast Moving Consumer Goods (FMCGs) Industry in Nigeria Insert Name Insert Course Title Insert Instructor’s Name 4 March 2012 Major Factors Influencing the Fast Moving Consumer Goods (FMCGs) Industry in Nigeria Introduction Nigeria is today one of the sub-Saharan countries that experience high sector growth of fast moving consumer goods (FMCGs), according to estimates undertaken in 2011 (Oxford Business Group, 2011). According to the statistics, the country improved its net worth of FMCG from an initial $884 million in 2008 to $1 billion in 2011 (Iheduru, 2012). There is high competition in this sector, and this explains why majority of foreign-based firms have become interested in the Nigerian market. Many factors account for this scenario experienced in the Nigerian FMCG market. For example, strong economic growth, relatively political stability, and increased consumerism in the country can explain why FMCG market continues to expand in Nigeria. Nevertheless, the sector has not been immune to challenges, which tend to reverse the gains made in the sector. Some of the challenges arise from insecurity issues, political uncertainties in terms of post-election violence, infrastructural impediment, structural and regulatory bottlenecks, and distribution inefficiency (Iheduru, 2012). Therefore, it is in this state of lack of clarity that information has to be sought regarding Nigeria’s FMCG sector, and identify specific factors enhancing the growth of FMCG sector. FMCGs Industry Most literatures depict FMCGs industry to be concerned with production, distribution, and marketing of packaged products to diverse group of consumers. Various factors have been explored, which are perceived to have direct or indirect role in the development and sustenance of FMCG industry. Many of these factors can be categorized as both internal and external and have to do with general business environment (Paul, 2010). Therefore, some of the identified factors, which have made the industry blossom include the cost of operations estimated to be low, availability and utilization of efficient and effective distribution networks, the increasing competition in the sector that motivate many players, and the increasing number of people in different countries has also enhanced consumerism (Paul, 2010). These factors can be used to explain the Nigerian scenario, but other micro-aspects found in the country have to be investigated. In order to find out which specific factors have contributed to progress of FMCGs industry in Nigeria, survey is conducted on a number of FMCGs in the country and analysis of generated resulted will be undertaken. The understanding is that, effective analysis of the results will clearly show which factors and to what level they have contributed to grow of FMCGs in Nigeria. How FMCGs companies in Nigeria try to build on their market share Increasing market share is one of the critical aspects players in the FMCGs industry try to achieve. Given that it was earlier identified that competition in FMCGs sector is increasing, the participants have innovated diverse methods and strategies to stay ahead of the rest. In other words, achieving competitive advantage and remaining in a win-win situation requires market participants (sellers) to identify the most appropriate and best strategies. For example, earlier studies that have been done have shown that, in order to create and increase market share, FMCGs firms adopt some of the following market strategies. The firms innovate and market strong product brands as compared to their competitors (Gough 2004). Product brand is one of the most frequently and thoroughly used strategy by FMCGs firms to identify, penetrate, and control markets in different regions in which they operate. By owning and promoting strong brands, firms are able to resonate well with a particular market niche, which subsequently leads to increase in market share, a fact that can be evidenced in a number of ways such as increased sales, fast product movement, and increased profit and revenue margins (Gough, 2004). Another way firms aim to increasing market share has been through increasing product quality (Gough, 2004). Product quality has been identified as the best way firms in modern and complex business environment are increasing their market share. It has been noted that consumers in modern world are concerned with product quality as opposed to price and other factors (Gough, 2004). This can be explained by factors such as continued consumer awareness and sensitization, especially as the issues of health become of great concerns in the modern world. As a result, customers in most cases are even willing to pay more for products or services they are sure have quality and guaranteed safety. Similarly, stakeholders in the FMCGs sector have become more concerned about product quality, and those firms that have won confidence of customers with regard to increased product quality have found their market share increase, profits go up, and overall performance of the firm goes up (Gough, 2004). In other words, the firm creates and enhances market competitive advantage as compared to its competitors. Other factors that have been investigated in detail and found to enhance in one way or the other market share of FMCGs sector include developing private labels and private brands, appropriate positioning of the product in the market and competitive pricing of the products (Gough, 2004). In other words, products that are well positioned in the market have prices relative to the capability of consumers, and enjoy strong private labeling or branding are in greater position to win in the market and also enable the firm to enhance its market share as compared to competitors. However, it is important to investigate the particular case in Nigeria, especially from the findings generated through survey and interview studies. The scenario in Nigeria is not much different from the wider scenario of firms creating and sustaining market shares, since the factors that apply to other societies are in one way or the other applicable to Nigeria. However, in the case of Nigeria, more internal aspects and characteristics of consumers are likely to play dependent role in defining how market share is achieved and enhanced. First, FMCGs firms in the country have realized the importance of firm’s reputation, its popularity, and strong brand promotion. For example, according to interview findings, firms agreed that, enhancing the popularity of a firm reputation and building strong brand in the market constitute two aspects that cannot be ignored or underestimated. In other words, firms in the country have realized that, in order to win and increase market share, the name and reputation of the firm should be in good books with the consumers, and the brands that firms innovate and aim to sell or promote should be of good quality and be strong. This scenario may explain the importance of increased emphasis on the concept of social responsibility in firms. Social responsibility has been found to be the other side of firms’ reputation. The firms that have enhanced and promoted appropriate social responsibility value activities have been found to attract many customers, avoid many legal and regulatory setbacks, and have activities that are highly and easily accepted in the market as compared to those firms with no strong social responsibility values (Macdonald and Marshall, 2010). As a result, majority of firms are conscious and more considerate of the activities they engage in, especially in societies and communities in which they operate and conduct their activities. From the findings, it was clear that firms in the country spend a sizeable amount of resources on product brand strategies, and this shows how strong product brand exhibit high chances of performing well in the market hence increasing market share. For example, the first firm to be interviewed indicated that, on overall, it allocated about 8.5% of its financial resources to building strong product brands. The second firm interviewed indicated that it allocated about 4-7% of its financial resources to building strong product brands, but this has to depend on the revenue potentials the brand is likely to generate for the company. Moreover, the third, firm indicated that, for a relative period of time, it has been increasing its financial resources channeled to the building of strong product brands. As a result, the firm in its current financial period has allocated about 5% of its revenues to building of strong brands that have potential to win in the market. Other firms interviewed expressed similar behavior where it was generally and wholly observed that, they allocate sizeable revenue to foster and enhance innovation of strong product brands. In total, ten firms were interviewed and their views and opinions recorded. The fourth firm indicated that it allocated 15% of revenue to building strong brands, fifth channels about 15% of revenue to brand development, sixth firm uses about almost 20% of its revenues to brand development and management, seventh firm on the other hand use about 9%, eighth use 20%, ninth use 11%, and the tenth firm uses about 25% of its revenue on brand development (Macdonald and Marshall, 2010). Therefore, it is clear that firms have identified that, strong product brand in the market tends to attract many buyers and in such way, more sales are likely to be realized. At the same time, firms have identified that penetrating into markets that have many players and high competition requires strong brands in order to navigate successfully in the murky waters that characterize FMCGs industry. Therefore, it can be said that, given that new entrants are likely to enter the industry in future, competition is likely to increase, and one area firms are likely to perform better and competitively as compared to their competitors is in the area of creating strong product brand. At the same time, it is clear that firms in the country are increasing market share through improved product quality and competitive pricing. For instance, with regard to product pricing, consumers who were interviewed indicated that they consider the price of the product more importantly than the brand of the product. For example, the survey study involved 200 consumers and 137 consumers, representing 68.5% indicated that price of the product is their prime determinant in buying a particular product as compared to 63 respondents that represent 31.5% who identified the brand of the product as the major reason for buying a product. These findings can be analyzed and conclusions made that, firms that provide competitive prices for their products (slightly lower) as compared to competitors are likely to attract more customers, and in the process, be able to increase their market share. In similar manner, firms interviewed agreed to the fact that, price of the product constitutes an important aspect that consumers are likely to consider in buying a product. As a result, different firms have different strategies to go about the issue. For example, some of the firms provide and market products that are of high quality at competitive prices that customers find affordable and accommodating. Other firms have adopted increased trade promotions accompanied with operational efficiency strategies. Nigeria is a developing society, and majority of its population are unemployed, with rampant cases of poverty. With this realization, firms are likely to charge prices that resonate with majority of population (affordable prices) in order to increase market share. How FMCGs companies in Nigeria deal with issues facing them, such as sustainability, distribution and others mentioned in the questionnaire Firms operating in Nigeria’s FMCGs industry according to survey findings have numerous issues but majority of the firms have devised varied means and strategies of dealing with them. As it was seen earlier, sustainability is one of the issues that modern firms irrespective of business, industry, or organization have been forced to observe and adhere to, in order to remain operational and functional. This has led to majority of firms adopting and implementing aspects of corporate social responsibility (CSR), which in one way or the other are seen to be concerned with sustainability. CSR policies require companies and organizations to be accountable to all activities they undertake in the environment, and this requires companies to have the most efficient and appropriate strategies to enhance economic, social, and environmental preservation, and continuity of the community (Zu, 2009). According to the firms that were interviewed (10), it was discovered that different firms approach the issue of sustainability in different ways. For example, the first firm indicated that it enhances sustainability by strictly adhering to environmental regulations that have been set by government and related regulatory bodies and agencies. On the other hand, other firms have progressively become keen on ensuring that there is eradication of effluent plants in order to keep water and atmosphere safe from the toxic substances. The firms have put in place, measures that aim to see little effluent substances find their ways to rivers, air, and the places inhabited by people. At the same time, other companies have carried out re-organization in the entire firm and have subsequently established departments that are charged with sustainability issues. These departments have sole responsibility of identifying the sustainability issues the firms have to address, as well as the appropriate ways the firms can use to address such issues. In most cases, the departments have been involved in the formulation, planning, and implementation of sustainability goals and strategies and participated in monitoring and evaluation of such adopted strategies. Moreover, the departments have become the primary link between the firm and various agencies concerned with sustainability issues where the departments obtains, reviews and implement recommendations and regulations set by government and other agencies to ensure sustainability operation of firms. More research surveys on other firms indicated that, dealing with sustainability issues has forced some firms to create community development programs and participate in the development and betterment of communities. At the same time, these community development programs are accompanied by public awareness, sensitization, and public education about the need for sustainable development in the community. As a result, firms use such opportunities to find out the best ways to address and enhance sustainable ways of addressing production, distribution, and consumption of their products. Lastly, other firms have adopted recycling of waste material strategies, widely ingrained in efficient waste management techniques. In case they find it possible and appropriate, the firms have put in place efficient waste management techniques that do not harm the environment and communities. Apart from sustainability issues, firms have also been forced to deal with issues of distribution, energy, security, and counterfeit products. Success of firms in the market is seen to lie within precepts of efficient supply chain management that enhance superior distribution channels (Doyle, 2008). Some of the companies interviewed indicated that they had enhanced their distribution channels through distributing products using third party transport companies by road. Kotler (2004) observes that perfect distribution channels for FMCGs products can be direct or indirect (Beker, 2011). Nevertheless, it has been noted that roads in the country and related infrastructural development remain a big challenge that has to be addressed by the government (Hagher, 2011). Other distributional strategies that have been adopted include adopting national, regional, and local distribution channels where the emphasis is put on identifying the appropriateness of each locality and thereafter, devising the perfect distribution channel to fit the locality. At the same time, other firms have warehouses in different localities, especially in identified high market and potential market areas. This is to ensure time apportioned to delivery of product is shortened, a situation that gives customers confidence about getting products on time. Energy, especially power and security are other two aspects that firms have been forced to address in different ways as far as FMCGs industry in Nigeria is concerned. In line with goals of sustainability, firms have been required to adopt and utilize the most efficient and environmental conscious energies. At the same time, power has been identified as a big problem in Nigeria, which affects operation and functions of firms in different ways. As a result, many companies substitute loss of electricity with generators. Other firms have internal production of power, which lessens their dependence on public power. More importantly, other firms have increased their innovation strategies for energy power in key areas such as wind. With regard to security, majority of firms have called on government and its security apparatus to increase security policing and reduce cases of insecurity, which tend to scare investors away. Regarding counterfeits products, majority of firms rely on government agencies to protect them from counterfeits by setting strict laws and regulations to curb the vice. Moreover, firms are also involved in education, awareness, and sensitization programs, which aim to enable their customers to differentiate real products from counterfeits. The gravity of this issue can be captured in the fact that majority of consumers surveyed (107) representing 53.5% indicated they had at one point being involved in the purchase of counterfeit products. Moreover, 46.5% indicated they had not been involved in the purchase of counterfeit products. Apart from these issues, it was discovered that firms were more concerned with effects recession had brought to their firms and the overall business community. In this manner, majority of firms were found to appreciate that, indeed, recession had resulted into changes in majority of firms. Such changes that have emerged due to recession include business re-organization and overall rationalization of resources. Companies had also been forced to cut on their expenses and limited investment opportunities, and at same time, reduced on their philanthropic initiatives. Given that the economic downturns had led to reduced purchasing power, many companies reduced their borrowing tendencies, and at same time, they were forced to give credits to their distributors in order to enhance sale capacities and maintain their distributors. Other firms stopped recruitment of new staff members, and in fact downsized their human capital, a situation that was further followed with enhancement of marketing strategies to increase sales volumes. Consumers’ behavior on some issues Consumers in the country continue to manifest different behaviors with regard to purchase and consumption of FMCGs products. This can be captured in the overall consumer behavior manifested by consumers, especially regarding opinions expressed in the survey studies. First, majority of consumers in the country purchase products in small quantities and not in bulk. This can be justified by research findings where 144 respondents out of 200 indicated they buy products in small quantities and not in bulk. This represents about 72% of consumers who do not buy in bulk, while 28% are likely to make bulky purchases of FMCGs products. At the same time, consumers seem to consider price as the most important aspect in consideration into buying a product. Compared with brand, majority of consumers (137) indicated that price and not brand is the reason they are likely to purchase a product. These two situations justify the fact that, as a developing nation, Nigeria has much of its population living under poverty and cases of unemployment are rampant (Ojo, 1998). Therefore, the available disposable income in the hands of majority to be used in purchasing products is little, and this tends to limit the purchasing capacity and power of many of the consumers. Moreover, majority of consumers seem to get information about FMCGs products through television and radio advertisements, as compared to internet (least), billboards, and newspaper. These aspects can therefore be used to conclude that, majority of consumers own TV sets and radios, and this should be the areas through which FMCGs companies can make advertisements. More importantly, it can be stated that, majority of consumers seem to have no maximum confidence in FMCGs products, and this has been contributed by wide held perception that majority of products are counterfeits. This scenario is likely to affect consumer behaviors, which ultimately injure activities of companies. Lastly, sustainability production and consumption of products seem to be less considered aspects by consumers, and this may explain the lack of education, awareness, and sensitization among customers about issues of sustainability. Conclusion FMCGs industry in Nigeria is growing, and this can be explained by numerous players present in the industry. Majority of FMCGs firms are foreigners, a situation that has seen majority establish strong brands, given their immense financial powers. However, success or failure of these firms depends on various aspects present in the Nigerian context and in the wider global business environment. This therefore calls for FMCGs firms to conduct thorough market research and analysis studies to identify their strengths and potentials in the ever-increasing competitive markets. In summary, Nigeria is faces numerous challenges that affect and impact on the FMCGs industry, and it is necessary to find ways of making sure that the industry’s identified needs are addressed. This will in turn lead to full exploitation of potentials present in the industry, which later will have great benefit to the economy and people of the country. Reference List Beker, I., 2011. 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