Consumer Products: Background
The consumer products industry is very hard to define because of its rather eclectic nature and its close relationship to many other industries. For our purposes, it can be described as enveloping practically every item an individual can purchase, especially in the areas of toiletries and cosmetics, appliances, electronics, beverages and food, and other generic household items.
Analysts often divide it into two categories, durable and nondurable. The former includes items with staying power, like home furnishings. The latter includes more ephemeral merchandise, with a life expectancy of fewer than three years, like personal care items.
The consumer products industry is a powerful industry, as it accounts for two-thirds of the volume of trade in the world economy. Due to its close relationship to other industries, the consumer products industry plays an important role in the global economy. It is the source of a significant portion of the gross domestic product (GDP) of many countries, and also acts as a driver for other industries, especially advertising and retail. These last two industries are very important to the consumer products industry as they typically invest in consumer products companies.
The industry is now well-established in the marketplace, having benefited from substantial growth as a result of the industrial revolution of the mid-19th century in Western Europe and the United States. The revolution made it possible to manufacture many goods in an efficient, cheaper, and consistent manner. This enabled more people to buy more products, ultimately resulting in the creation of an urban middle class that had the means to demand more goods and the time to spend obtaining them. Since then, the consumer products industry has been a major component of every nation’s economy.
Since there are many virtually identical products made by any number of companies, success truly depends on savvy marketing to create a brand name consumers will know and trust. Product differentiation and brand name are the biggest barriers to entry for new firms and the most valuable assets existing companies in this industry have. It is a sink-or-swim industry where each new product launch is a risk and the competition is fierce.
As a well-established and mature industry, most of the major companies operating within consumer products tend to be well-diversified conglomerates, whose many subsidiaries represent multitudes of brand names. The most recognized names are part of a larger multi-category corporation. These include Sara Lee Corporation, Unilever, Proctor & Gamble, Nestle, and S.C. Johnson. Together, they represent thousands of brands on the market. There are also generic brands that produce cheaper “knock-offs” of the conglomerates above produce. Those companies are numerous and tend to locally owned and operated.
Recently in the industry, there has been an increasing reliance on technologies. The interactive qualities of the internet and the cost-effective benefits of other technology are increasingly being utilized to help create a closer relationship between consumers and more efficient enterprises. These include:
- Customer relationship management (CRM) applications, programs which collect information about customer behavior, have also seen a rise in importance as companies strive to better understand their target market to increase sales and market presence.
- Radio-frequency identification (RFID), which is used to tag product shipment and gather information used to boost supply chain efficiency. The increased use of this technology is being pushed by the retailers who sell the consumer products.
- Many companies now have interactive websites where consumers can play product based games and purchase goods.
Aside from technology, the consumer products industry has also seen a rising inclination for companies to engage in mergers, acquisitions, or alliances. This is for many reasons including reducing risk when creating new products or expanding into new markets, reaching new demographics, increasing operating efficiencies, reducing capital outlays, or cutting costs.
Recently, with American and European markets becoming increasingly competitive, manufacturers of consumer products are turning towards emerging markets in boom nations like India, China, Russia, Brazil, and Turkey. While there are obvious benefits to this, there are also several risks involved with producing internationally. Emerging economies often play by different rules than developed ones, and the governments can be prone to corruption, impeding the profitability of businesses.
The future of this industry looks bright as demand is likely to increase due to the increasing appetites for commodities in emerging retailing markets, such as those in China, Russia, and India. There are also the well-established markets of Japan, Western Europe, and the United States which maintain a steady demand. Consumers have become accustomed to having these products in their life and may not be able to stop purchasing them for this reason.
The inexpensive, ready-to-assemble home furniture section is a growing segment of the industry, reaching a broader, more mainstream market with the successes of manufacturers like IKEA International. Toiletries and cosmetics are also expected to maintain a constant, if not increasing, demand as an aging world population seeks to look younger. Prices for commodities that are used to produce these goods have also fallen recently; further increasing profit margins to companies.