About the Consumer Products Industry
Nondurable consumer products or consumables companies develop and manufacture a variety of household items that have a limited life span, usually three years or less. The industry can be segmented into household products and personal care products. Household products include: soaps and other detergents, such as laundry detergents and bleaches; polishes and sanitation goods; and other cleansing agents. Personal care products consist of : personal cleaning products such as toothpastes, shampoos, bar soaps and body washes; health and beauty aids, including cosmetics, fragrances and over the counter medications; and diapers and feminine hygiene products. Other items range from cat litter to automotive additives. The top worldwide producers include Procter and Gamble, Kimberly Clark, Unilever, Colgate-Palmolive, Church and Dwight, Clorox, and Ecolab.
Industry Trends and How It Operates
Given the low growth rates of population and household formations in the developed nations, it has become more difficult for consumer product manufacturers to achieve significant sales gains. In the graph above, the percentage of nondurable goods to personal income fluctuates around 25% but there is no significant change between months. In addition, consumer product companies are faced with intense competition and higher commodities costs. For example, rising oil and natural gas prices are key concerns since they serve companies directly as an energy source or indirectly such as resin (a substance used to create plastics). In response, household and personal care product companies are making efforts to stimulate sales in varying ways, such as entering new markets, creating new products categories, strengthening a strong brand image, acquiring businesses, targeting baby boomers, and spending on advertising. Because of these efforts, the industry should continue to consolidate, and consumers will likely see more product choices at more points of purchase.
Entering New Markets
With established US and western European markets reaching saturation, manufacturers are actively pursuing growth overseas. Companies in this sector are investing heavily in developing and emerging markets in China, Central and Eastern Europe and India, where recent trends in economic and population growth bode well for home and personal care products consumption. In many of these countries, increases in gross domestic income and population are outpacing those of the United States and Western Europe.
The economic outlook for these regions is positive. The World Bank forecasts that over the next several years emerging European markets, China, and India will see GDP growth rates of 5.0%, 7.7% and 6.2% respectively. Manufacturers have shifted their attention away from Latin American countries – at least for now – as a result of weak economic growth in those countries.
Creating New Product Categories
Given the maturity of the household nondurables industry, new product development is a key driver of a company’s future sales growth. New products evolve largely through the efforts of a company’s Research and Development, in conjunction with its marketing division. To remain competitive, companies need to develop a continuous stream of new, value-added products. In any given year thousands of new products in all categories inundate the market. However, only 15% of new products in any given year reach their business objectives; the rest are withdrawn from the market.
Another benefit, from the manufacturer’s point of view, is that successful new products typically carry higher profit margins than established items. Their special qualities, which manufacturers tout, are designed to appeal to a target market, and consumers are willing to spend more to obtain the real or perceived value added.
The costs of new product development vary greatly, depending partly on how revolutionary the product is or how...
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