Impact of Inflation on Promotional Activities of FMCG Companies in Pakistan

By Fahad, Muhammad; Ali, Tahir | Journal of Finance, Accounting and Management, July 2020 | Go to article overview

Impact of Inflation on Promotional Activities of FMCG Companies in Pakistan


Fahad, Muhammad, Ali, Tahir, Journal of Finance, Accounting and Management


Introduction

Pakistan is one of the biggest emerging Asian marketplace and has a substantial impact on the development of the fast-moving consumer goods (FMCG) segment. The region's FMCG clients pack a powerful punch and contribute around a third of Nestlé and Procter & Gamble's global sales growth between 2014-2016 and 17.86% of global revenue for the 15 largest MNC FMCG manufacturers. However, consumer spending in these markets is expected to grow about three times as quickly as that in established economies. By 2020, such spending will reach US$6 trillion and account for nearly half of total consumer spending.

This research revolves around the shooting inflation rates and its impacts on the promotional activities of 2 of the biggest FMCG companies in Pakistan i.e. Nestle Pakistan Limited and Engro Foods. It's a common observation that clients shrink their promotional budgets whenever there is hike in dollar rate or any change in fiscal/monetary policy etc.

This research is based on the primary and secondary form of data, the secondary form of data is based on financial reports. Extractions were made out of the financial reports of 2 of the country's biggest FMCG companies:

* Nestle Pakistan Limited

* Engro Foods Pakistan (Friesland Campina Ltd.)

Primary source of data is Questionnaire filled by 250 respondents regarding their priorities while making purchase decision on and the questionnaire was based on impact of inflation on:

(i) Indirect & Direct persuasion (advertising)

(ii) Real Time Engagement (Point-Of-Purchase Activities)

(iii) Branding.

After comparing the results of primary and secondary data and in the light of statistical inferences, we draw the conclusion of outcomes of the research and few valuable suggestions have been given, however, the topic is so vast that it requires further researches focused on each of the three discussed marketing factors individually and their impact on the growth and success of national and multinational organizations of FMCG Sectors.

Literature Reviews

Advertising inflation on the rise as TV viewing declines

A study conducted by David Benady in 2014 published in Campaign Live UK says that "recession has forced many people to stay in more often instead of going out. Therefore, the fall in viewing may be indicative of an improved employment outlook. Overall, TV is still good value, according to the Group M UK chief executive, Nick Theakston: "TV is fantastic value and it works. There has been a short-term trend of inflation against the long-term trend of deflation. We do, however, need to keep an eye on audiences as we wouldn't want them to be the driver of inflation across the coming months."

Economic Impact of Advertising in the United States

A study published by ANA in 2016 says that "the impact of advertising spending is assessed by quantifying the level of sales, employment, value-added, taxes, and labor income that are attributable to spending on advertising. Advertising increases sales, which then boosts production and helps create and maintain jobs across every industry, state and congressional district. IHS assessed the economic impact of advertising by first estimating the effect of advertising on sales. Using historical data for advertising expenditures collected from the IRS Statistics of Income database for each industry, an equation was estimated to identify how sensitive sales are to ad spending in each industry. As expected, some industries are more dependent on advertising to generate sales than others. These output (sales) estimates became inputs to our models for estimating the supply-chain and induced impacts in employment, sales, value added and labor income."

The relationship between marketing strategies and performance in an economic crisis

A survey conducted by Mehmet Haluk Köksal and Engin Özgül in 2007 from 172 Turkish companies highlights that "results are reported for each of the elements of the promotional mix. …

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