FMCG Supply & Demand – Microeconomics

Alfred Marshall (British Economist) first introduced the Supply & Demand theory in 1890.

Marshall argued that the underlying demand of any product is co-related to its price & multiple other factors that determine the change in demand of a particular product; namely known as Elasticity of Demand (Ped).

In the FMCG – fast moving consumer goods industry, the underlying demand for consumer goods (Healthcare, Garments, Cosmetics) is less likely to change drastically. There are two kinds of buyer groups i.e., Premium Customers (look for differentiated products (Apple) & Price conscious Customers (look for discounted products (Ryanair).

_{Factors that determine the demand of FMCG Products on the part of Consumers:}

If you consider Apple Inc products: I-phones, Tablets, & Premium Mac-Books comes to mind. Since their inception (Steve Jobs era), the prices of Apple products have been rising; the latest I-phone now costs between U$1k to U$1.5k.

Yet there is constant increase in the demand of Apple Products (record sales of iPhone X). You wonder, what is driving the upward trend in Apple’s sales.

Considering the above-mentioned drivers of demand, it would be fair to say that Apple has built brand loyalty with its customers. Its Customers are indifferent to any change in the pricing of Apple’s Products.

Certainly, there’re substitutes available in the market. The likes of Samsung, LG, & Huawei comes to mind.

Apple products are not subject to price sensitivity as such, as Customers buying Apple’s products tend to be indifferent: when it comes to pricing, leading to inelastic demand.

_{Factors that determine the Supply of FMCG Products on the part of Suppliers:}

The FMCG industry ecosystem is very dynamic. Arguably, there is no monopoly of any big-giant as far as the Perfect-Competition is concerned in the UK.

As there tend to be lot of suppliers & buyers for the same products (phones, cosmetics, clothing).

As far as Suppliers of FMCG products are concerned, their ability to increase or decrease the Supply of their products is tied with the above-mentioned factors.

A Company may decrease its Supply of products, if the market is highly-saturated or the demand for its products has diminished, due to substituted/cheap products (Nokia vs Apple).

Uber (Taxi Service Company) uses dynamic pricing: when it comes to manage its elasticity of demand curve.

What is dynamic pricing?

Pricing according to market conditions. You try & exploit the demand of your customers given their location/time of purchase.

Uber varies its pricing according to the day/time of the ride. Uber fares tends to be very high on the Weekends.

FMCG industry is not subject to monopoly of one Conglomerate. There are lot of buyers & sellers for the same product with the same characteristics. The elasticity of demand for FMCG products is dependent on many factors; ranging from customers taste, disposable income, necessity, & the price sensitivity.

Some customers may be indifferent, if a supplier changes its price-tag (High-end customers). There would be no change in the demand/revenue of the product (inelastic demand). Whereas another group of customers (Price conscious) may be price-sensitive; wherein a change in price may lead to decrease in demand/revenue (elastic demand).

The likes of Supplier-rating & Price-comparison Websites, such as, Trustpilot, MoneySupermarket, & Uswitch have led to more transparency & ease-ability, as far as selecting a FMCG supplier is concerned.

These sites use powerful algorithms, to enable the end customers in selecting a best supplier, in line with their particular preferences in terms of purchasing power, location, & necessity.

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