Marmite – Negotiation, Positioning and Publicity

In years to come, what will you say when your grandchildren look up and ask, “Grandad / Grandma, what did you do in the great Marmite war of 2016”?  Will you proudly look them in the eye and explain that you were out on the streets, looking for that last jar of yeast extract on the Tesco shelf, battling with thousands of other stressed-out shoppers? Or will you mutter something about “not really liking the disgusting stuff” and confess you stayed at home, spreading more pleasant substances on your toast?

The cynic in me wonders whether the whole battle between Unilever and Tesco over pricing was a publicity stunt. Both have actually come out of it well. Tesco have proved that they are standing up for the consumer at a time when (as we said here just last week) the UK is undoubtedly going to see price increases and inflation because of the decline in the value of sterling.

Meanwhile, although Unilever have taken some stick in the media, I bet sales of Marmite have rocketed. It has had millions of pounds’ worth of free advertising across the whole media world – how many people saw that and thought “I haven’t had Marmite for a while – let’s try some”?

Unilever have been criticised for looking at price increases when in fact Marmite is made in the UK and most of the ingredients – certainly the brewers’ yeast that is the heart of the product – are also UK sourced. But the firm declares its financial results in Euros, so income from the UK will be dropping in € terms unless sterling prices and revenues go up. That in itself will be a driver for the firm, as will the increase in some of their costs (packaging perhaps) which are not UK based.

We also wonder whether Unilever’s request for a 10% price increase (which is what was reported) was part of negotiation tactics – priming and anchoring, you might say. (Read this if you don’t know what we mean!)  So by going for 10%, the supplier makes the buyer feel very happy that the end result of the negotiation is perhaps a 4 or 5% increase. If Unilever had started by asking for 5%, then the end result might have been lower again. There is even a danger for other buyers that we’ve now all got “10%” in our heads as the sort of increase that suppliers are going to look for because of the currency effect.

In truth, every case will be different. Buyers need to understand what genuine price pressures suppliers are facing, so it is important to get to grips with the cost make-up of what we are buying. Then, as always, it will also come down to the power relationship between the parties.

That was another interesting point in the Tesco / Unilever case. Tesco are huge and obviously important to Unilever as a sales channel. Yet brands like Marmite, Ben & Jerrys and Knorr have enough brand power that Tesco didn’t really want to de-list them, as that would have resulted in some lost business. Overall, the balance of power there looks pretty even, we would say. It is worth pointing out too that  Unilever's profit margins are over 10%; Tesco's are under 2%.

Anyway, we’ll keep an eye on developments in the currency area and the effect it is having on prices. And unless sterling reverses soon, it looks like inflation in the UK is going to see a significant increase in 2017.

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First Voice

  1. bitter and twisted:

    its a sad day when you find yourself cheering on Unilever as the lesser evil

    also profit margins are misleading, isnt return on capital the real metric?

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