Directions: Read the following passage carefully and answer the questions given below it. Certain words/phrases have been given in bold to help you locate them while answering some of the questions.
 

Manufacturers of consumer packaged goods (CPG) face two key challenges this year. The first is continued slow or negative growth in people’s disposable incomes. The second is changing consumer attitudes toward products and brands, as the great fragmentation of consumer markets takes another turn. In response, companies must dramatically shift the route they take to reach consumers in terms of both product distribution and communications. In many markets, consumer wages have been static for five years. Even where economies are starting to perform better, the squeeze on after-tax wages, especially for the middle class, younger people, and families, is depressing consumer spending. Although growth in developing countries is still better than in the United States and Europe, a slowdown in emerging countries such as China — where many companies had hoped for higher sales — has translated quickly into lower-than-expected consumer spending growth. We expect continued weakness in consumer disposable income regardless of which way macro GNP uncertainties break.

Meanwhile, what we call the great fragmentation is manifested in consumer behavior and market response. In both developed and emerging markets, there is a wider variety among consumers now than at any time in the recent past. Growth is evident both at the top of the market (where more consumers are spending for higher-quality food and other packaged goods) and at the lower end (where an increasing number of consumers are concentrating on value). But the traditional middle of the market is shrinking.

Further, individual consumer behavior is more pluralistic. We’re used to seeing, for example, spirits buyers purchasing a premium brand in a bar, a less-costly label at home for personal consumption, and yet another when entertaining guests. But this type of variegated shopping has now spread to the grocery basket. Fewer consumers are making one big stocking-up trip each week. Instead, shoppers are visiting a premium store and a discounter as well as a supermarket, in multiple weekly stops — in addition to making frequent purchases online. In the recession, more shoppers became inclined to spend time hunting for bargains, and as some traditional retailers either went out of business or shuttered down, retail space was freed up and was often filled by convenience stores, specialty shops, and discounters.

A decade ago, CPG companies had only a handful of sales channels to consider: supermarkets, convenience stores, hypermarkets in advanced economies, and traditional small and large retailers in emerging and developed countries. Since then, various discounters have made significant inroads, including no frills, low variety outlets, such as Europe’s Aldi and Lidl, which sell a limited range of private-label grocery items in smaller stores, and massive warehouse clubs, such as Costco and Sam’s Club, which initially operated solely in the U.S. but are now expanding internationally, as well as Makro in Europe. In addition, dollar stores, specialized retailers, and online merchants are having an impact on the CPG landscape. Economizing consumers have been pleasantly surprised by the savings generated by spreading their business among multiple channels, as well as by the variety and product quality they find. The result has been greater demand for more products and brands, with different sizes, packaging, and sales methods. At most CPG companies, SKUs are proliferating, despite there being little increase in overall consumption. A better outcome can be seen at smaller food and beverage suppliers, which are benefiting from consumer demand for variety and authenticity. A recent Strategy& report found that in the U.S., small manufacturers (with revenues of less than US dollar 1 billion) grew at twice the compound annual rate of large manufacturers (with revenues of more than dollar 3 billion) between 2009 and 2012.

Consumers’ media usage has also fragmented with the rise of digital content and the proliferation of online devices. Each channel — from the Web, mobile, and social sites to radio, TV, and print — has its own requirements, audience appeal, and economics, needing specialized attention. But at the same time, media campaigns need to be closely coordinated for effective consumer messaging.
 

Collectively, these shifts challenge the way CPG companies manage their brand and business portfolios, and call for a rethinking of their go-to-market approach, with an emphasis on analytics. Our work with INSEAD shows that among business leaders, applying analytics — especially for tracking consumer behavior and product and promotional performance — is considered one of the most effective ways to improve results and outpace the competition. But it’s not just about insight; it’s also about using the insight wisely to determine how to manage costs. The more knowledgeable about customer needs and preferences a company is, the smarter and more focused it must be in managing its own economics to cost-effectively deliver both variety and value to the squeezed consumer.

Directions: Read the following passage carefully and answer the questions given below it. Certain words/phrases have been given in bold to help you locate them while answering some of the questions.
 

Manufacturers of consumer packaged goods (CPG) face two key challenges this year. The first is continued slow or negative growth in people’s disposable incomes. The second is changing consumer attitudes toward products and brands, as the great fragmentation of consumer markets takes another turn. In response, companies must dramatically shift the route they take to reach consumers in terms of both product distribution and communications. In many markets, consumer wages have been static for five years. Even where economies are starting to perform better, the squeeze on after-tax wages, especially for the middle class, younger people, and families, is depressing consumer spending. Although growth in developing countries is still better than in the United States and Europe, a slowdown in emerging countries such as China — where many companies had hoped for higher sales — has translated quickly into lower-than-expected consumer spending growth. We expect continued weakness in consumer disposable income regardless of which way macro GNP uncertainties break.

Meanwhile, what we call the great fragmentation is manifested in consumer behavior and market response. In both developed and emerging markets, there is a wider variety among consumers now than at any time in the recent past. Growth is evident both at the top of the market (where more consumers are spending for higher-quality food and other packaged goods) and at the lower end (where an increasing number of consumers are concentrating on value). But the traditional middle of the market is shrinking.

Further, individual consumer behavior is more pluralistic. We’re used to seeing, for example, spirits buyers purchasing a premium brand in a bar, a less-costly label at home for personal consumption, and yet another when entertaining guests. But this type of variegated shopping has now spread to the grocery basket. Fewer consumers are making one big stocking-up trip each week. Instead, shoppers are visiting a premium store and a discounter as well as a supermarket, in multiple weekly stops — in addition to making frequent purchases online. In the recession, more shoppers became inclined to spend time hunting for bargains, and as some traditional retailers either went out of business or shuttered down, retail space was freed up and was often filled by convenience stores, specialty shops, and discounters.

A decade ago, CPG companies had only a handful of sales channels to consider: supermarkets, convenience stores, hypermarkets in advanced economies, and traditional small and large retailers in emerging and developed countries. Since then, various discounters have made significant inroads, including no frills, low variety outlets, such as Europe’s Aldi and Lidl, which sell a limited range of private-label grocery items in smaller stores, and massive warehouse clubs, such as Costco and Sam’s Club, which initially operated solely in the U.S. but are now expanding internationally, as well as Makro in Europe. In addition, dollar stores, specialized retailers, and online merchants are having an impact on the CPG landscape. Economizing consumers have been pleasantly surprised by the savings generated by spreading their business among multiple channels, as well as by the variety and product quality they find. The result has been greater demand for more products and brands, with different sizes, packaging, and sales methods. At most CPG companies, SKUs are proliferating, despite there being little increase in overall consumption. A better outcome can be seen at smaller food and beverage suppliers, which are benefiting from consumer demand for variety and authenticity. A recent Strategy& report found that in the U.S., small manufacturers (with revenues of less than US dollar 1 billion) grew at twice the compound annual rate of large manufacturers (with revenues of more than dollar 3 billion) between 2009 and 2012.

Consumers’ media usage has also fragmented with the rise of digital content and the proliferation of online devices. Each channel — from the Web, mobile, and social sites to radio, TV, and print — has its own requirements, audience appeal, and economics, needing specialized attention. But at the same time, media campaigns need to be closely coordinated for effective consumer messaging.
 

Collectively, these shifts challenge the way CPG companies manage their brand and business portfolios, and call for a rethinking of their go-to-market approach, with an emphasis on analytics. Our work with INSEAD shows that among business leaders, applying analytics — especially for tracking consumer behavior and product and promotional performance — is considered one of the most effective ways to improve results and outpace the competition. But it’s not just about insight; it’s also about using the insight wisely to determine how to manage costs. The more knowledgeable about customer needs and preferences a company is, the smarter and more focused it must be in managing its own economics to cost-effectively deliver both variety and value to the squeezed consumer.