Supply Chains and the Bottom Line

Ingredient traceability has an immediate effect on consumer decision-making.

May 28, 2014

WASHINGTON – New food and drug safety laws are creating a headache for supply chain executives but there is an offsetting benefit for companies to aggressively comply — a competitive edge with consumers, according to a recent article by John Goodman for SmartBrief.

Consumers are becoming more concerned about allergens and additives, with calls to consumer relations departments of consumer packaged goods companies increasing as much as 400% in the last two years. While only 4% of consumers are actually medically at risk due to additives and ingredients, more than 30% make purchase decisions based on ingredient labels.

The ingredients, allergen and additives (IAA) challenge has three dimensions: cost, competitive advantage and risk. The smart supply chain executive should work with their consumer affairs and marketing executives to balance these issues to maximize company success.

Cost: There is a cost of not having detailed information on the IAA content of all products easily available to consumers on the company website. While many companies have information on the top six to nine allergens, many cannot definitively say whether many other chemicals are present or not.

The damage of not being able to tell consumers what is in your product is that a significant percentage of consumers will first go to the website and then call consumer affairs, at a cost of $1-5 per call. If the 800 number cannot answer the caller’s questions immediately, most consumer affairs departments will usually initiate a query to the supply chain or manufacturing departments, often at a cost of $20-50 per query in labor on both ends of the investigation. Further, it is likely that one in three the callers will be lost as a customer, not only for that product but for the brand as a whole. This is because the consumer’s confidence in the brand is undercut by the fact that the company appears not to know what is in their products.

Many others will not call but will not buy the product. The sequence of damage is they first look at the label to see if the product is free of the ingredient of concern. If they do not see that the ingredient has been excluded, they then look at the website. If no information is available either place, many will switch brands.

Competitive Edge: Not having IAA information available on your products makes them suspect. A 2013 study by the Natural Marketing Institute that found 69% of consumers now read labels regularly and a quarter of them are specifically concerned about IAAs and make their purchases accordingly.

If data on the IAAs is on your website or at least available from the consumer affairs department, your brand will have a competitive edge over all other brands that lack such transparency and become the preferred brand. Even if your product does contain some of the IAAs, the fact that you are forthright keeps your brand and most of your products on consumers’ preferred list.

Risk: If customers have an allergic reaction to a product, they often blame the last product they encountered, even if it had no relation to their bad experience. Many legal departments encourage quick settlement of claims below a certain threshold even when the claim’s merit is questionable. When an experience is posted on Facebook or Twitter, there is a potential that it will be picked up by the media. Likewise, a few complaints to a regulator can result in a regulatory action. The good news, based on Customer Care Measurement and Consulting’s latest National Rage Study is that only 1-4 % of consumers immediately post on a social media site or go to a regulator. Almost all consumers first go back to the company. But the company must respond quickly (within 24 hours) or the consumer will go social.

For tips on actions your company should take today, read Goodman’s article here.

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