In 2025, manufacturers in the consumer goods industry are facing persistent challenges such as tariffs, rising raw material costs, and ongoing supply chain disruptions. These factors are forcing companies to make tough decisions about whether to absorb costs or pass them on to consumers. Globally, consumers are also feeling more “pressured” than ever, according to a 2024 Nielsen report, reshaping how manufacturers approach pricing strategies. The days of indiscriminately raising prices are over, as consumers become more price-sensitive and cost-conscious. Companies are now being pushed to adopt a revenue growth management framework that prioritizes strategic pricing decisions.
At the same time, changes in customer behavior, especially in decision-making processes, are reshaping how businesses approach pricing. The traditional decision tree is being “flipped” in 2025, with consumers starting from a fixed budget and then trading off between categories based on perceived value and price. Retailers are also evolving their strategies for shelf space allocation, moving from static methods to more data-driven approaches. Below, we explore how these shifts in customer decision trees, tariffs, and supply chain dynamics are impacting pricing strategies and discuss key opportunities for manufacturers to navigate this evolving landscape.
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Pricing for Consumers Under Pressure from Inflation and Economic Uncertainty
Inflation and economic uncertainty continue to dominate the global conversation in 2025, with consumers increasingly concerned about the cost of living and the potential for economic downturns. This reality has left consumer goods companies walking a tightrope—facing rising operational costs while grappling with consumer resistance to price hikes.
As a result, two clear trends are emerging:
- Consumer Spending Shifts: Consumers are trading down to lower-cost alternatives that offer better value, such as private label goods. According to Nielsen, there’s been a global shift of 0.8% toward lower-priced tiers—a seemingly small percentage that translates to billions in sales.
- Manufacturer Margin Pressure: For consumer goods manufacturers, sustaining margins is becoming a complex challenge as revenue growth strategies must be recalibrated to account for heightened price sensitivity.
Consumer Behavioral Shifts Are Polarized by Income
Economic pressures are not impacting all consumers equally, creating a widening polarization between the financially secure and financially vulnerable.
- Financially Vulnerable Consumers: This group is most affected by inflation and is altering purchasing behaviors, often opting for lower-cost essentials and private-label alternatives.
- Financially Secure Consumers: Wealthier consumers are demonstrating resilience, maintaining spending habits on premium and luxury goods.
As a result, consumer goods manufacturers are seeing uneven impacts across product categories. While luxury goods remain relatively insulated, mid-tier and premium products are facing pressure as consumers trade down to more affordable options or reduce overall spending.
Increasing Price Sensitivity is Driving Strategic Adjustments
In 2025, rising costs and consumer price sensitivity are compelling consumer goods manufacturers to refine their pricing strategies. Two common responses include:
- Shrinkflation: Reducing product size or quality while keeping prices steady. While effective, this tactic risks alienating consumers if perceived as deceptive. Transparency is key to mitigating backlash—companies can communicate these changes openly or offer a smaller, lower-cost option alongside the original product.
- Mini Versions: Introducing smaller, clearly labeled versions of products at reduced price points is a less controversial approach. These “mini” options meet consumer demand for affordability without the perception of dishonesty.
Changes in Customer Decision Trees
Changes in consumer decisions are being driven by shifts in customer priorities, digital influences, and market dynamics.
Traditional Decision Trees: Historically, consumer decision trees followed a predictable path:
- Primary Decision: Beverage Type (e.g., Water → Juice → Soda → Energy Drink)
- Secondary Decision: Brand (e.g., Branded like Coke/Pepsi → Private Label)
- Tertiary Decision: Packaging (e.g., Bottle → Can → Multi-Pack)
- Final Decision: Price (e.g., Low Price → Medium Price → Premium)
However, these traditional models are limited by oversimplified consumer behavior, a linear mindset, and a static approach that does not capture emotional or impulsive buying behaviors.
Flipped Decision Trees: In 2025, we are seeing these trees being “flipped,” with consumers starting from a fixed budget and then trading off assortment/categories based on perceived value and price. This has led to:
- Decreased traditional brand loyalty
- Increased focus on consumer value
- A prevalence of “promo seekers”
Opportunity: Optimize Promo While Protecting the Base
- Understand promo drivers and sources of volume (e.g., category growth, cannibalization, retailer switching).
- Optimize the timing of promotions to maximize lift throughout the year.
- Bundle promotions to reduce cannibalization.
- Use messaging to enhance value perception (e.g., multi-buys gaining traction over traditional percentage discounts).
RML Example:
RML identified a mainstream brand heavily interacting with value/private label offerings. By leveraging promotlytics, they introduced deeper discounts during promotions, expanding market share while preserving the base business and minimizing cannibalization.
Retailers Seeking Shelf Space Efficiencies
Retailers are rethinking shelf space allocation, transitioning from traditional static methods to data-driven approaches.
Traditional Methods: Historically focused on category management, sales volume, and vendor influence. However, these methods often:
- Respond slowly to emerging trends.
- Overemphasize price sensitivity (e.g., cheaper items at eye level).
- Rely heavily on large manufacturers.
Evolving Approach: Retailers are increasingly:
- Using heat maps, shopper behavior, and velocity metrics to optimize offerings.
- Seeking manufacturers’ insights to make informed decisions.
Opportunity: Category-Level Insights and Incrementality
Cross-purchase analysis, substitution patterns, and shopper segmentation help identify:
- Products that cannibalize sales vs. those that drive cross-purchases.
- Incrementality to determine “who wins/loses” when products go on promotion or are delisted.
Benefits:
- For Retailers: Optimize shelf space, pricing, and promotions.
- For Manufacturers: Guide product innovation and ensure promotions focus on net new growth.
RML Example:
In the frozen foods category, RML’s analysis showed two brands with minimal interaction. Recommending delisting one brand led to significant incremental growth for the retailer.
Navigating Supply Chain Uncertainties and Tariffs
The word in supply chain for 2025 is volatility. Disruptions, rising raw material costs, and logistical complexities remain persistent challenges. Additionally, the possibility of rising tariffs compounds these issues, increasing input costs for imported goods.
Opportunity: Dynamic Pricing and Increased Transparency
To navigate these challenges:
- Implement dynamic pricing strategies that adjust prices based on real-time costs and demand.
- Focus on value-based pricing and transparency to build consumer trust.
- Leverage promotions tactically to offset cost increases while maintaining profitability.
Direct-to-Consumer (DTC) and E-Commerce Revolution Continues to Grow
The transition to DTC and e-commerce represents a paradigm shift. In 2023, DTC sites were the third most popular online purchase channels, generating $135 billion in U.S. sales. By 2025, this number is expected to reach $227 billion.
Opportunity: Personalized Consumer Experiences and Recurring Revenue
DTC models enable manufacturers to:
- Access robust consumer data for targeted pricing optimization.
- Innovate through personalized promotions and bundled offers.
- Drive brand loyalty through direct engagement.
Final Thoughts on Pricing Insights for 2025
As we look toward the remainder of 2025, the consumer goods industry faces an era of transformation driven by evolving consumer behaviors, economic pressures, and technological advancements. Investing in comprehensive pricing strategies that balance consumer perceptions with financial objectives is essential for navigating this complex landscape. By embracing data-driven insights, dynamic pricing, and transparency, manufacturers can enhance profitability, foster loyalty, and secure their position in an increasingly competitive market.
