CPG tariff impact: Rethinking strategies for turbulent times

When U.S. President Donald Trump announced sweeping tariffs on April 2, the CPG industry quickly scrambled to see if and by how much they would have to raise prices.

Some companies with manufacturing largely in China or other heavily tariffed countries quickly announced price increases (such as baby brand Munchkin) while other companies decided to keep prices the same. Kimberly-Clark plans to hold the line on prices despite a projected $300 million in added costs and 2025 profit forecasts lowered to zero due to tariffs.

Other brands might fall somewhere in the middle of these two approaches, but this is true for all: the CPG tariff impact will affect pricing, demand, business costs, and loyalty strategies.

Even with tariff reprieves coming to certain countries temporarily or permanently, brands need to take bold steps to remain competitive.

Impact of tariffs on consumer buying

As CPG companies figure out how tariffs will impact their businesses, there are many things they can do to better position themselves. It’s a tough spot: some competitors may be able to eat the additional costs and keep prices the same. But others may not have the financial flexibility to do this, especially those selling lower margin products or with significant exposure to highly impacted countries.

While no consumer wants to pay more for the same goods, they understand that price hikes will come soon. The Associated Press-NORC Center for Public Affairs Research polled 1260 adults in the U.S. and found that 47% believe the government’s aggressive tariff strategy will increase prices by a lot, while another 30% think they will increase somewhat.

Brands will need to be careful about the approach they take to raising or maintaining prices to retain customers, especially since consumer confidence has plummeted this year.

But there’s a glimmer of hope. According to a survey by UserTesting, 68% of 4,000 consumers in the US, Australia, and UK would keep buying their favorite brands even if they charged more.

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What CPG brands can do about tariffs

Kimberly-Clark is a use case in getting creative quickly. CEO Mike Hsu is reducing the company’s financial hit by switching sourcing and applying supply chain learnings from the pandemic.

The company also announced plans to invest $2 million in its North American operations, including a new manufacturing facility in Ohio and expanding a facility in South Carolina.

For brands unable to handle the mounting costs, communication will be key to encouraging customers to keep buying even if prices have to go up.

Here are concrete actions CPG brands can take in an era of fluctuating tariffs:

1. Maintain quality. According to the UserTesting survey, 60% of consumers list quality as the top reason why they stay loyal to a brand. Forty-four percent of consumers would switch to a brand if they offered a better product or if their preferred brand no longer provided the same value.
2. Communicate price changes: Let customers know how much costs will go up, on which products, and when they can expect the increases. Transparency and honesty are key to retaining customer trust. With tariffs fluctuating seemingly by the day, brands must leave room for changes, as Walmart did. “We’ll keep prices as low as we can for as long as we can given the reality of small retail margins,” a Walmart spokesperson told Axios.
3. Increase marketing to be top of mind for consumers. Remind consumers of unique value propositions and what drew them to the brand in the first place. Maybe even implement a new or more generous loyalty program to encourage customers to stick with the same brand they know and trust, instead of switching to a cheaper alternative or going without.
4. Resort to shrinkflation if needed by changing packaging to offer slightly smaller products at the same prices, but be careful about wording on packaging so that customers don’t feel cheated. If customers are unlikely to tolerate a price increase, “new look, same product” could help them get the products they love in a volume that the brand can sustain in the face of higher costs.
5. Get close to the data. Understand new costs associated with tariffs, how much inventory is stateside, and how each product will be impacted to make informed pricing and packaging decisions.

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Modeling impacts, reworking strategies

Many CPG companies have been able to keep their prices flat as they worked through existing inventory this year. Once they sell those stockpiles, brands will have to get crafty to not increase prices so much that shoppers decide not to buy their products.

Data will be essential to managing costs, pricing, and increasingly complex supply chains. There are two ways that brands can use data to manage tariffs.

First, companies need to model the impact of tariffs and plan how they can work them into their existing strategies. Brands also need to be able to handle change management, compliance, and supply chain operations on a global scale.

When data is unified, brands can take action to reduce costs, avoid penalties, and clear customs faster.

They also can keep legal and supply chain functions running seamlessly in the background so that they can focus on producing and promoting the best products.

CPG tariff impact drives need for flexibility

CPG brands will have to work harder than ever to convince shoppers their products are worth purchasing, especially if they seem to be coming at a premium these days. While tariffs are an additional challenge for the industry, there are ways for companies to keep costs at bay and hang onto their loyal customers.

In this time of uncertainty, brands that stay nimble and make data-driven decisions will be able to sustain growth.