How shopper behaviour can change when wallets get squeezed.
If you’re selling products in Retail at the moment, you’ll have started noticing changes in the way that shoppers are behaving AGAIN. The last two years have been like a mad rollercoaster for many product sellers, from the panic buying of early 2020 as lockdowns drove major spikes in sales, to empty shelves driven by supply chains hitting the brakes and now the climbing costs of inflation impacting nearly everyone across the market. Navigating these twists and turns can leave many companies feeling sick at how to manage the changes not only in their profits, but also in changing shopper behaviour. Thankfully history is a great teacher and there is a lot to learn by looking at how people have changed in the past, and ‘so what’ this might mean for different products and categories.
A white paper published by IRI in February 2022 looked at past inflationary events to look at how consumers change how they shop, buy and consume, and its worth digging into the ‘so what’ this could mean for your business. The dynamics of the category (are you an essential like toilet paper, or discretionary like confectionary), potential for substitutes, how sensitive your target market are to price changes and where you sell - are all factors that impact how consumers may change the way that they shop your products. Managing how your business responds to this latest rollercoaster in shopper behaviour is the difference between blind panic of unexpected dives, and feeling secure with a harness and knowing how to deal with the twists and turns ahead. Learn how shoppers could change and more importantly what you can DO about it to avoid the sick feeling in your stomach of unexpected change…
CHANGE APPROACH TO VALUE
Buy smaller packs or portions to stretch the budget
Buy larger value or bulk packs especially for commodity products with long shelf life such as flour, toilet paper etc
Look out for promotions and switch based on best deal on the day, or defer purchase til it's on special.
What does this mean - and what can you do?
Consider introducing a different size ‘value’ offer to meet consumer needs. A smaller trial pack may be more appealing if you’re trying to drive sales for a new brand to give people an easy way to sample your brand without a significant cost. If you have a well-loved brand, then this could be the time to increase a larger ‘value’ offer for your most loyal and frequent customers. Its important to realise that this may mean a bigger gap between purchases depending on the nature of your product - if you’re selling laundry liquid, there’s only so much people can use each week - whereas for snacks, people can eat more.
If you have different pack sizes in your range, then relook at your promotional program and see which ones to highlight MORE to consumers. For commodity items like laundry liquid, cleaning products or everyday essentials, now is when consumers are looking for ‘value’ instore and it may be worth changing promotional frequency. Rather than offering deep price discounts, consider whether you want to do an ‘every day value’ price promotion. This not only gives you a way to retain consumers who may switch based on absolute shelf price, but also means you can reset the price ‘anchor’ point for your products.
COMPARE & RECONSIDER
Compare shelf price or price per gram to make sure they're getting the best deal
Compare pack size needed and evaluate 'how much will we use this week'
Compare brand attributes as they are rethinking what is important and worth spending their money on eg sustainability, nutritional panel, quality ratings & reviews
Trade up/ down within an existing brand after evaluating alternatives
What does this mean - and what can you do?
Value is a function of what a consumer believes that a brand offers them. The shelf price is only part of the value equation in consumers minds, and if you can give them a reason to justify their spend, then you can retain current consumers and also remind them of the positive benefits of your brand. Switching takes mental energy, so if you can keep current consumers by offering simple cues on pack or in communications, then you are in a great place to hold onto volume sales and market share.
This is a great time to highlight your value offer on pack through simple stickers, or in marketing activity. This could include reminding consumers of the number of servings per pack, price per serve etc. Give something to compare it to that is easy to understand and frame it in consumer language - ‘a month’s worth of cleaning in every pack’. The manufacturers of Cold Power highlight this on their packaging with their claims “uses less energy, reduced environmental impact and is gentler on your clothes. Smart for your clothes. Smart for your pocket. Smart for the planet’. This reflects the wider context for consumers about energy prices, positive sustainability action and helps them to justify the purchase.
Get creative with your marketing and communicate regularly the attributes that they value MOST in your products. Positive ratings give people the social confidence they’re making the right choice, and they’re reducing the risk of wasting money.
CHANGE CONSUMPTION
Change how often they consume - cafe coffee once a week as a treat rather than daily, take lunch to work more often
Change how much they consume - eat less meat & more meat-free meals, more home baking, fewer takeaways
Change where they consume - more drinks at home, less drinks out with friends
What does this mean - and what can you do?
You need to make sure that your brand is the one they choose when they DO purchase (hold onto market share). Small retailers that rely on heavy impulse buying or foot traffic like cafes may need to look at who they are targetting and if they can manage their costs to maintain overall profit and cashflow. Already cafes and hospitality are changing the hours that they are opening to manage tight labour conditions and slower foot traffic. Consider the offers you highlight to attract people to your store, and what you can do to maintain loyalty. Can you offer extra incentives during key times like morning coffee, to keep up their purchase frequency (or at least manage its decline). This is about the marketing of your business, and can reflect on the level of loyalty that you’ve built in your brand over time.
For product suppliers, look for new sales channels and focus on being WHERE they are moving to. If you haven’t already started talking to the discount retailers like The Warehouse, Chemist Warehouse or Bargain Chemist, then start approaching them to find out when their category reviews are and what is needed to start selling in their channel. They often have options to be ‘online-only’ brands and it can be worth looking at whether this works for your brands.
If you’re vulnerable to changes in consumption - like eating at home more vs eating out - then talk to consumers about the value that you offer them for getting a similar experience at home. Nespresso is the leading example of this by offering ‘barista style’ coffee at home, so consumers compare the price to a cafe coffee (which it is MUCH cheaper than) rather than comparing them to other supermarket coffee (where they are a HUGE price premium). Remember its not about the absolute price that is paid for many products, its about the VALUE that consumers see in what you’re selling compared to other alternatives.
DELAY, OR LEAVE AND FIND NEW PLACE TO SHOP
Delay the purchase for extended period especially for larger value non-grocery items.
Stop buying altogether and find something else to meet that need
Start buying from a different Retailer that has a better value offer
Talk with your Retailers to understand what they are seeing instore, and what options you have to either change our your range (replacing pack sizes or focusing on top selling lines), or promotional activity. They will likely be thinking ahead of you and wanting to work together to maintain shopper spend in their store to STOP people switching to alternative retailers to buy products. Now is when low-value retailers like Kmart, The Warehouse and Chemist Warehouse may take advantage of the perceptions as ‘great value’ shopping locations to try and encourage people to start buying from their stores. If you don’t already sell to these retailers, then look at whether your products could fit in their stores, and what it would take to start selling in them. Now is when you can make the most of having a diverse retailer base rather than just relying on a few large customers.
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Remember although inflation generally happens across all parts of a market, NOT all customers are affected in the same way, and its important to understand how YOUR shoppers are likely to act so you can take the best action. The level of change that we can expect to see is a function of their ABILITY TO BUY and their WILLINGNESS TO SPEND. People with high disposable income may reconsider some larger purchases but generally keep buying their traditional favorites. Those with high debt, poor credit and low personal savings may be forced to make unwanted changes quickly. The rollercoaster that your business is riding is NOT the same for everyone. Depending on what you sell, there could be a major or minor change in sales and its worth remembering that although it may FEEL like people have stopped spending, the reality is that generally there is still the same income coming into bank accounts - its HOW people are spending that is changing. If your petrol costs have doubled in the last six months, then its not that you are earning less when you go to the supermarket that impacts your shopping. It’s that you have LESS disposable income to spend in certain areas. By using a combination of the 4Ps (product, price, promotion and place) you can ride out this rollercoaster of change and come out the other side with a smile and not a sick bag!
If you need help reworking your pricing strategy, resetting your product range or promotional program, then get in touch. We’ve been through the inflationary rollercoaster before with over 25 years of experience in FMCG, and can identify short-term and long-term responses to best manage your business to deal with change.
