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 Value... it’s ephemeral, personal and constantly fluctuating. In these tumultuous times, value perceptions are evolving at an extraordinary rate leading to big swings in market share.
Recent IGD research explored how the consumer value equation is shifting in the UK. We found that many people were jolted out of their habits in 2008, re-examined their options and found some very different answers.
These are developments that every business wants to track. So what are consumers trying to tell companies right now about their changing needs?
Unsurprisingly, 57% of our sample had been economising on groceries in one way or another. Intriguingly though, only 9% felt that the quality of their food and drink experience had deteriorated this year, greatly outnumbered by the 21% reporting an improvement.
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| Customers are trying to find better value | |
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Economising is not the same as downtrading
Evidently from a consumer perspective, economising is not the same as downtrading.
Many people have simultaneously been able to reduce costs and improve satisfaction, or in other words, find better value solutions. Their methods have included shopping around, taking advantage of promotions, scrutinising the range more carefully, reducing waste and even growing more food at home.
If we assume an even tougher period lies ahead, we can expect a lot more adaptation and more swings in market share.
Now more than ever, companies will be in listening mode. From our research, we’ve distilled four key messages from consumers about value in this recession.
1. “It’s the overall experience that matters not just the product”
Manufacturers feel passionately about their products, and retailers about their stores, but for consumers these are just means to an end. Most people are creatures of habit and this can create an impression of loyalty to products and services … but it’s not genuine loyalty in the way we feel for family or friends. If our circumstances change, we have no hesitation in working out a different way to achieve our ends and this has happened on a major scale recently.
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Three myths about a recession
Myth 1:
Consumers downtrade
Some people might switch to lower cost alternatives but as IGD evidence shows that does not have to mean lowering standards. Most consumers feel they are taking sideward rather than backward steps.
Myth 2:
People revert to selfish behaviour
It’s true that most people put their families first in times of financial difficulty and charitable donations do fall but only at the margins. In six of the last eight recession years, charitable donations in the US dropped by less than 5% (source: AAFRC Trust for Philanthropy).
Myth 3:
The middle ground erodes
The middle ground continues to be where most consumers reside and so a strong middle range proposition can deliver best value for the greatest number. It is arguably more difficult for marketers to convey value in middle ground but far from impossible.
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For example, 29% of people told us they were now eating out less compared with 9% eating out more. Twenty-seven per cent were visiting more stores and only 7% fewer. Twenty-three per cent were shopping more with discounters, with 7% shopping there less (although food discounters still hold just a 6% market share).
So providing a good product or service is not sufficient when value is under such close scrutiny. It requires a deeper understanding of what matters most for consumers from each meal or other consumption occasion.
The most potent marketing message in an economic downturn is to offer consumers an equal (or better) experience at lower cost. The best defence is to show that no other experience is able to compare through the use of emotional and not just functional triggers.
2. “Time is money and money is time”
The importance of time has long been recognised by companies and many have earned a premium by helping consumers to save time. However, it can work in both directions. As the low cost airlines demonstrate through their booking and boarding procedures, people will also invest time to save money.
This was one of the big trends last year. Twenty-two per cent of people told us they were spending more time planning meals compared with 6% spending less. Twenty-seven per cent were spending more time cooking versus 7% spending less.
With the recent wave of redundancies there will be an even stronger drift from cash rich/time poor towards cash poor/time rich. Innovation can still flourish in these circumstances provided it reflects the mood of the time. So perhaps some ingenious companies will find a way to transfer work back to consumers and pass on the savings through a lower price.
3. “Provide just enough and no more”
Quality is always in demand and consumers never want to compromise on the essentials. However, the less essential “bells and whistles” are seen as poor value in a recession. So the emphasis for business moves on to reducing complexity, avoiding over-engineering and eliminating all forms of waste.
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| The iPod - fulfils its function without complexity | |
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The iPod offers a good role model providing just enough features to fulfil its function avoiding the complexity of its less successful competitors. It also hits the right emotional triggers.
Over-engineering can include pack and portion sizes. Nineteen per cent of people were cooking smaller portions in 2008, versus 6% enlarging them.
Promotions have been subtly changing, with a stronger emphasis on discounts rather than buy one, get one free. It helps to explain why 40% of shoppers say they have bought more on promotion.
4. “Ethical standards are non-negotiable”
According to the pessimists, ethical standards decline in a recession. However, this underestimates the depth of commitment felt by so many people on issues such as animal welfare, alleviating poverty and the environment.
Research from IGD shows that 22% of consumers bought more animal welfare friendly products in 2008 compared with 7% buying fewer. Sales of fair trade and locally made products also continue to grow.
In an anonymous poll of 600 industry leaders at The IGD Convention in October 2008 only 12% said they were lessening their commitment to sustainability.
The prize is potentially greater too. Consumers are likely to give extra and long-lasting credit to companies that can raise the ethical bar in difficult circumstances.
Tougher conditions ahead
So in a recession, the normal rules of value are not completely overwritten but the emphasis falls on different areas. Rather than a decline in standards, there’s a demand for lower cost solutions that maintain standards.
Even subtle changes can have dramatic effects on the bottom line as marginal customers migrate to competing brands and retailers. Throughout 2009, conditions are likely to get even tougher and consumer changes more pronounced, so company success now hinges on who can listen the most attentively and respond most decisively.
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Shopper Segmentation
Based on the number of behavioural changes in 2008 and the quality of food experience (compared with 2007) IGD has developed six shopper segments. It shows the capability of consumers in adapting to difficult circumstances. The number of people passively accepting a fall in standards (Retrenchers) is outnumbered almost four to one by those making lots of changes and improving their outcome (Upshifters).
 Source: IGD Adapting to Change report |
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