OPINION5 July 2011

Money matters


Post-recession consumers are a price-conscious lot, helped by technology that allows them to check whether they are getting the best deal right up to the point of purchase. Pete Comley, chairman of Join the Dots, assesses the implications of this trend in the first of a regular new series.

Levi’s published some interesting research recently showing an increase in ‘mission shopping’ and how consumers are trying on fewer clothes now and even touching less of them in store. Similarly, in our own retail work we have seen clear examples of consumers going out of their way to avoid temptation whilst shopping. One example is people claiming to deliberately avoid clicking on promotional emails, so they don’t get lured into an impulse purchase.

Purchasing has become more canny. Consumers are thinking more about their purchases and prioritising what they spend their available cash on and where they do so. A clear example of this is the recent report by Nielsen showing that 40% of grocery sales in the UK are accounted for by Buy One Get One Free and similar promotions.

As the global marketplace becomes more complex and varied, and as the impact of the weaker economy bites, the competitive set now often extends outside a specific product category – the question is no longer what to buy in a specific category, it’s whether to spend in that category at all.

Purchasing has become more canny. Consumers are thinking more about their purchases and prioritising what they spend their available cash on and where they do so

In addition, UK sales are being squeezed by the leaking of sales to online sellers outside the UK, as a result of international websites like eBay. The middle ground is being squeezed specifically. This all means that there is a major role for discount and value offerings. That’s not to say, however, that niche or premium products are suffering most. In fact, in many instances premium sectors seem instead to be encroaching on the middle ground. This was evidenced most recently when Kantar Worldpanel revealed that while sales are up for budget supermarkets Aldi and Lidl, they are also up for Waitrose. It is actually middle-ground products that seem to be under increasing pressure to justify their raison d’etre.

In recent research many people said they are cutting back, mentioning areas such as recreation, health care, private education and the amount spent on holidays. However, we are observing that there appears to be a sacred box of items that are not being affected as much. These include: mobile phone usage, TV entertainment packages, provision of broadband and the use of a car.

Other areas not affected as much are food, alcohol and tobacco, although a proportion of the population is switching to cheaper brands. Interestingly, data suggests it is the rich who are cutting back most. Those with children are also more affected than those without.

So as the consumer focus on controlled spending increases (due to economic pressures), it is not surprising that companies are being forced to charge less. Declining sales have meant the pricing power is now in the hands of the buyer in many markets. Furthermore, changes in technology are giving them even greater leverage. A good example is the Amazon app, which allows an immediate competitive quote to be given for any item you scan in a shop. Moreover, with a few more clicks, this can be also broadcast to friends on Facebook and other social networks (we’ll look at this trend in more depth in a future article).

On the subject of competitive quotes, there are also an ever-increasing number of markets covered by price comparison websites. What started off as a facility to compare mainly car insurance quotes and utility bills has now extended to cover virtually all financial products, mobile phone contracts and even luxury watches. According to Datamonitor, over 80% of UK adults who have access to the internet have used a car comparison website and 15% of all new insurance business now originates from them.

Of course, an increase in shopping around on comparison sites also means people appear to be becoming less brand-loyal. Both price and promotions are contributing to this. In a recent US survey by the Amp Agency of 25- to 49-year-olds, only 3% said they were loyal to a particular brand across a range of product categories.

My view is there are still sectors that exhibit more traditional loyalty (i.e. where brand advocates still exist) but for some commodity areas loyalty is becoming just an apparent statistical phenomenon. In other words, while some people do buy more of a certain brand, their reasoning is not one of loyalty but merely one of either convenience (e.g. petrol stations) or price (where an FMCG brand is frequently on offer).

So how can brands best respond?

  1. Brands must engage and experiment with new online sales. Nearly a third of UK consumers already own a smartphone and this number is ever-increasing. This is allowing people to easily compare prices on a scale that has not been seen before.
  2. More specifically, brands need to look at working with location-based sales systems. Vouchercloud has also been very successful in driving localised discount sales. However, ideas like KGB Deals and Groupon (‘flash sales’ concepts) have the most potential to really put pricing pressure on many markets. In April 2011 Groupon had already signed up over eight million UK subscribers. Groupon is not without some current problems (such as the lack of personalisation) but, once these are resolved, services like it are going to radically change local sales of products and services.
  3. Consideration must be given by brands to how they can make the purchase of a product appear prudent and canny. For example, low-cost airlines such as easyJet have deconstructed their offer to initially present people a low price and then allow them their own discretion to add back elements like suitcases, sports equipment and speedy boarding. Another successful strategy adopted by many supermarkets now is the meal deal that plays directly to this motivation, with purchasers feeling they are not just thrifty but clever.
  4. Boycotting the price comparison websites can also be a valid strategy as companies like Direct Line have shown. The problem of being on them is that unless a brand is in the top couple of quotes they are unlikely to benefit from them. Boycotting only works though for value brands that the consumer can be persuaded to believe might deliver an even cheaper quote, e.g. a low cost airline. It can also be an expensive strategy as it is likely to need to be supported by above-the-line advertising.
  5. Another alternative strategy for premium brands is to attempt to buck this trend altogether and make themselves so desirable that they get into the sacred box or are a treat that people will spend money on occasionally. Apple continually manages to do this, as the success of the iPad demonstrates. Furthermore, a recent report shows that sales of luxury goods are in fact at an all-time high, despite the recession.

Pete Comley is chairman of Join the Dots, formerly known as Virtual Surveys