March 28, 2016 –
There are eye-opening ramifications for retailers.
The Great Recession is long over, but more than 50 percent of global consumers remain worried about jobs over another financial downturn. More than 25 percent live payday to payday.
That’s according to consulting firm, McKinsey & Company (www.mckinsey.com).
The study is entitled, “Saving, scrimping, and . . . splurging? New insights into consumer behavior.”
As a result, they regularly shop for the best deals, clip coupons and delay making purchases. McKinsey surveyed more than 22,000 consumers in 26 nations.
On a positive note, more than 30 percent say they’re positive about the economy. Consumers in China and North America are the most optimistic.
Some 33 percent or so globally remain loyal to their favorite products.
The researchers: Max Magni is a director in McKinsey’s New Jersey office, Anne Martinez is a specialist in the Stamford office, and Rukhshana Motiwala is a senior expert in the New York office.
Nearly three-fourths of consumers in Mexico and South America are the most pessimistic.
Among the most optimistic, are 65 percent of North American respondents and 57 percent of Chinese consumers.
Here are edited excerpts of what the authors call “Five truths about today’s consumers”:
- They proactively search for savings.
Consumers are reducing their spending in a variety of ways. Forty-four percent agreed that they’re “increasingly looking for ways to save money.” (In some countries, including Brazil and South Africa, more than 70 percent of respondents agreed with that statement.) Today, frugal consumers go out of their way to do almost all of those things. In addition, many are changing their eating habits—in particular, eating at home instead of eating out, or cooking from scratch more often.
- They are brand-loyal . . . but only if the price is right.
Fifty-eight percent of survey respondents said they’ve modified their buying behavior when it comes to their favorite brands. The trend is particularly pronounced in South Africa and Asia, where three out of four consumers said they’ve changed their buying behavior. Most consumers haven’t abandoned their preferred brands but are watching their budgets more closely: shopping around to find retailers that sell these brands at lower prices, buying only with discount coupons, waiting until the brands are on sale, or purchasing in smaller quantities.
- Once they ‘trade down,’ they might not go back.
Only 12 percent of consumers reported trading down—that is, buying cheaper brands or private-label products instead of their preferred brands. The most vulnerable categories (those with the highest trade-down rates) were bottled water and household cleaning supplies, perhaps indicating that branded products in these categories haven’t differentiated themselves enough and thus don’t stand out in the minds of consumers.
- They are selective splurgers.
Trading down is only part of the story, though. The percentage of consumers who traded down is almost equivalent to the percentage who did the opposite: traded up. Eleven percent of consumers decided to upgrade their purchases in certain categories. In aggregate, the world’s consumers appear to be “rebalancing the portfolio”—spending less in categories where they don’t favor any particular brand, and spending more in others. Cosmetics and wine had the highest trade-up rates, suggesting that higher-end brands in these categories were able to persuade consumers that their products are worth the price premium.
- They shop across channels.
Another important change in spending habits has to do with wherepeople shop. Consumers claimed to have shifted a considerable fraction of their spending toward online and discount channels. The magnitude of these perceived channel shifts differs by region, with Mainland China leading the online migration: Chinese consumers said they shifted 62 percent of their spending to online pure plays and 55 percent to online grocers.
“The thing is to be able to outlast the trends.”
– Paul Anka
So what are the implications for brands? Here’s an edited excerpt on the authors’ recommendations:
At every price point, think ‘value for money.’
With many consumers seeking savings opportunities, brands must give consumers solid reasons to choose their product over lower-priced alternatives. That means emphasizing not just the emotional attributes of a product but its functional benefits as well: reminding and reassuring shoppers about the particular features that make the product worth its price. They need to articulate and communicate a clear value proposition that differentiates them from the competition and that resonates with consumers.
Invest in advanced revenue growth management (RGM) capabilities.
Through investments in cutting-edge RGM solutions and analytical talent, leading companies arrive at data-driven answers to critical questions such as: What role does each brand and each SKU play in the assortment? How, if at all, does that role differ by channel and by geographic region? Which promotions are most effective and why?
Be crystal clear about who your target consumer is.
Instead of trying to appeal to the generic “consumer,” companies should define whom exactly they are targeting. The most sophisticated companies gain a thorough understanding of the various consumer segments and microsegments, and the factors that drive buying behavior in each: What attributes does each microsegment value the most in a specific product? What will they pay for and what don’t they care about? How often do they purchase a product? How much do they spend on the category per year?
Bifurcate your portfolio; avoid getting ‘stuck in the middle.’
As consumers either trade up or trade down, companies whose portfolios consist primarily of mid-tier products might have little to offer. Such companies could consider stretching their brands upward, downward, or in both directions—developing a premium offering to attract up-traders, or a compelling low-priced offering aimed at down-traders and mass consumers. In these product-development efforts, a design-to-value approach—as well as skillful management of portfolio complexity—will be essential to achieving profitable growth.
Ensure product availability and pricing consistency across channels.
With consumers shopping across channels in search of convenience and deals, a comprehensive channel strategy—one that maximizes reach and minimizes channel conflict—is crucial. The strategy should include investments in the highest-growth channels; partnerships with winning online players, discount formats, and club stores; and the development of a robust digital play, which entails not only creating digital assets but also building a strong presence on the websites and mobile apps of leading multichannel retailers. Importantly, as manufacturers sell their products across multiple channels, they must ensure that their prices for identical SKUs are consistent across channels—or else they risk losing the consumer’s trust.
From the Coach’s Corner, editor’s picks for additional reading:
Digital Marketing Trends: Choose Your Best Tactics — True, marketing has evolved rapidly in the last quarter century. And yes, it’s important to be mindful of trends, especially in digital marketing — good and bad.
Forecasting 5 Trends and the Future of Marketing — With all the dynamic changes that businesses have experienced in opportunities and threats, it’s important to anticipate the future. But forecasting can be tricky. So, the one dynamic you can anticipate – constant change – both positive and negative. Be aware of these five marketing trends.
Software Technology Trends – What’s Next on the Radar Screen? — The software industry has undergone dynamic changes as it continues to modernize. What about the future? Where are we headed in software technology?
Developing Trends, and Solutions for Manufacturing Success — U.S. manufacturers are getting a reminder about how to be successful – it’s important to evaluate whether they have the human capital, processes, equipment and strategic plans for success.
Improve Your Customer Retention with 6 Digital Tips — Outstanding loyalty programs for stellar customer engagement play an important role to improve your prospects for lifetime customer value. That goes for e-commerce, too.
“The thing is to be able to outlast the trends.”
– Paul Anka
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.