Does Price Still Rule in the 'New Normal'?
The 2010 IIR Category Leadership Conference, held in conjunction with the private brands Conference in Chicago last week, raised this interesting question (somewhat serendipitously): Are retailers and manufacturers right to stay laser focused on price in the post-recession environment?
Due to a speaker cancellation, the panel discussion on "Responding to the Changing Shopper" sponsored by SmartRevenue was preceded by a presentation by Nielsen on retailer brands -- a presentation originally geared to the largely retailer audience in the private brands conference next door.
The Nielsen presentation highlighted the fact that private brand unit growth has quickly returned to its historical pattern of about +0.2 points per year post the recession and suggested that U.S. private brand penetration will probably never reach European levels due to lower retailer concentration in the U.S.
Lisa Rider, VP, retail marketing at Nielsen, noted that shoppers' willingness to embrace private brands varies greatly by category, and that the relative importance of the purchase ranks just ahead of unsatisfactory product experiences as the reason shoppers don't adopt private brands. Nielsen also noted that those brands could soon encounter some stiff headwinds as the population shifts to an older and more Hispanic profile -- both typically underdeveloped segments for private brands.
The panel discussion that followed featured some pre- and post-recession shopper behavior tracking by SmartRevenue, along with panelists from The Kellogg Company, Dole Packaged Foods and OfficeMax.
Among the tracking study conclusions was the fact that, while more shoppers reported "making a list" post-recession, only about two percent more shoppers interviewed in-aisle actually had one in hand (31 percent post- versus 29 percent pre-recession). Similarly, about the same percentage of actual purchase decisions were made in aisle post- (45 percent) as pre-recession (47 percent).
The study did find a much greater jump in the percent of shoppers who ranked "price" as a top box purchase driver for National Brands (+16 points from 23 percent to 39 percent) than that for private brands (+3 points from 65 percent to 68 percent). But it also found that "post-recession shoppers are not willing to sacrifice quality and are, in fact, placing even more value on health considerations [than before the recession]."
In discussing the study findings, both the manufacturer and retailer panelists related specific instances of shoppers valuing factors like "quality" and, in particular, "health issues" equal to or just below price in driving purchase decisions. And Reggie Jonaitis of OfficeMax pointed out that manufacturer promotions are now essentially required to be totally self-funding because "the incremental sales don't offset the margin loss" anymore.
Discussion Questions: Are manufacturers and retailers placing undue emphasis on price as the key driver in "the New Normal" economy? Are you surprised by findings that there has been little change in shopper behavior due to the recession? Do you agree that private label growth rates will ease post-recession?