December 18, 2007
Discounts Underscore Value
By Tom Ryan
According to a new survey by The Nielsen Company, frequent promotions and discounts was the most important factor to U.S. consumers when deciding which grocers offer the most value for their money.
Eighty percent of U.S. shoppers consider it “very important or somewhat important” for supermarkets to feature frequent promotions and price discounts, while 72 percent believe a store’s reputation for delivering low prices is very to somewhat important. Ranking third are prices published in the stores’ leaflets (71 percent) and everyday low prices (70 percent.) Slightly less important to U.S. consumers are discounts for store cardholders (63 percent), price comparison across retailers (59 percent), private label offerings (53 percent) and friends’ recommendations (43 percent.)
“Our research shows that the importance of good value and low prices resonates much more with lower income households in the U.S.” said Todd Hale, senior vice president of Consumer & Shopping Insights, Nielsen Consumer Panel Services, in a statement. “More affluent households regard quality of fresh produce, meat and seafood and selection above good value. That said, the success of warehouse club retailers speaks loudly to the importance affluent American consumers place on value.”
Source: Nielsen
Overall, Nielsen found good value (cited by 60 percent) was by far the most important factor U.S. consumers look for in deciding where to grocery shop. That was followed by better selection of high quality brands and products, 28 percent; the closest store, 23 percent; most convenient/easiest parking, 14 percent; and uses recycle bags and packaging, nine percent.
With the exception of few regions, particularly the emerging European economies of Russia, Hungary and Estonia; Nielsen found similar shopper behavior patterns worldwide.
“What shoppers demand from grocery retailers varies significantly across regions and countries, and with increasing consolidation and globalization of the retail industry, it’s crucial for retailers to understand how shopper preferences differ across markets,” said Mr. Hale.
Discussion Questions: Are frequent promotions becoming a more or less important driver of the “value equation” for grocers? How is the overall value equation changing?
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There is no set value equation. There is not even a list of static value equations. Instead, value equations are situational, extremely personal, and constantly changing for each of us. The $99 deli platter in the supermarket looks pretty pricey until we’re on our way home from work on a payday and expecting guests at home. Value equations are better defined for their variance than their constancy, and can never be applied across a wide group of shoppers.
Here we are again, looking for a formula where there is no formula. In a world of “right now research” we tend to apply the findings to long and mid-term marketing strategies and tactics. Remember Flip Wilson’s “Church Of What’s Happenin’ Now?” Most researchers and marketers need to become members. If the UK’s Tesco has taught us anything, it’s how to put marketing power into the hands of shoppers for their control and use. CRM (Customer Relationship Management) is becoming CMR (Customer Managed Relationships), but you’d never know it from the marketing practices of most U.S. retailers. Burger King got it a long time ago (“Have It Your Way”), but few have learned from that example.
The issue for retailers is control. I once heard a guy accused of being a “control freak” explain it this way: Most human situations are either under control or out of control. Since we consistently view out-of-control situations as negative, someone has to step forward to provide a solution. People who are unwilling or unable to step forward with a solution label those who are as “control freaks.”
But there are different kinds of control, with the predominant definition including concepts like strict, forceful, complete, and total. This is a heavy-handed definition. I prefer Tony Dungy’s (coach of the Super Bowl Champion Colts) type of control with a light touch. He never yells or curses, and has the complete and total respect of his players. That’s because he achieves people-oriented goals not by forcing or directing them to perform, but by teaching them how to motivate themselves. Self-motivation is far more rewarding. And that’s how it is with shoppers. They want to feel in control of their own values and purchase behavior, without heavy-handed retailer manipulation. Frequent promotions are heavy-handed and motivated simply by the desire to move stuff out of the store. What about the customers? How can we give them the minute-to-minute power to meet their own desires?
The reason that frequent discounts and promotions have become the most important factor in determining consumer preference for grocers is because supermarket chains, as well as drug chains, have done very little to create other points of differences, and therefore, promotions and discounts, and pricing, is all that remains to drive consumer choice.
This almost sounds like Hi-Lo is superior to Every Day Low Price. In one respect, the edge goes to Hi-Lo for keeping a message in front of the consumer, but to discount EDLP considering the success of the largest retailer does not make sense. Value is the ratio amount paid versus perceived product performance including taste. Pricing and promotion should not be looked at independently from the total go-to-market package. Store decor, level of service, product quality offered, etc, are all a factor. Narrow analysis is likely to result in a wrong conclusion.
Look at old newspapers from 50 years ago and you’ll see supermarket ads almost identical to today’s ads. People want low prices and almost all grocer advertising leads with price. After decades of repetition, it would be odd to expect anything very different. The nonprice grocers have always been the minor exceptions. When visiting Third World open air food markets, what do you see? Buyers and sellers haggling over price.
Another reason that promotions and discounts have become more and more important is the state of the economy. There are many, many families “just getting by.” Stretching the grocery food budget is extremely important to the majority. When the economy hits a down turn such as it is today, people get more and more “bargain alert.” When the economy picks back up promotions will be less significant but always a driver.
Mark is correct that most traditional food retailers follow the same promotional template that they followed a generation ago–midweek and weekend newspaper supplements plus in-store price promotions and coupons. Most of these stores have gotten more sophisticated about other types of loyalty programs to drive the tape total down or to drive “bounce-back” repeat business.
But have they really moved forward to address where they have lost market share over the years…to the supercenters, warehouse stores and upscale specialists? No question that price is a motivator, but you can’t ignore content, presentation and customer service as part of what defines “value” for a food retailer–or any retailer, for that matter.
I agree with Frank. I’ve done tens of thousands of pieces of consumer research myself and have come to the inescapable conclusion that, in the end, EDLP trumps “Hi-Low.” As Frank correctly pointed out, if Nielsen is right about this, one has a hard time explaining Wal-Mart’s success.
On the other hand, you ALWAYS get what you measure so the “answer” is almost entirely dependent on the way the question is framed. If you stop the questions at something like, “Do you like it when you get cheap prices,” you’ll probably get a deafening chorus of “Yes” responses. If you probe more deeply though what you’ll find is a lack of consumer confidence in drastic promotion.
So the answer is that consumers will take advantage of discounts but long-term loyalty (ala Wal-Mart) is built on trust and consistency, or in the case of pricing, on EDLP.
This article is a good tie in with the previous article about the need for weekly circulars. It all boils down to customer impressions and if the consumer feels they are getting good value, then essentially they equate the chain with providing good value.
Consumers are getting smarter though and are looking for good brands and quantity to complete the value equation. Offering cheap garbage will not increase the customer’s confidence in the chain. It pains me to see a major national retailer offer a dollar shop right next to the name brands.
Promos are critical in keeping customers interested and coming through the doors. Fire sales are not necessary but a strategic plan is needed when engaging in any promotional activity. The retailer needs to establish ‘shielding’ items to recoup lost margin on promo skus. Planning is essential!
If your stores have no real point of difference, and all that you are is a box selling products off of a shelf, promotions are the only driver to bring customers into your location. When you are able to change the retail experience to be more theatrical, promotions become less important, if not meaningless. Whole Foods does not count on promotions do bring its customers through the door. Nor does Costco. And they both are huge successes.
Value is provided in many ways, and promotional discounts are only one of them. And they get old very quickly.
I think discounts and promotions should reflect a retailer’s ability drive value to their customers through special buys. The merchants that do that more effectively should reap the rewards.
That is why I never bought into the concept of everyday low pricing. Knowing the realities of the CPG industry, Coke, Pepsi and other brands are going to offer special deals to their retail partners to help drive volume at different times of the year.
Whether that is passed along as a buy one, get one free or another promotion presents an opportunity for consumers to take part by stocking up on their favorite items during that period. The points I found more interesting in the Nielsen research was the low priority respondents put on special offers for frequent shoppers and also private label. I would have expected that both of those would have been bigger drivers.
The more interesting question is “why” do 80% of surveyed consumers deem it “very important or somewhat important” for supermarkets to feature frequent promotions and price discounts”?
I submit that there is a fundamental misreading of the “why.” Consumers used to shopping in an MDHP (i.e. most days high prices) environment look to coupons and weekly price promotions to get the (nominally) higher shelf prices down to a more reasonable level.
As has been previously noted, there are significant costs associated with MDHP, which costs have to get baked into the shelf prices of these items when they’re not being promoted as well as many other items in the store that are seldom, if ever, discounted.
Promotions must serve a purpose to be profitable. The primary purpose is to get the consumer’s attention. Once you have their attention, a plan must be in place to take advantage of the fact that you have their attention. This is where the system is broken.
Almost no retailers take advantage of promotions to build consumer rapport. When was the last time you saw a sale on hamburger meat accompanied by serving suggestions? Is it too much trouble in this computer age to offer 2 hamburger recipes, two chili recipes and 2 soup recipes at the POS? Couldn’t you offer directions to the other ingredients (Isle 6, Front, shelf 4). Can’t you augment your register programming to offer an additional discount of 50 cents if the consumer buys one of the complete recipes?
If you are going to the expense to discount, then make it work for you. Or are you too lazy to really build your buisness?
Once again, this topic stirs up some real emotion! Who is right and who is wrong is the $64,000.00 dollar question.
Here is my take as a store owner in a poor town. Promotions vary by region, and economic level. The majority of us live in areas where customers depend on a strong ad, especially in perishables, and unless you can deliver that with quality, you will be out of business quick.
The key to actually growing is incremental sales once you’ve got them into your store. This is where everyday low prices come into play, because customers know what things cost at other stores. If you’re committed to value pricing on other meats, they will notice, and pick up a lot more than they planned to buy. I see it in here everyday, and customers also appreciate honesty, along with great service. Giving out free recipes is a winner every time, as most young consumers can not cook very well.
So, in conclusion, without a strong promotion to bring them in, I will miss out on the essential added sales, thereby putting me out of business. I’ve already lost the pop, chip, diapers, HABA & GMC wars to the big boxes, but my secret weapon will always be a strong perimeter chock full of great values.
I agree with most of the previous commentators posting their thoughts.
However, it is almost a no brainer that anyone can sell Oscar Mayer bacon for $3 or less on special, on any given week, since Kraft offers this promotion to all supermarkets. It’s how the rest of the shopping cart fills up with other products that determines how well Hi-Lo and EDLP work together.
I think the hybrid model that A&P and its family of banner supermarkets follow in their various formats, fresh, discount and gourmet, effectively covering all market segments, while recognizing the different components of the marketplace.
Shoppers look for bargains, plan and simple. They sniff out specials, and while we previously debated on this forum the value of the circular/flyer in today’s supermarket promotional bag of tools, we all tend to agree that the only way to effectively market price as a drawing card is with a mix of EDLP and Hi-Lo.
A&P does this effectively with its Red Tag promotions, weekend specials, and clever promotions such as its “12 roasts of Christmas” and bonus bucks. You just have to be creative in this tough market.
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There is no set value equation. There is not even a list of static value equations. Instead, value equations are situational, extremely personal, and constantly changing for each of us. The $99 deli platter in the supermarket looks pretty pricey until we’re on our way home from work on a payday and expecting guests at home. Value equations are better defined for their variance than their constancy, and can never be applied across a wide group of shoppers.
Here we are again, looking for a formula where there is no formula. In a world of “right now research” we tend to apply the findings to long and mid-term marketing strategies and tactics. Remember Flip Wilson’s “Church Of What’s Happenin’ Now?” Most researchers and marketers need to become members. If the UK’s Tesco has taught us anything, it’s how to put marketing power into the hands of shoppers for their control and use. CRM (Customer Relationship Management) is becoming CMR (Customer Managed Relationships), but you’d never know it from the marketing practices of most U.S. retailers. Burger King got it a long time ago (“Have It Your Way”), but few have learned from that example.
The issue for retailers is control. I once heard a guy accused of being a “control freak” explain it this way: Most human situations are either under control or out of control. Since we consistently view out-of-control situations as negative, someone has to step forward to provide a solution. People who are unwilling or unable to step forward with a solution label those who are as “control freaks.”
But there are different kinds of control, with the predominant definition including concepts like strict, forceful, complete, and total. This is a heavy-handed definition. I prefer Tony Dungy’s (coach of the Super Bowl Champion Colts) type of control with a light touch. He never yells or curses, and has the complete and total respect of his players. That’s because he achieves people-oriented goals not by forcing or directing them to perform, but by teaching them how to motivate themselves. Self-motivation is far more rewarding. And that’s how it is with shoppers. They want to feel in control of their own values and purchase behavior, without heavy-handed retailer manipulation. Frequent promotions are heavy-handed and motivated simply by the desire to move stuff out of the store. What about the customers? How can we give them the minute-to-minute power to meet their own desires?
The reason that frequent discounts and promotions have become the most important factor in determining consumer preference for grocers is because supermarket chains, as well as drug chains, have done very little to create other points of differences, and therefore, promotions and discounts, and pricing, is all that remains to drive consumer choice.
This almost sounds like Hi-Lo is superior to Every Day Low Price. In one respect, the edge goes to Hi-Lo for keeping a message in front of the consumer, but to discount EDLP considering the success of the largest retailer does not make sense. Value is the ratio amount paid versus perceived product performance including taste. Pricing and promotion should not be looked at independently from the total go-to-market package. Store decor, level of service, product quality offered, etc, are all a factor. Narrow analysis is likely to result in a wrong conclusion.
Look at old newspapers from 50 years ago and you’ll see supermarket ads almost identical to today’s ads. People want low prices and almost all grocer advertising leads with price. After decades of repetition, it would be odd to expect anything very different. The nonprice grocers have always been the minor exceptions. When visiting Third World open air food markets, what do you see? Buyers and sellers haggling over price.
Another reason that promotions and discounts have become more and more important is the state of the economy. There are many, many families “just getting by.” Stretching the grocery food budget is extremely important to the majority. When the economy hits a down turn such as it is today, people get more and more “bargain alert.” When the economy picks back up promotions will be less significant but always a driver.
Mark is correct that most traditional food retailers follow the same promotional template that they followed a generation ago–midweek and weekend newspaper supplements plus in-store price promotions and coupons. Most of these stores have gotten more sophisticated about other types of loyalty programs to drive the tape total down or to drive “bounce-back” repeat business.
But have they really moved forward to address where they have lost market share over the years…to the supercenters, warehouse stores and upscale specialists? No question that price is a motivator, but you can’t ignore content, presentation and customer service as part of what defines “value” for a food retailer–or any retailer, for that matter.
I agree with Frank. I’ve done tens of thousands of pieces of consumer research myself and have come to the inescapable conclusion that, in the end, EDLP trumps “Hi-Low.” As Frank correctly pointed out, if Nielsen is right about this, one has a hard time explaining Wal-Mart’s success.
On the other hand, you ALWAYS get what you measure so the “answer” is almost entirely dependent on the way the question is framed. If you stop the questions at something like, “Do you like it when you get cheap prices,” you’ll probably get a deafening chorus of “Yes” responses. If you probe more deeply though what you’ll find is a lack of consumer confidence in drastic promotion.
So the answer is that consumers will take advantage of discounts but long-term loyalty (ala Wal-Mart) is built on trust and consistency, or in the case of pricing, on EDLP.
This article is a good tie in with the previous article about the need for weekly circulars. It all boils down to customer impressions and if the consumer feels they are getting good value, then essentially they equate the chain with providing good value.
Consumers are getting smarter though and are looking for good brands and quantity to complete the value equation. Offering cheap garbage will not increase the customer’s confidence in the chain. It pains me to see a major national retailer offer a dollar shop right next to the name brands.
Promos are critical in keeping customers interested and coming through the doors. Fire sales are not necessary but a strategic plan is needed when engaging in any promotional activity. The retailer needs to establish ‘shielding’ items to recoup lost margin on promo skus. Planning is essential!
If your stores have no real point of difference, and all that you are is a box selling products off of a shelf, promotions are the only driver to bring customers into your location. When you are able to change the retail experience to be more theatrical, promotions become less important, if not meaningless. Whole Foods does not count on promotions do bring its customers through the door. Nor does Costco. And they both are huge successes.
Value is provided in many ways, and promotional discounts are only one of them. And they get old very quickly.
I think discounts and promotions should reflect a retailer’s ability drive value to their customers through special buys. The merchants that do that more effectively should reap the rewards.
That is why I never bought into the concept of everyday low pricing. Knowing the realities of the CPG industry, Coke, Pepsi and other brands are going to offer special deals to their retail partners to help drive volume at different times of the year.
Whether that is passed along as a buy one, get one free or another promotion presents an opportunity for consumers to take part by stocking up on their favorite items during that period. The points I found more interesting in the Nielsen research was the low priority respondents put on special offers for frequent shoppers and also private label. I would have expected that both of those would have been bigger drivers.
The more interesting question is “why” do 80% of surveyed consumers deem it “very important or somewhat important” for supermarkets to feature frequent promotions and price discounts”?
I submit that there is a fundamental misreading of the “why.” Consumers used to shopping in an MDHP (i.e. most days high prices) environment look to coupons and weekly price promotions to get the (nominally) higher shelf prices down to a more reasonable level.
As has been previously noted, there are significant costs associated with MDHP, which costs have to get baked into the shelf prices of these items when they’re not being promoted as well as many other items in the store that are seldom, if ever, discounted.
Promotions must serve a purpose to be profitable. The primary purpose is to get the consumer’s attention. Once you have their attention, a plan must be in place to take advantage of the fact that you have their attention. This is where the system is broken.
Almost no retailers take advantage of promotions to build consumer rapport. When was the last time you saw a sale on hamburger meat accompanied by serving suggestions? Is it too much trouble in this computer age to offer 2 hamburger recipes, two chili recipes and 2 soup recipes at the POS? Couldn’t you offer directions to the other ingredients (Isle 6, Front, shelf 4). Can’t you augment your register programming to offer an additional discount of 50 cents if the consumer buys one of the complete recipes?
If you are going to the expense to discount, then make it work for you. Or are you too lazy to really build your buisness?
Once again, this topic stirs up some real emotion! Who is right and who is wrong is the $64,000.00 dollar question.
Here is my take as a store owner in a poor town. Promotions vary by region, and economic level. The majority of us live in areas where customers depend on a strong ad, especially in perishables, and unless you can deliver that with quality, you will be out of business quick.
The key to actually growing is incremental sales once you’ve got them into your store. This is where everyday low prices come into play, because customers know what things cost at other stores. If you’re committed to value pricing on other meats, they will notice, and pick up a lot more than they planned to buy. I see it in here everyday, and customers also appreciate honesty, along with great service. Giving out free recipes is a winner every time, as most young consumers can not cook very well.
So, in conclusion, without a strong promotion to bring them in, I will miss out on the essential added sales, thereby putting me out of business. I’ve already lost the pop, chip, diapers, HABA & GMC wars to the big boxes, but my secret weapon will always be a strong perimeter chock full of great values.
I agree with most of the previous commentators posting their thoughts.
However, it is almost a no brainer that anyone can sell Oscar Mayer bacon for $3 or less on special, on any given week, since Kraft offers this promotion to all supermarkets. It’s how the rest of the shopping cart fills up with other products that determines how well Hi-Lo and EDLP work together.
I think the hybrid model that A&P and its family of banner supermarkets follow in their various formats, fresh, discount and gourmet, effectively covering all market segments, while recognizing the different components of the marketplace.
Shoppers look for bargains, plan and simple. They sniff out specials, and while we previously debated on this forum the value of the circular/flyer in today’s supermarket promotional bag of tools, we all tend to agree that the only way to effectively market price as a drawing card is with a mix of EDLP and Hi-Lo.
A&P does this effectively with its Red Tag promotions, weekend specials, and clever promotions such as its “12 roasts of Christmas” and bonus bucks. You just have to be creative in this tough market.