Saving, scrimping, and . . .
splurging? New insights into consumer behavior
Our global survey
of more than 22,000 consumers highlights recent shifts in buying behaviors,
which have important implications for retailers and packaged-goods companies
alike.
For
many people around the world, the economic downturn isn’t a thing of the past
but rather a persistent everyday reality. Money remains a constant worry—and
fear of yet another downturn looms large, driven by political upheaval and
financial-market volatility. More than 50 percent of consumers are afraid they
or someone in their household will lose a job in the coming year. More than a
quarter are living paycheck to paycheck. No surprise, then, that they are
delaying purchases, clipping coupons, and shopping around for the best deals.
That
said, many other consumers are enjoying financial stability and maintaining a
brighter outlook. More than 30 percent are optimistic about their household’s
financial future. The majority of consumers in Mainland China and North America
aren’t worried about job loss. About one-third of shoppers around the world are
staying loyal to their favorite brands instead of downgrading to cheaper
options, and some are even splurging on certain types of purchases.
Our survey methodology
These
are among the findings of our first-ever global “consumer sentiment” survey,
which encompassed more than 22,000 respondents from 26 countries worldwide (see
sidebar, “Our survey methodology”). Our aim was to understand how consumers
feel about their financial prospects and how these sentiments are affecting
their buying behavior. Of course, consumer attitudes and behaviors can differ
markedly across markets, and we will present country- and region-specific
results in more detail in forthcoming articles.1In
this article, we summarize broad global trends and high-level insights from the
survey. These insights have crucial implications for consumer-goods companies
and retailers as they seek to meet consumers’ ever-changing needs and
preferences.
Some are cautious,
others are more confident
In
general, consumers are making cautious financial decisions. After all, 28
percent of survey respondents said they are finding it harder to make ends meet
than they did a year ago, and 26 percent said they live paycheck to paycheck
(Exhibit 1). Approximately one-third agreed that their precarious financial
situation was causing them to delay purchases and cut back on spending.
This
sense of financial instability was more pervasive in emerging markets than in
developed countries. Worries about job loss were particularly acute in Mexico
and South America, affecting 71 percent of survey respondents. Most North
Americans and Western Europeans, on the other hand, did not feel as
pinched—fewer of them said they are delaying purchases or curbing their
spending. In North America, 65 percent expressed no concern about losing their
job. Consumers in Mainland China also felt more secure in their employment,
with 57 percent saying they’re not worried about job loss.
Would
higher incomes spur consumers everywhere to loosen their purse strings?
Somewhat. Consumers said that if their incomes were to rise by 10 percent,
they’d spend about one-third of that extra money; the rest would go into
savings and toward paying off debt. Consumers in Mainland China seem to be the
least conservative, saying they’d spend 46 percent of any additional
income—more than double the 21 percent that North American consumers said
they’d spend.
Among
consumers who said they’d spend a portion of their extra income, most—60
percent—would buy everyday necessities such as food and household items. More
than half of these respondents said they’d also allocate some of the money
toward clothes and vacations. Slightly more than 40 percent would spend some of
their money on entertainment and on electronics.
Five truths about
today’s consumers
The
survey responses brought to light not just regional differences in consumer sentiment
but also a set of behavioral shifts among consumers worldwide. Some of these
shifts are intuitive; others less so. Collectively, they underscore the
challenges and opportunities that consumer-focused companies will face in the
near term. The following five truths provide a fairly nuanced picture of
today’s consumers:
1. 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.) In past years, a consumer may have engaged in only one or
two belt-tightening behaviors such as comparing prices, seeking out sales and
promotions, using coupons or loyalty cards more often, shopping at several
stores to find better deals, or buying more products in bulk. 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.
2. 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
3. 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.
Among
consumers who traded down, 45 percent opted for private-label products. And
most down-traders don’t regret their decision; they find they are satisfied
with the less-expensive options. Indeed, 69 percent of down-traders in this
survey said they intend to stick with the less-expensive options and don’t
intend to return to the brand they bought previously. However, that
satisfaction isn’t universal: in India, the Middle East, Poland, South Africa,
and Turkey, down-traders said they desire to go back to the more expensive
brand they used in the past. This suggests that value brands and private-label
products in these countries still have much room to improve with respect to
quality. It is perhaps also a testament to the powerful allure of aspirational
brands for emerging-market consumers.
4. 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.
Trade-up
rates varied by geographic region and by category. Mainland Chinese consumers
had the highest trade-up rate (23 percent) both in Asia and globally.Forty-four
percent of Chinese up-traders said they traded up in the cosmetics category.
5. 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.
Implications for
consumer companies
In
light of these new consumer behaviors, what actions should consumer-goods
companies and retailers take? How can they best position themselves for future
success? In our view, they would do well to consider the following imperatives,
each of which addresses one or more of the behaviors discussed above. Although
the specifics and nuances of execution will vary for each market, we believe
these imperatives are broadly applicable everywhere.
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. Products don’t necessarily have to be in the lowest price tier, but
any price premium needs to be explicitly linked to well-defined benefits.
Consider the success of salon-quality hair-care brands in the US market:
they’ve been able to persuade consumers that using their products is a credible
substitute for getting their hair done at a beauty salon. Consumers therefore
feel they’re getting good value for money, even though the salon-quality brand
might be twice as expensive as their old shampoo brand.
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? Based on these insights, companies then devise granular
strategies for their brands, portfolio, pricing, and promotions—and refine
these strategies for each channel, customer segment, and geographic region.For
instance, advanced RGM analytics helped a European consumer-goods company
pinpoint which SKUs were selling well in which retail formats, and which SKUs
it should either add or omit from the assortment based on consumer preferences.
The changes to its retailer-specific assortments and planograms yielded a
double-digit sales improvement in a low-growth category.
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?
Delving into these questions requires gathering data from multiple sources
(including point-of-sale transactions, consumer research, and social media) and
harnessing the power of advanced analytics. Companies can then develop tailored
value propositions for each of their target segments.
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.5A
beverage manufacturer, pursuing growth in China, established a “price ladder”
to encourage trading up within its brands. The company launched a series of
progressively more expensive offerings, from value to core to premium and
finally to super premium. It also consistently raised the price ceiling through
innovation—for instance, introducing an “artisanal” beverage that came in a
sleek container with a distinct shape, color, and design. That product sold at
five times the retail price of the brand’s core offering. The result of this
clear pricing hierarchy: double-digit increases in net revenue and significant
market-share expansion.
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. As for channel conflicts, companies must
identify and quantify these conflicts, then design and implement containment
strategies (for example, differentiated packaging for each channel or
coordinated promotional calendars) that they monitor and refine on a regular
basis.
Consumers
are becoming ever more conscientious and more deliberate in their buying
decisions. This is certainly a challenge for consumer companies—but it also
opens up new opportunities for brands and products that can be responsive to
consumers’ evolving needs and preferences. Indeed, tomorrow’s winning companies
will be those that move quickly and assertively to understand, anticipate, and
respond to changes in consumer behavior.
About the Authors
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.
Saving, scrimping, and . . . splurging? New insights
into consumer behavior
http://www.mckinsey.com/industries/consumer-packaged-goods/our-insights/saving-scrimping-and-splurging-new-insights-into-consumer-behavior?cid=other-eml-alt-mip-mck-oth-1603
No comments:
Post a Comment