Mike Noonan, Managing VP/Practice Principal
Continued unemployment means more sensitivity to price changes and promotion activities. Even optimistic views of the economy see a shopper impacted by stubbornly high unemployment, which is predicted to remain around 8-9% over the next three years. As consumer packaged goods (CPG) marketers plan for the future, understanding the nuances of price sensitivity and the consumer’s shifting value paradigm will be critical to success.
During the “Great Recession,” we have seen consumers make dramatic changes to their buying habits. In the "new normal," these changes are expected to stick:
Trends that started before the recession and are likely to continue include:
Given the rise and length of the unemployment situation, unemployment is now another way to segment consumers to target specific price and promotion programs. This group of consumers will also provide opportunities for those companies who understand them best and respond accordingly.
Pricing and promotions are becoming a more defining factor
Stores in higher unemployment areas have a higher frequency of promotion, and the gap in incremental promoted volume between high and low unemployment areas is widening. As such, the amount of volume sold on promotions in high unemployment areas has been increasing at a greater rate than in low unemployment areas.
When looking at consumer response to both everyday price and promotional pricing, we find that consumers in higher unemployment areas are more 6.5% more sensitive than consumers in low unemployment areas to changes in everyday price.
Private Label growth fueled by high employment areas
Private label developed faster and continues to be more developed in stores in high unemployment areas. However in both 2008 and 2009, private label grew significantly in all areas.
Since consumer are looking for low prices both within store (upper left) and between channels (lower left) - especially true for areas with higher unemployment.
Strategies for the "Left Side of the Grid"
Strategies for the "Right Side of the Grid"