Insights

Connecting with the Canadian Consumer
Article

Connecting with the Canadian Consumer

Carman Allison, Director of Consumer Insights, The Nielsen Company

After an inconsistent 2010, consumers, retailers and consumer-packaged goods manufacturers are undoubtedly hoping for renewed growth and a return to normalcy in 2011. But what does “normal” really mean these days? At the start of the year, there remain some conflicting signs about what might happen in the next 12 months. Globally, consumer confidence stalled after three quarters of growth. In Canada, consumer confidence remains fairly high and well above that of Americans. What’s more, Canadians are more optimistic than American consumers: 57 percent say that their personal finances will be good or excellent compared to just 44 percent of Americans. Despite the assurances from economists that the recession is over, 58 percent of Canadians believe the country is still in a recession, with 19 percent believing that the nation will emerge from the recession in the next 12 months (contrast this with Americans, the vast majority of whom (86%) believe that the U.S. is still in recession and 19 percent believing the recession will end in 2011).

While Canadians may be more confident than Americans, they are using their spare cash the same way: to pay off debt. Health remains their top concern, followed by debt and the economy. To cut household expenses, they spent less on clothes, scaled back out-of-home entertainment and dining, and spent less on consumer packaged goods. In the year ahead, 30 percent of survey respondents said they would continue to spend less on those goods, presenting an ongoing challenge to retailers and consumer packaged goods (CPG) manufacturers to attracter greater market share.

canada-cpg-trends

Where CPG is Headed in 2011

The big winner in the current market environment is the consumer. CPG prices have started to deflate for the 3rd consecutive quarter.

canada-us-cpg-inflation

While regular prices have continued to rise, feature pricing or promotions have caused prices to drop, a nod to consumers looking to get value for money. In the third quarter of 2010, $90 million stayed in consumers’ wallets due to feature pricing, and over the past three years, the percent of retail sales with a price cut increased and was up to one-third of sales or 48 percent of units.

While pricing is critical, consumers look at a number of factors when choosing where to shop. They want stores that are well-stocked with high-quality and fresh goods, are convenient and offer a pleasant overall experience. Competitive prices are considered a given. The need for promotions will continue, but price discounting needs to be aggressively managed to sustain dollar volume growth. As seen in the U.S., lower prices do not necessarily equal increased sales. Rising commodity prices will result in increased prices for many goods, but manufacturers and retailers who overlook consumers’ unprecedented power and choice will be making a significant error.

Engaging the Canadian Consumer

What’s good for the consumer is not necessarily good for the retailer or CPG manufacturer. One critical element for creating a win-win situation is finding new ways to connect with the consumer and leverage technology, particularly mobile phones and social media.

Smartphone ownership in Canada stood at 18 percent in April 2010. But with 29 percent of survey respondents indicating that they plan on buying a smartphone (in the next twelve months), almost half of the population will have the devices in the near term. Already consumers are using smartphones as part of their shopping routine: mobile coupons are increasingly popular and offer the deals consumers are looking for without the hassle of clipping a paper coupon. Smartphone loyalty cards eliminate the need to carry a plastic membership card and help consumers track their spending. Other apps enable shoppers to plan their grocery lists, view nutritional information or schedule delivery. But don’t expect smartphones to replace credit or cards just yet: just 15 percent of Canadians said they would be willing to use their phones to make payments while 61 percent said they would not (although amongst younger consumers, about a quarter said that they would be willing to do so).

Social media is another way consumers have increased their power. Advertising and marketing were traditionally one-way, from advertiser to consumer. Social media has turned the relationship between retailers, brands and consumers on its head: consumers now interact – with brands and, more importantly – with each other. If they have something to say about a product or service, there’s a ready-made audience listening: 27 percent of Canadians surveyed said they are more likely to share a negative product experience online. Friends and family dominate the “trust zone” when it comes to recommendations about a purchase decision, but 40 percent of consumers place trust in online product reviews.

Some businesses have been slow to adapt to this new medium. But before dismissing social media as a fad, consider the facts: it took radio almost 40 years to reach 50 million users, while TV took 13 years. The Internet had 50 million users in just four years, and Facebook alone had 200 million users in less than a year! With more than 500 million members, Facebook would be the world’s third largest country.

Canadians have embraced social media with gusto: 60 percent said they visit social media sites, and more than a quarter (26%) spends six or more hours a week at such sites. Social media now cuts across all age groups, and females are more likely to be engaged with such sites – key to the CPG industry as moms are the key decision-maker when it comes to buying goods for the household.

Retailers and CPG manufacturers should view social media as a store front through which to draw consumers. Offer consumers opportunities to save money or free apps that help them shop. Features such as these tend to prompt them to provide personal information. Consumers want to be involved, and companies need to find a way to engage with them in a meaningful, whether it is responding to consumer complaints or offering promotions.

To take advantage of these trends, companies need to change their media mix. No longer is it sufficient to just produce a TV commercial or newspaper ad. In less than five years, social media has taken a place at the marketing table – and has, by many measures, become one of the most efficient ways of reaching consumers. Consider the experience of a well-known food manufacturer: five years ago, marketing was focused on TV and print. Today, advertising is supplemented with a web site, offering recipes and other information, a YouTube channel, recipe emails and Facebook pages which allow consumers to leave comments about the company’s products and where the company will respond when appropriate. They have also connected consumers with a charitable cause, attracting tens of thousands of friends. They have a mobile site, easily accessible on smartphones, as well as an app. Today, social media is 50% of this company’s marketing emphasis.

The Takeaway

The economic outlook remains uncertain, and Canadians remain somewhat skittish about spending their money. But retailers and CPG manufacturers that manage pricing, keep innovating and acknowledge the power of social media are well-positioned to succeed. Here’s how they can connect with the consumer:

Maintain sustainable pricing strategies for growth

  • Need for promotions will continue in the short term, but aggressive prices means lower dollar sales growth
  • We are at the tipping point of where lower promoted prices are not generating incremental dollar growth

Social Media is not a fad

  • Mobile technology is the game changer
  • Converse with – not at – consumers and simplify their lives
  • Connect with consumers’ culture

Evolve marketing plans

  • Balance between traditional and new media
  • Commit and be in it for the long term
  • Be creative and test concepts

While there’s no magic bullet, the key for CPG companies and retailers is acknowledging the unprecedented power of consumers and maintain the flexibility to evolve with market conditions. Opening a dialogue with shoppers and engaging them is an important first step in attracting and retaining them, and social media is a critical component of that strategy.