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Strategies on the Price and Pricing of Unemployment
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Strategies on the Price and Pricing of Unemployment

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:

  • More dining at home and less dining out
  • Shopping for in home meals with shopping lists
  • Finding better values by shopping alternative channels
  • Trading down across categories and within categories or opting out of categories all together

Trends that started before the recession and are likely to continue include:

  • Health & Wellness: U.S. consumers are still looking to lead healthier lives, but economic pressures have led some consumers to alter their prior habits & practices.
  • Convenience: convenient & easily accessible store locations; convenient & easy-to-find in-store or on-shelf product location; food & non-food solutions that save time from our busy lives “aren’t going to get less important.”
  • Demographic Trends: aging population & multi-cultural consumers were target consumer groups for many retailers & manufacturers prior to this recession.

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.

pricing-elasticity

Strategies for the “Left Side of the Grid”

  • Competition on price is crucial – be competitive across and within stores
  • Focus on efficiency of trade dollars
  • For retailers, use weekly the circular on the categories to draw consumers to your store
  • For manufactures, focus on price to be competitive.

Strategies for the “Right Side of the Grid”

  • Use smaller discounts on temporary price reductions especially for categories that see large increases in feature or display responsiveness in high unemployment areas
  • There may be opportunities to take price up for profit
  • Manufacturers need to highlight quality through advertising focusing on brand building and consumer benefits
  • Maintain promotional spending, but there is no need to focus on Price