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Retailers See the Impact of Smart Shoppers and They Don’t Like It

Posted by Paul Christ July 20, 2010

Lower Prices a Boon to Consumers, but a Bane to Retailers (Nielsen)

Everyone is well aware of the impact the economic downturn and the slow recovery have had on consumer purchasing.  With unemployment levels remaining high and consumers continuing to be careful with their money, retailers have had no choice but to respond by offering an extended period (two years now) of low prices.  Retailers remain reluctant to raise prices for fear consumers will take their money to competitors offering better bargains.

In many ways, what retailers are experiencing is the consumer who is a more informed shopper than they have been in the past.  Sure there have always been penny-pinching buyers, but the breadth of the economic downturn has motivated a huge number of consumers to join the “smart shopper” ranks.  Of course, the Internet is front and center in aiding consumers as they learn to be better shoppers.

All of this raises the question, can retailers improve their situation if more consumers are working hard to locate good values?  According to this story, research suggests retailers are having a tough time with the deal-seeking shopper.  In particular, retailers selling packaged goods (e.g., grocery stores, general big box retailers) are discovering it is especially difficult to grow their business when shoppers are seeking low-price bargains.  Retailers are finding that previous tactics for building market share may not be working.  For example, many packaged goods retailers typically build traffic to their stores by running price-reducing sales promotions.  By doing so, retailers hope to entice consumers to purchase full-priced products and to also persuade them to become loyal customers who return for additional purchases.

But, retailers are finding traffic-building sales promotions are not helping to build loyal customers.  Instead, consumers appear to understand that the promotion is short-term and little store loyalty is developing.

Unit prices have been dropping sharply since March 2009, and the number of items on promotion—in the form of feature ads or displays—has gone up. When one store slashes prices to gain competitive advantage, others follow suit. Meanwhile, brands have resorted to more promotions to stimulate sales and stem the growth of private labels.

In addition to the suggestions offered in this story, what other strategies can packaged goods retailers consider that will lead to both higher market share and higher profits?

Image by NapaneeGal

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