Balancing Costs and Customer Retention
As the holiday shopping season begins, U.S. retailers will face significant barriers to simply raising prices in response to rising food and fuel costs, according to an Accenture survey that polled nearly 1,000 people across the country on their shopping plans and their use of daily deal sites.
The annual Accenture Pricing Shopping Survey shows that four out of five consumers (81 percent) are concerned about food prices going up this year and half (51 percent) report they’ve been eating out less often over the past year. The survey also found that nearly four in 10 respondents (37 percent) have memberships with daily deal websites in order to pocket savings.
“Understanding how different types of customers will behave for each category is going to be the key to pricing consumer goods,” said Tom Jacobson, Accenture senior executive for pricing and profitability strategy. “Although rising food prices have outpaced wage increases, more than a third of the survey respondents have not altered their food-buying patterns. Reluctance to change behaviors seems highest when it comes to changing how consumers shop and what they buy.”
While nearly 40 percent of respondents have started clipping coupons, only 30 percent have switched a portion of their shopping from supermarkets and convenience stores to discount stores and warehouse clubs. And, only 20 percent say they’ve changed the products they purchase.
Yet, the survey showed that more than 70 percent of consumers in all but the highest-income households said they would change their shopping behaviors if food prices were to rise again. In fact, 79 percent of consumers would switch to generic products if prices were to rise by more than 10 percent, and more than 70 percent would simply stop using products that rise by more than 20 percent.
“Even though consumer purchasing behavior has been slow to change, retailers need to watch out for the possibility of a delayed reaction to rising prices from food shoppers,” Jacobson said. “So, while it appears that businesses can make small price increases, they will need more cost mitigation to hold onto their customers and maintain profits.”
When it comes to buying clothing, 38 percent of the survey respondents say they’d buy less if prices were to rise. At the same time, 39 percent said price increases would cause them to buy only what’s on sale, and 27 percent said they’d turn to the racks of mass retailers such as Target or Walmart for their clothing purchases.
On the other hand, the survey shows that clothing mark downs can stimulate buying. About one-third (30 percent) of consumers are motivated by a discount of 30 percent, while nearly one in five (18 percent) are willing to open their wallet for a discount of 20 percent. Another 30 percent say they wait until clothing is marked down by half before they’re willing to buy.
“People are nervous about prices going up, and it shows in what and how they buy,” Jacobson said. “Our survey suggests most shoppers are focusing on the basics, and that is unlikely to change for many in the short-term, even if gas prices fall.”
According to the survey, younger consumers and those who are well off are most likely to use their memberships in daily deal websites to save money on their purchases. However, the survey shows that the majority of Americans (56 percent) do not subscribe to a deal site, and 42 percent of respondents say they “do not like anything” about daily deal sites.
Among respondents from households earning at least $150,000 a year, 54 percent subscribe to a daily deal site, compared to 27 percent of respondents from households that earn $35,000 or less a year. In addition, nearly half (47 percent) of people aged 18 to 24 currently subscribe to a daily deal site, compared to fewer than four in 10 (37 percent) of those between 55 and 64.
“The daily deal craze is still strong, especially with young consumers and people with higher incomes who can make their purchases right away,” Jacobson said. “But it is interesting to note that a significant group of Americans do not like the deals and are conceivably finding other ways to save.”
Jacobson noted that the proportion of consumers who belong to daily deal sites increases with income, and those with higher incomes are more likely to belong to several daily deal sites. As a result, he said, retailers must incorporate deal sites into their channel strategies in order to reach this customer segment.
In addition, nearly four in 10 subscribers to daily deal sites (39 percent) say they are using the sites more often now than a year ago, with more than one in four (26 percent) saying that the deals entice them into purchasing goods or services they otherwise would not purchase. However, the survey also shows that many members do not redeem the items or services right away. One in four (25 percent) redeem in one to three months, while more than one-third (36 percent) redeem the deals within one to four weeks.
The biggest gripe among those who use these sites is that most of the deals they find are not for items or services they want to use or try (37 percent), and 24 percent say that most deals are not local enough to interest them.
“Businesses need to strike a balance between providing customers, particularly in the upper-income ranges, with new experiences they would not normally try, while not providing too many esoteric deals that serve only small portions of the customer base,” Jacobson said.
Accenture is a global management consulting, technology services and outsourcing company that collaborates with clients to help them become high-performance businesses and governments.