News & Announcements
The Latest Shopping Surprise: Consumers Are Simply Not As Obsessed With Price As Retailers Seem To Be By Kevin J. Clancy
and Peter C. Krieg Eternal optimists might say that news about the 2002 holiday shopping season released at the beginning of January wasn't as bad as it could've been. Though retail sales in December were flat when automobiles are excluded, thanks to lower inventories (a result of the West Coast dock strike and post-terrorist attack cut-backs) and cheaper prices from a glut of suppliers, some retailers reported that the profit on goods sold was higher than in 2001. "The news is mixed," a retail analyst with Thomson First Call explained, "but not as bad as the doom and gloom pronounced during the Christmas season." We couldn't disagree more. Some were able to see shrinking costs, however, the reductions were most likely one-time-only occurrences (no one can count on a dock strike or desperate suppliers), and profits coming purely from cost cuts but flat sales aren't the sign of a growing business. What should be most disturbing to retailers is that their tried-and-true marketing tactic for tempting consumers to buy failed. As one University of Florida professor commented to the Wall Street Journal, the focus on lowering prices this holiday season, "generated as much excitement as a wet firecracker." Yes, the economy, fears of unemployment, or concerns about war with Iraq of course had something to do with slower sales, but certainly not everything. One reason price-cutting failed to inspire was it wasn't anything new. Many retailers—particularly department stores—have conditioned consumers to expect sales and bargains. If you miss this week's sale, well, there'll be another one next week, probably with even more discounts and maybe a bonus coupon. Not only wasn't it any thing new, but also consumers are simply not as obsessed with price as most retailers seem to be. Our research suggests that price is the primary purchase consideration for only 15%-35% of buyers in most categories. That's not to say price is unimportant, but that other things are more important. What those other things are, of course, depends on the product or service. For example, a majority of consumers say product selection and an available and knowledgeable staff are more important than absolute price from a retailer. Even at fast food restaurants, which are seemingly attempting to drive one another out of business with low price strategies, menu selection, friendly service, and clean bathrooms are far more important than one-dollar burgers. Yet price is all most retailers seemed to offer this holiday season and, for that matter, the rest of the year. Not exciting new products, not better service, no other point of differentiation, just low prices. What's the difference between Best Buy and Circuit City? Staples and Office Depot? Kmart and Wal-Mart? If you're like most people, you probably couldn't think of any other real tangible difference other than price—that's all most retailers are offering. Is it any wonder then that consumers suffer from retail brand confusion? According to America's Research, a firm specializing in retail trend analysis, in a recent survey of consumers, 74% say all stores look alike in their category. The Copernicus and Synovate study, "The Commoditization of Brands and Its Implications for Marketers," also found consumers perceive increasing similarity between discount stores and department stores. Retailers' problems should be a wake up call for all marketers who suffer from price obsession. It's not hard to find examples in other categories; in fact, "We've got the lowest price!" has become the most popular brand positioning and pricing strategy in America today. While it's true you can make money by cutting costs and lowering prices, it's not necessarily a long-term strategy for growing your business or building a brand, especially if it's what all your competitors are doing. At some point, there may not be any costs left to cut. Consumers may not care if you are giving away your product—they don't need it and you haven't given them a reason to want it. And all you're left with is a commoditized brand.
|