THE POWER OF PRICE

Provided by Andrew Arnold, senior insights director at Shopper Intelligence New Zealand.  

“On the surface, the New Zealand grocery market can be a reasonably simple beast. The impression you get is that if you give the shoppers the best possible price, they will be happy. However, as many of us know, this often results in a race to the bottom from which no one wins. Chasing continually cheaper pricing has a detrimental effect on manufacturers, while retailers and ultimately shoppers also lose out if their favourite products get remodelled (Crème Eggs anyone?) or in a worst case scenario discontinued. I’m not here to tell you that the price doesn’t matter, because it still does. But what I can tell you is those different aspects of price matter depending on what category, or brand, or segment, or even retailer you are looking at. The key is to know which ones are important to your product, and what you can do about it.

Price Matters – But What Part Of It?

At Shopper Intelligence, we survey 40,000+ shoppers annually about their wants, needs and motivations. In the survey, we ask about their attitudes towards many areas, one of which is price. Price is so much more than simply putting up a ticket, and therefore a storewide approach to pricing just doesn’t meet shopper needs adequately. When considering a pricing strategy, you need to take into account shopper attitudes to shelf price, promotional pricing and everyday price reassurance. Is this a category where shoppers expect a low price every day, or are they content with a high low strategy? Depending on the answer, you need a different approach. Do shoppers know the price of what they are paying (i.e. price knowledge) or are they none the wiser? Do they use the category to judge the whole store on price competitiveness? Does price play a role in impulsive purchasing? All these factors play a role in shaping what price you charge for your products, and this is a conversation that needs to be had with your retailers.

Price Knowledge Can Change Your Promotional Strategy

Shoppers claim to have a certain level of price knowledge – in essence, if asked they will say “I know that milk costs this much”. This varies by category though, for high price knowledge categories like baby formula there are also categories where the shopper has very low price knowledge like Toilet Cleaner. Depending on where your category sits, this has implications for your promotional strategy. For categories where the shoppers know what they pay, it is more difficult to wow them with a bargain as they know if the deal is good or not. If they are always paying $5 for something at shelf price, then a promotion of $4.50 isn’t likely to induce them to buy incremental volume. They will probably still buy if they need it, but all you’ve done is trade them down. But if the deal is strong, say $3.00, the fact that they are saving $2.00 is more important than the fact that they are paying $3.00. Incremental sales are more likely to result as the bargain has been demonstrated. Call out the bargain for shoppers with high price knowledge. On the other side of the coin you have low price knowledge – these shoppers don’t really know what they are paying in the first place so deals can be shallow. Just a price ticket is enough to get them interested. Deep cuts are not needed as much, because all they do is cost you margin. Use them sparingly.

Price As A Beacon

Many categories have an inbuilt pain point that shoppers don’t want to hit, because when they do, they feel like they aren’t getting a fair go. We call these categories Price Beacons, as shoppers judge the competitiveness of the whole store based on their pricing experience in that category. At what point do shoppers throw their hands in the air and think this store is too pricey? For categories like mainstream beer or coffee, that point is a delicate balancing act. Understanding where your category sits as a Price Beacon can have a major influence on your pricing strategy. Pricing also plays a role in impulsive purchasing too – for many categories, a good price can be a trigger to buy into a category the shopper wasn’t thinking of before they left for the store. However, there are many high-profile categories (water, batteries etc.) where the price is less likely to make them buy impulsively. Here the display plays more of a role. This is more likely to catch the shopper’s eye and be the reason they buy.

Crafting the right pricing strategy for your products is not an easy task, but the more you know about your shoppers and what they are looking for the easier it can be.”

Shopper Intelligence interviews over 100,000 shoppers in Australia and over 40,000 shoppers in New Zealand across the Supermarket, P&C and Traditional Liquor channels in order to drive strategic shopper-led commercial decisions at retailer, category, segment and brand levels. If you want to understand your shoppers better, contact Andrew Arnold, Insights Director at Shopper Intelligence New Zealand at andrew.arnold@shopperintelligence.co.nz.