As consumers (particularly in this current climate), we find ourselves frequently hung up on the cost of certain products or services. Many shoppers are now (and rightfully so) turning to own-label products in order to make significant savings due to the rising cost of living. Whilst there is nothing wrong with being more aware of the price of products and services, modern brands have to be aware of the intrinsic value that they are offering to consumers.
In the words of renowned investor Warren Buffet, “Price is what you pay and value is what you get”. In layman’s terms, his theory is that price and value are not exactly one and the same.
Due to the competitive landscape, our favourite big-name retailers are currently fighting against each other to keep prices low, enabling them to stand out against their lucrative discount retailer counterparts who boast affordability.
Valuing our food…
Value can be referred to as the benefit or satisfaction that a buyer perceives they may get after making a purchase. A good example of this would be a customer turning down a purchase in their local convenience store if they feel that they are paying ‘more for less’. If a customer feels like the quality of a big-name product is the same as an own-label product, the big-name option loses its value.
The term value focuses on the benefits and advantages that a product or service provides. Consumers may be more willing to pay more if the perceived value is high. This is key for brands to remember. In a sense, they need to be ‘wowing’ customers with exclusive features that they won’t be able to get from anyone else.
In this blog, we’ll discover whether value and price are equally important to brands and retailers, discussing how they can try to maintain customer loyalty in this current climate. We also chat with Senior Business Unit Controller Lance Preston, who shares his expertise on the strategies of brands and retailers when it comes to value and price.
‘Honey, I shrunk the weekly shop!’ …
The term shrinkflation has been a phenomenon in the food and beverage industry since 2009. If you weren’t already aware, it refers to the practice of big-name brands either keeping the price of a particular product the same (or in most cases increasing it), before reducing the actual size of the product. Essentially consumers are paying more for less product.
Many shoppers have even caught onto the fact that some big-name brands have changed up the recipes on certain products to include more affordable ingredients or lesser ‘key ingredients’ – however, the retail price is the only thing that remains consistent. This is something that has coined the term ‘Skimpflation’.
A great example of shrinkflation in action can be spotted in oral care brand Listerine, who’s ‘Fresh Burst mouthwash’ shrank from 600 ml to 500ml. At Tesco, it went up in price by 52p. Additionally, skimpflation has been spotted in Tesco’s Tex Mex Chicken Enchiladas, which saw the amount of chicken being reduced from 27% to 20%.
But shoppers have clocked on – Earlier this year, Which? reported that a massive 77% of shoppers have noticed shrinkflation in the last year, and 36% have spotted signs of skimpflation. Whether skimp or shrink, shoppers aren’t too happy and consequently have lost trust in their favourite retailers and brands. We ask Lance Preston to give us his perspective on whether both phenomenons have impacted people’s perspective on the grocery industry…
Q: How does shrinkflation impact consumer perception of the grocery/retail industry?
Lance: Shrinkflation has a substantial impact on consumer perception in the grocery/retail industry, affecting brand loyalty, consumer behaviour, and trust in the marketplace. I think it’s essential for retailers and manufacturers to carefully consider the implications of shrinkflation and employ strategies to mitigate potential negative effects.
As highlighted previously, skimpflation and shrinkflation can cause shoppers to have feelings of distrust and dissatisfaction. Many feel that it is a deceptive practice devised by retailers or manufacturers to maintain profit margins without explicitly raising prices.
Overall, this has a massive impact on consumer behaviour. If consumers feel that they are not getting the value they expect from a brand, they may switch to alternative brands or retailers that offer better perceived value. It’s clear that this shift has had a massive impact on the way shoppers shop, leading them to become more price-sensitive and vigilant about product sizes and prices. If they feel that they aren’t getting a good deal, they will turn to one of the many discount retailers available to them.
In order to tackle this issue, transparent communication about changes in product sizes or prices is key. This will ultimately help maintain consumer trust, whereas attempts to conceal shrinkflation may exacerbate negative perceptions.
Soaring supermarket prices…
It was recently reported by the Consumer Prices Index that the prices of food and non-alcoholic beverages rose by 7.0% in the year to January 2024. It was reported to be down from 8% In December 2023, following a recent high of 19.2% in March 2023. This shows us that although the rate that food costs are rising is slowing, prices still remain high.
For shoppers, this of course means that their shopping bill will be impacted. Approximately 4 in 10 adults reported having to spend more than usual when food shopping to get what they normally buy. Because of this, it is likely that shoppers will seek ways to keep their shopping costs low. Many will turn to discount retailers or will shop with multiple retailers, making use of loyalty schemes and various offers in order to get the best deal. Shoppers are no longer loyal to their favourite store and now prioritise bagging themselves a bargain. In a recent survey conducted by DMA UK, it was discovered that 48% of surveyed shoppers said they would stop buying from a brand if it stopped offering deals, suggesting price sensitivity is increasingly impacting brand loyalty.
More recently, we’ve seen the rise in many big-name retailers investing significant funds in an attempt to reduce prices and continuously keep prices low for shoppers. A great example of this is Sainsburys investing £220 million into reducing their prices. Additionally, Tesco recently cut the price of more than 150 everyday items by an average of 12.5%. Lance weighs in on how he thinks brands are fighting to maintain customer loyalty.
Q: With inflation and rising cost of living, how are brands adapting their pricing strategies to maintain customer satisfaction and loyalty?
Lance: In response to inflation and increasing living costs, brands will find it necessary to adapt their pricing strategies to uphold customer satisfaction and loyalty.
These adjustments can take various forms. Firstly, through value-based pricing, brands will begin to highlight the benefits and quality of their offerings to justify price increases, ensuring customers perceive the value despite inflation. Supporting this, a recent study by which? demonstrated that the cost of branded products went up from 4.9% to 6.1% for three months up to the end of February 2024.
With this significant rise, how can brands make themselves lucrative?
Taking a deep dive into loved and trusted brand Heinz, who’s famous taglines ‘Beanz meanz Heinz’ or ‘It has to be Heinz’, showcase what a staple product their beans are in UK households. After being called out for ‘greedification’ last year (due to their excessive rise in costs), the brand is now facing slow sales in the fourth quarter as sales volumes drop. Because of this, they are now having to focus their efforts on innovation and promotional offers, as many shoppers are turning to cheaper, quality alternatives.
It is vital for brands to optimise their product lines by introducing new price points or package sizes to cater to different market segments, accommodating diverse budget constraints.
We may see that brands will employ promotional tactics like increased discounts or loyalty programs to offset rising costs for customers, while also fostering repeat purchases. Moreover, investing in exceptional customer experiences, such as personalised services and responsive support, helps to enhance satisfaction and loyalty, potentially mitigating the impact of price increases. Supporting this, 93% of customers are more likely to make a repeat purchase from a brand that offers excellent customer service. Ultimately, by employing these strategies, brands can adapt to market fluctuations while nurturing lasting customer relationships.
Vodka and Heinz? Asbolut-ely!
In the face of challenging economic circumstances, brands across diverse industries are employing a range of strategies to adapt and thrive. From optimising costs to focusing on innovation, brands are strategically navigating inflation, supply chain disruptions, and shifting consumer behaviours. To get better insight, we chat to Lance who shares how brands are adapting in uncertainty.
We asked Lance for his opinion on the matter…
Q: How are brands in the industry facing these challenging economic circumstances?
Lance: Many brands are adjusting their pricing strategies to reflect increased production costs due to inflation. This could involve selectively increasing prices on certain products or services while strategically maintaining competitive pricing on others to balance profitability and customer satisfaction.
To avoid supply chain disruptions caused by factors such as raw material shortages, transportation delays, and labour shortages, we expect to see brands beginning to diversify sourcing locations, securing alternative suppliers, and implementing inventory management strategies to ensure continuity of supply.
Additionally, brands are now investing in innovation and product differentiation to maintain their place in the market. This could involve introducing new products or services that cater to evolving consumer preferences, leveraging technology to enhance customer experiences, or incorporating sustainability initiatives to appeal to environmentally-conscious consumers. Supporting this, recipe box company Hello Fresh have recently opened their new production facility, in order to concentrate their attention on automation, personalisation and sustainability.
Customer loyalty and retention remains a strong focus. We may see a rise in marketing campaigns, proactive communication with customers regarding product availability and delivery updates, as well as responsive customer support, allowing brands to address inquiries and concerns in a timely manner.
For some brands who are able to do so, strategic partnerships and collaborations would be a great thing to utilise. This can have the power to leverage complementary strengths and resources. This approach could involve alliances with other brands to jointly develop innovative solutions, expand market reach, or share best practices in response to common challenges. A great example of this is the sellout collaboration with vodka brand Absolut and Heinz, which saw pasta sauce overtake ketchup as Heinz’s top selling product.
“Like brands, only cheaper”
As economic pressures mount, an increasing number of shoppers are gravitating towards discount retailers such as Lidl and Aldi to stretch their grocery budgets. With a focus on affordability without compromising quality, these retailers have witnessed a surge in popularity as consumers seek to maximise savings without sacrificing essential needs. Last year, it was reported that in a survey of 1,000 UK shoppers, a staggering 90% had chosen to switch to discount supermarkets due to cheaper prices available at the likes of Aldi and Lidl.
Speaking on the domination of the discount retailers, Brittain Ladd, a supply chain consultant and former Amazon executive believes that Sainsbury’s has more potential for growth and market share gains than any other grocer in the UK. He states that “I’m concerned that there is too much focus on reducing costs and not enough focus on innovation. For example, the science of auctions offers incredible opportunities for Sainsbury’s to beat everyone on price, including Aldi and Lidl.”
We asked Lance to weigh in on how discount chains have become more dominant. Here’s what he said…
Q: How have discount supermarket chains like Lidl and Aldi, capitalised on consumer preferences in their own brand offerings?
Lance: Lidl, Aldi and other discount retailers have successfully capitalised on consumer preferences in their own brand offerings by delivering value, variety, quality, innovation, exclusivity, transparency, customer engagement, and localisation. These strategies have contributed to their growth and success in the competitive supermarket industry.
Due to their wide product ranges, discount retailers offer a vast variety of own brand products across various categories, including groceries, household essentials, and even non-food items. This breadth of offerings allows them to cater to diverse consumer preferences and shopping needs, from fresh produce through to specialty items. Despite their lower prices, stringent quality control measures ensure the reliability and consistency of their own brand products.
Something that Lidl and Aldi do very well is frequently feature exclusive or limited-time own brand products, creating a sense of urgency and excitement among shoppers. These special offerings may include seasonal items, gourmet selections, or collaborations with renowned chefs or brands, enticing customers to try something new.
Many discount retailers have successfully tailored their own brand offerings to local preferences and tastes, adapting product assortments to cultural preferences. This localisation strategy helps them connect with consumers on a more personal level and differentiate themselves from competitors.
“Loyalty has to be earned”
Due to the rise in living costs, many big-name retailers have seen the importance in investing into their loyalty card schemes in an attempt to keep shoppers coming back and shopping with them exclusively. And because loyalty has to be earned, retailers have no choice but to keep the offers and promotions coming. For shoppers, there’s more choice than ever before. This intensifies competition, raises standards, and forces retailers to work harder, keeping a lid on prices. In a time where the emphasis on value is paramount, retailers must prioritise both showcasing value and fostering a personal connection to prevent customers from switching brands.
Slating the use of loyalty cards, discount retailer B&M have recently announced their latest campaign which states ‘No loyalty cards’ and ‘No gimmicks’. Instead, the retailer focuses on keeping prices low 365 days a year. Highlighting the battle of loyalty cards between retailers, Tesco recently made changes to the look of their Clubcard Prices loyalty scheme after the High Court ruled that its logo infringed upon Lidl’s famous yellow circle trademark.
Are they effective or just a mere gimmick? Let’s discuss this with our expert lance…
Q: How do loyalty cards and data-driven marketing initiatives contribute to creating and maintaining customer loyalty in the competitive retail landscape?
Lance: Loyalty cards and data-driven marketing initiatives are essential components of a comprehensive customer loyalty strategy in the competitive retail landscape.
Consumer loyalty cards enable retailers to collect valuable data on customer purchasing behaviour, preferences, and demographics. By analysing this data, retailers can tailor rewards and incentives to individual customers. This can make customers feel valued and appreciated, encouraging them to continue shopping with the brand.
Additionally, cards and data-driven marketing initiatives encourage ongoing engagement and interaction between retailers and customers. By sending personalised messages, reminders, and updates, retailers can keep customers informed and engaged, fostering a stronger connection with the brand. This ongoing communication helps to build brand loyalty and encourages repeat purchases.
Corporate but conscious…
As a generation of self-aware shoppers, many of us have become conscious of the way we shop, consume, and dispose. These days, consumers are demanding more transparency from brands and are realising the importance of our ecological footprint. It’s clear that consumers are engaging with sustainable businesses in ways that they previously ignored. Supporting this, in a recent study conducted by Round Up, it was discovered that a massive 78% of consumers feel that sustainability is important, whilst 55% of consumers are willing to pay more for eco-friendly brands. This is a wake-up call for brands to leverage their ethics and sustainability practices to show their customers they are corporate, but conscious.
We ask Lance to weigh in on what we’ll see brands doing following this shift.
Q: Customers are more conscious, not just of the product itself, but the brand values behind it. Can you explain the trends we are seeing, such as brands using CSR advertising as their hook in recent campaigns in hope to attract, differentiate and generate loyalty amongst their customer base?
Lance: In recent years, there has been a noticeable trend amongst brands leveraging Corporate Social Responsibility (CSR) initiatives as a key component of their advertising campaigns. This shift reflects a growing consumer consciousness, as well as increasing expectations for brands to align with values that resonate with their customers. Brands that effectively integrate CSR initiatives into their advertising campaigns can generate loyalty among their customer base by appealing to their values. However, it’s crucial for brands to ensure that they are being authentic and transparent in their CSR efforts to maintain credibility and avoid accusations of greenwashing or cause marketing exploitation!
A great example of this is beverage brand Coca-Cola, who are appearing to focus on sustainability. Their key areas of focus are climate, packaging, and agriculture, along with water stewardship and product quality. By ‘focusing on a World Without Waste’ the brand aims to collect and recycle a bottle or can for every one they sell, also making 100% of their packaging recyclable. Additionally, retailer Tesco actively work with FareShare, to donate surplus food from our stores. Currently, they donate 2 million meals a month. By aligning themselves with a charity and a cause (the cost of living crisis) that is relevant to our current zeitgeist, they are showing themselves to be a retailer who cares.
So is it value or price?
In conclusion, the debate over whether value is more important than price remains questionable, especially in today’s economic climate.
The phenomena of shrinkflation and skimpflation further accentuates the importance of transparency in pricing and product offerings. Consumer trust and loyalty can be eroded if brands engage in deceptive practices to maintain profit margins without delivering equal value. Because of this, it is clear that both trust and loyalty are key factors in gaining the perception of value for shoppers.
In response to inflation and rising living costs, brands will continue to adapt their pricing strategies to uphold customer satisfaction and loyalty. By investing more into keeping prices low, they may have a chance at standing out against their discount retailer competitors, especially if they prioritise ‘price matching’.
Moreover, this current competitive landscape necessitates a focus on customer loyalty through initiatives like loyalty cards and data-driven marketing. Brands must also align with consumer values through CSR initiatives to differentiate themselves against cheaper competitors, generating loyalty among their customer base.
It is important that brands don’t overlook the importance of delivering value beyond just price. To do this, it’s clear that a focus on showcasing benefits and advantages, fostering personal connection with customers, and innovating to differentiate themselves in the market is vital. Brands that leverage unique selling points aligned with customer needs, preferences, and values can create meaningful value propositions that drive customer loyalty.
By consistently delivering on these USPs and cultivating positive experiences, brands can establish strong emotional connections, build enduring relationships, and inspire loyalty among customers.
Ultimately, while price plays a significant role in consumer decision-making, it is the perceived value that drives long-term loyalty and satisfaction.
Tactical Solutions excels in empowering brands to amplify their growth across all areas. Backed by a team of over 3.5k certified merchandisers and Territory Sales Managers, we ensure impeccable execution, optimising product visibility and accessibility for consumers. With over 25 years of experience, we specialise in enhancing product availability and prominence within the UK retail landscape.
Our incredible tech platform, Reapp, offers a comprehensive suite of tools to enhance productivity, gather valuable insights, and facilitate GDPR-compliant data collection and loyalty programs.
If you’re eager to delve deep into your data and understand the price sensitivity of your customers towards your products, allow us to shed light on the matter! We’re on call to provide actionable insights and guide you through your upcoming campaigns.
