RSR Research: Does Price Trump Assortment?

Feb 07, 2013

Through a special arrangement, what follows is an excerpt of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

An early look at a consumer benchmark commissioned by FMI, Daymon Worldwide and the Hartman Group, Reframing Retail through the Lens of Changing Food Culture, highlights how differently Americans are buying, preparing and eating their food. But what particularly piqued our interest was what it revealed about consumers’ attitude about price.

It comes to us at a fortuitous time, while RSR is in the midst of collecting retailer respondences to our 2013 Pricing Benchmark survey.

Last year, our respondents reported they continue to increase the number of price changes sent to stores, are most concerned about increased consumer price sensitivity, and battle hard to keep up with their competitors’ prices. This year, early findings tell us these concerns have only escalated.

The trouble is, the consumer is telling a very different story. According to the Food Culture study: "Appealing to consumers today requires much more than offering a wide range of products at the lowest price. While this is an effective way to attract shoppers, it does not secure loyalty. Instead it conditions shoppers to look elsewhere to find a lower price. Another way to offer value and build loyalty is to understand what consumers want that they can’t get elsewhere. Part of that is offering consumers products that go beyond the usual … which involves creating a compelling retail environment that inspires shoppers."

The piece goes on to highlight the importance of creating optimized assortment, which in their view is "curated" by the retailer to include those items customers care about, and specifically exclude products that are not relevant to them.

"Most consumers (62 percent) want to shop where there are always unique products to try. But presenting the right product mix is critical. Shoppers expect retailers to be good curators, and to carry what they want and omit what they don’t want."

Of course, curated assortments are the sweet spot of many niche independents, but there is significant relevancy to the larger retail world as well.

Back to our current retailer pricing survey, so far, 41 percent of survey respondents report the number of price changes sent to stores and other channels has "increased significantly." We continue to ask why. Do mobs at stores on Thanksgiving Day really mean this is our only option? Do we mistake hysteria for loyalty? And, if we look at our annual financials, don’t we see that the overarching impact of this hysteria on our business was mostly much ado about nothing?

Are most retailers overestimating consumers’ sensitivity to price? Is there a connection between pricing and loyalty?

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24 Comments on "RSR Research: Does Price Trump Assortment?"

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Dr. Stephen Needel

Most retailers, especially food retailers, probably have no clue about consumers’ price sensitivity, which is why we see pricing done the way it is today. Two problems—one is that very few retailers ever do price sensitivity work and the other is that it’s easy to confuse “product” price sensitivity with “retailer” price sensitivity.

We believe that Walmart and Target probably have low prices, which is why we go there. Once there, price probably pays less of a role in product choice than the retailers think.

Ian Percy

That’s what I’m talking about! THANK YOU PAULA!

In some ways Paula’s point is blindingly obvious and in other ways it is hidden from the eyes and minds of so many retailers. WE have imposed the price war mentality on the consumer and then we sit around and whine about it. The salient point is this:

“Another way to offer value and build loyalty is to understand what consumers want that they can’t get elsewhere … which involves creating a compelling retail environment that inspires shoppers.”

If you curtained off a part of the store and put up a sign in front of it that said “Something Different” customers would flock into that section—and they wouldn’t be thinking ‘I wonder if there’s 80% off.’ They’d be looking for the same thing they’re looking for in life…something unique, original and inventive that gives them an identity.

J. Peter Deeb

There is a definite connection between price and loyalty (see Walmart). But retailers, especially those who cannot or will not compete totally on price, have to find their consumers’ sweet spots to succeed. The recent Supervalu retail chain situation is a great example of not finding other ways to compete and so floundering in the marketplace.

One of the keys to expanding your offering to consumers is a balance of competitive pricing on the right items, the right product mix for your demographics and where possible, throwing in some excitement in the shopping experience. Knowing your customers through a shopper card or POS analysis is a must to do this well.

Bob Phibbs

Great information. Many retailers have gotten away from the fundamental reason shoppers go into stores, to answer the question, “What’s new?” Instead, many stores are stocked with me-too products you can get everywhere.

There’s a great piece in today’s WSJ about how the airlines all went bankrupt going after the price shopper and now cutting costs to pay for the misguided focus on price.

I would suggest that not only Boomers but Millennials are over the stack it high and watch it fly philosophy of retail. Give me fewer choices to make and make them unique seems the way to go.

Dick Seesel

Why is Amazon successful? Is it because they are the price leader in so many e-commerce categories? Or is there something more? I would argue that their success has a lot more to do with breadth of assortment (which makes sense for them) and customer service than simply price. It’s possible to “over-curate,” as Walmart learned the hard way a couple of years ago.

The entire subject ties back to some recent panel discussions about loyalty programs, which are for the most part “extra discount” programs. Again, exceeding expectations for service and execution are equally key.

W. Frank Dell II

To say price is the most important or not important is too simplistic. You have to look at your target consumer. With every consumer group there are categories where price is important and others less so. For years retailers have always pushed the idea they must have the lowest price to compete. After Walmart entered the market, many retailers failed due to their pricing approach coupled with item selection.

Retailers have lost billions of profit dollars by under pricing Private Label. Unique products are less price sensitive than commodities.

Robert DiPietro

There isn’t a connection between pricing and loyalty. The driving force for ‘shopping’ is to see what’s new as many others have pointed out in the comments.

Retailers play the price card to drive excitement, then complain that customers don’t come without 50% off or more. How about having products that matter?

Debbie Hauss

There definitely is a connection between price and loyalty, but customer service, inventory availabilty and other factors are important as well.

It also depends upon the industry segment and the players as well. Additionally, certain sales cycles are unique—such as Black Friday—during which it’s all about the price.

Now that Walmart, Target and the like have completed their goal to offer just about every type of product in their stores—including groceries—now they are taking a step back and re-focusing on price. Walmart, for example, currently is very focused on showing shoppers that their overall receipt will be lower when compared to competitors.

JCPenney – now acknowledging the failed attempt at eliminating sales, is now advertising on the price comparison between the same product at JCPenney stores vs. competitors.

Overall, retailers do need to be sensitive to price, knowing that consumers have that knowledge in-hand when entering a store or web site. But they also have to work to differentiate their brands and the overall shopping experience.

Doug Garnett

Sergio Zyman observed something like “in the absence of reasons to make a choice, consumers will fall back on price.”

My sense is this fallback trains retailers to fall back on price far too often. My experience with consumers is that they prefer meaningful reasons to make a choice—and price really is primarily a fallback for the majority (although there is a committed core of price shoppers depending on category).

It is critical that retailers continue to give meaningful reasons to consumers—assortment, exclusives, innovations, and clever packaging.

And it’s a funny situation: this is what consumers want badly. But it’s hard, sometimes, for retail to trust that or to find their own unique way of delivering it. Regardless, a commitment to meaningful options for consumers will pay out far better than one-dimensional price strategies.

Shep Hyken

There is absolutely a connection between pricing and loyalty. If the consumer is going to be loyal to either price or the retailer.

If the loyalty is about price, business goes to the lowest priced retailer. Don’t confuse this type of loyalty because as soon as the a competitor has a lower price, the consumer leaves.

If the loyalty is toward the retailer, there is something more than price that motivates the consumer. It can be the quality of of product, customer service, an overall experience or a relationship/bond with one or more employees. Any of these gives you a leg up on the price-sensitive consumer.

Aldo Gucci once said, “Quality is remembered long after price is forgotten.” Give the customer quality in the form of product, relationship, service and experience, and price becomes less sensitive and loyalty becomes possible.

Lee Kent

Yes and yes. That said, I don’t have the surveys to back me up but to my thinking, unless there is a Walmart or Target right in your neighborhood, most folks visit those stores a little less frequently and mostly for the basics.

Again just me but, I think they drop into the neighborhood store when they’ve run out of something or just have a taste for something for dinner, etc. My husband, the shopper in the family, stops by the local Kroger no less than 4 times a week. He does check the Manager’s specials to see if there is anything that looks good, but mostly he is not thinking price. He is trying to think of something different for dinner or for his lunch the next day. He chooses Kroger because it’s on the way home and the other choice is Publix, pretty much the same to him. If one of those stores did a better job of offering him what he wants and/or a great experience, that would influence him! Just sayin’….

Herb Sorensen

Price is obviously a factor, but it is a lot more complicated than the brain-dead, “lowest price wins.” The shopper standing in front of a shelf with two items, one at $2.39 and the other at $2.89, doesn’t just say, “Oh, I can save 50 cents by buying this one.” Whether consciously (or, more likely, subconsciously), they are saying, “What’s wrong with that one? Why take a chance, the 50 cents doesn’t matter THAT much.” See also the Harvard Business Review, “Minding Your Pricing Cues.”

For the brand, especially, never forget that the price has TWO roles, at least – how much is this going to cost me; and how much is it worth. Announcing the value of something is THE purpose of BRAND. This is part of the irreconcilable difference between brand manufacturers and retailers, and too many brands are seriously polluted with retailer thinking.

Shilpa Rao

Price wars have never helped anyone—not even consumers—because in the long run, if retailers no longer remain profitable, then available options are reduced.

There is a need to move away from the product-centric view of price elasticity and move towards a customer centric view of customer elasticity. Digital commerce, be it online, mobile or tablet, offers ample opportunities to personalize prices and build loyalty through them. Understanding your customer elasticity based on the customer value over a period of time and the amount spent per trip.

Rather than just looking at products, understand which trips are more price sensitive, understand the customer need state based on a day, or the week and day of the month, and price accordingly. Give reasons for customers to come back to you.

Ralph Jacobson

I have seen retailers execute 10,000 price changes per week, and just move the prices only a few pennies, to match competitor prices. The goal is to give the shopper a sense of value. Many retailers do a great job of creating this impression. Shoppers are sensitive to price, however, quality and selection are also components of overall value.

There is a connection between loyalty and pricing, however, it is tough to compete on pricing, alone. Also, don’t confuse the shoppers’ desire for variety with actual product movement. A tiny fraction of stores’ SKUs move compared to their entire assortment.

Vahe Katros
When it comes to brand attributes that customers care about from retailers, I always liked the list of items that Mr. Retail, Harvard Business Schools’ Walter Salmon presented in a speech at the Electronic Shopping Conference sponsored by the Touche Ross in 1988. It’s an oldie, but still kind of relevant. They provided a cassette tape of the speech to attendees and I’ve edited down the remarks. Sorry for the length. ===============What do customers want from retailers? Remember that some of these are increasing or declining in importance. Everyday low prices (fast selling leading brand name products) on the others they just have to be everyday fair prices. Complete assortments (differs according to merchandise line) – for frequently purchased low risk merchandise, complete assortment means one stop shopping. For higher risk big ticket merchandise, the consumer wants in-depth assortment. Where fashion is important, such as in apparel and furniture, assortments boundaries may correspond with the lifestyles of relatively minor target segments. For such merchandise it may be better to be deep within narrow boundaries, than thin across the wider range of merchandise. Having merchandise that is up to the minute in newness and fashion is also a consideration – an… Read more »
Tony Orlando

Pricing is and has been KING in this rural, unemployed county for over 30 years. Why is it that Walmart and Aldi’s build here, along with Dollar General? It is a war unlike anything I have seen in a long time, and I do enjoy playing the game. Stay light on your feet, keep a sharp pencil handy, and get the customers the hot deals they continue to expect.

Unrealistic expectations are the norm around here, and you need something besides pop and snacks to grow the business. Loyalty and good prices co-exist nicely, as not having either component will bring more losses to your sales base.

Can’t wait for NGA in Vegas this Sunday. I need a break.

Mark Price

Retailers always overestimate the importance of price. Consumers feel they are time-starved, and while they want a good price, many consumer segments do not want to spend the time driving from one store to another to save $2. Rather, consumers are using the web to identify and confirm “reasonable” prices at the store that is the most convenient to them and has a decent customer experience.

Jerry Gelsomino

I think it is different for different categories of merchandise. Need items would definitely bring more price sensitivity into play. Want items are more selection and point-of-difference driven.

Kai Clarke

This article has poor, fallacious logic as its premise regarding price. Having a low price does not encourage the consumer to look elsewhere for better pricing. Consumers are sensitive to pricing and are using this as a focus of their purchasing decisions. The sheer growth in discounters and dollar stores since 2008 demonstrate this shift at retail, and how price drives not only loyalty, but also establishes the cornerstone of many retailer’s presence.

Kathy Beck
Kathy Beck
4 years 7 months ago
Price sensitivity and image definitely impacts loyalty, but it is only one component and has to be treated as such. The self-imposed race to the bottom with price competition and deal-seeking shopper behavior is a downward spiral that can only be won by the giants who have the economies of scale to continue to play that game. The days of “build it and they will come” are over; shoppers have more choice and more information than ever before and the only way to grow market share, margin and loyalty is to return to the 4 P’s—the right product, price, promotion and place—but place now has an extended meaning because place is now anywhere and anytime. In this era of the instrumented, interconnected and empowered shopper, retailers have to do everything in their power to ensure that every message that they send to their target shopper is on point. Whether that messaging is delivered through intitial pricing, promotional incentives, how they lay out their store, what products they offer, or service levels and ambiance (to name a few), every single message has to be developed to appeal to the retailers target segments, via their preferred touchpoints and channels, to create shopping… Read more »
Mark Breen
Mark Breen
4 years 7 months ago

Years ago the Osco Drug chain had a strong presence in the Chicagoland market. They were innovative in their product selection, especially in the seasonal presentation. Then, after being purchased by other companies it became “just another store.” The product selection diminished and the price culture was confusing. They lost market share and customer loyalty.
Selection and interesting merchandising will trump price any day.

art savitt
art savitt
4 years 7 months ago

No, retailers are not overestimating their price sensitivity. This is bound to increase even more so as the result of consumers’ newly emerging pathway shopping decision-making behavior, via mobile, web-browsing and info-seeking patterns we’ve noted over the past 2 years. Smartphones and iPads are driving this, and the expectation is for this phenomenon to evolve even further.

Yes, strong connections exist between pricing and emotional brand/retailer loyalty, as we’ve been noting this over the past few years in our clients’ trackers and other ad hoc surveys, especially where we evaluate price elasticity and optimization and examine scores by emotionally brand loyal customers. But this connection does not necessarily exist for ALL customers—which points to the need to develop customer segmentation models to identify those important price sensitive segments who do account for proportionately heavier than average retail dollar spending volumes. We have seen that, by product and retail category shopped, and by decision-pathway exhibited, the strength of connection between loyalty and price sensitivity can vary greatly.

Alexander Rink
4 years 7 months ago

Between lingering concern about the economy and consumers having become accustomed to deep discounts, promotions and deals, I think that it is fair to say that consumers ARE price-sensitive. The prevalence of price comparison and showrooming, or at least the amount of talk about it in the industry further accentuates this point. However, I do feel that assuming shoppers make their purchase decision solely based on price is inaccurate. At the end of the day, it is about delivering the best VALUE to the consumer, and ensuring you are “right-priced” for the value you deliver.

In my opinion, consumer loyalty to a retailer comes from a consumer’s appreciation of a consistently high level of value being delivered to them by that retailer, and not necessarily the lowest price. How does one define value? That’s the hard part, and while it varies by individual shopper, the retailers who best define their target market and their differentiated offering for that market, and then right-price appropriately based on that offering, are the ones we believe will generate the greatest loyalty with shoppers.

William Passodelis
4 years 6 months ago

It has SO MUCH to do with the channel you are talking about!

Dry goods, grocery, furniture, appliances; in those and other channels it depends upon the specific company, and the market segment, or target market one is referring to. Some segments are price sensitive. There are, however, a multitude of variables involved. Having said that, there IS a connection between price and loyalty.


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