Mid-market brands are at risk from new consumer shopping habits as people adapt to having less ready cash, according to a survey conducted exclusively for Marketing Week.
The research, carried out by Leapfrog Research and Planning in April 2011, shows that luxury and budget brands are stealing share and effectively squeezing mid-priced brands out of the market.
Leapfrog client services director Sarah Buckle explains: “Although the public’s increased desire for bargains is widely acknowledged, what has been missed is the emergence of a new breed of consumer the ’spectrum shopper’ who shops at both ends of the scale in search of true value rather than the lowest possible price.
“This has created a degree of polarisation in the market, where brands at one end such as Primark and New Look are flourishing along with those that sit at the other, like Burberry and Hermes.”
By contrast, the mid-market brands are suffering. Some, such as fashion retailer Jane Norman, have been forced into administration, and chocolate shop Thorntons announced last month that it will close about 180 stores.
More than 20% of consumers admit they fall into the ’spectrum shopper’ category and over 40% have stopped buying things they don’t really need. More than half of the 1,000 people surveyed say they are bargain hunters.
“It is clear that behaviour changes which arose because of the recession have become embedded into the UK psyche,” argues Buckle. “This indicates a cultural shift, so if brands in this middle ground are to remain competitive, they must acknowledge that the squeeze may not lift.”
The proportions of people identifying themselves as savvy bargain hunters or spectrum shoppers dwarf those who claim to be focused on mainly luxury or vintage goods (3% each), or those who like to buy goods online (12%). The findings suggest that shoppers are likely to be buying more budget brands while also treating themselves with the occasional premium purchase. But mid-market brands on the high street are low in shoppers’ priorities.
“The challenge for brands within this middle ground is to create clear and distinct values to defend their mid-range pricing,” says Buckle. “If they are unsuccessful here, it is likely they will get drawn into an ongoing battle to beat competitors on price. This not only harms the brand’s ability to turn a profit but also leaves the UK open to continued polarisation, which will further impact on middle brands’ ability to compete.”
The Leapfrog research indicates that the polarisation of consumers’ shopping habits is more pronounced in some sectors than in others. The report uses a ’polarised shopping index’ (PSI) to measure the extent to which consumers are both seeking cheap goods and splashing out on luxuries. This is calculated by dividing the percentage of consumers in a retail category who say they are likely to treat themselves by the percentage trading down for cheaper alternatives, then multiplying by 100.
In Leapfrog’s analysis, an index score above 100 means there is the potential for middle brands to survive and thrive the category is likely to be one where consumers treat themselves rather than solely look to replace their usual purchases with lower-value products. A score between 50 and 100 means brands must adapt or risk losing market share, as consumers are less likely to trade up than trade down. By the same token, a score below 50 means the category is in real trouble and must change to survive.
According to the report, the areas with the healthiest outlooks for middle brands are holidays and electronics, with PSIs of 121 and 118 respectively. In the case of the former, people may not be taking as many holidays than previously, but they are concentrating more on the value of the experience, Buckle says.
“There has been a definite shift away from indulgent breaks to those that offer a memorable experience. People are now typically looking for holidays that provide the best opportunity for shared family moments rather than luxurious breaks that favour individual enjoyment.”
The report adds that middle brands in this market are likely to be most successful when they can highlight the positive emotions associated with going on holiday, and extending this throughout the booking process. It commends Lastminute.com’s ’Stories start here’ campaign on this point and Virgin Holidays, with its end-to-end service incorporating reviews, a simple and transparent booking system and engaged customer service staff.
Where electronics are concerned, it seems that high street shops are not taking advantage of shopping habits as much as the companies that make the goods. While consumer technology manufacturers are some of the world’s most financially successful brands, UK electronics retailers such as Comet and Dixons have posted poor results in recent weeks.
The propensity of shoppers to trade up to more expensive goods in this category suggests this might be something which mid-market retailers could take greater advantage of in their marketing, rather than focusing on low prices. Men in particular are likely to spend more for a better product here, with a PSI of 182 in the electronics sector. Women, however, score only 73, meaning they are much less likely to pay a premium. Women still register a higher PSI in electronics than any other category except holidays; and only in shoes, clothes and toiletries are they likely to spend more than men.
At the wrong end on the PSI measure is drinking out, with a score of 31. The inference that drinkers are more likely to favour buying alcohol cheaper from the supermarket than to treat themselves at a local pub is borne out by the persistently high rate of pub closures around 25 a week in 2010, according to the British Beer and Pub Association’s most recent figures.
Buckle says: “Going out for drinks on a regular basis now seems very frivolous and the industry hasn’t created a strong enough emotional hook to attract consumers. We are far more likely to see people buying drinks from supermarkets and enjoying them at home with friends.”
As with all the industries surveyed, mid-market pubs would not be well advised to engage in a price war to ward off the threat. They are unlikely to be able to compete with the buying power of supermarkets that enables them to sell alcohol at such low prices. Instead, Buckle says, the marketing strategy should be to emphasise the value of the experience gained by drinking in a pub.
It is a model all mid-market brands need to explore in response to the polarised nature of today’s consumer markets. Budget brands are undercutting them on price to attract the bargain hunters, while upmarket operators use the quality of products and services to justify charging a premium price. If middle brands are to survive, they must show they offer something different that consumers can’t ignore.
Anatomicals has the look and feel of a cult toiletries brand, but we want it to have the pricing strategy of something that is much more mass-market and approachable.
We find ourselves in the middle ground not necessarily from a price perspective but from an image perspective between something that is sold in a supermarket and something that feels more premium.
There are quite a few mass-market brands that seem to be constantly on offer and we feel that would devalue a strong brand such as ours. But retailers such as Boots do tell us we have to keep prices down and make offers.
Everyone has to cut prices every now and then it can entice customers to try the product. Then when it goes back to full price, the plan is they are loyal to it. But I think if you continually find yourself on offer, it devalues the brand and begins to devalue the customer belief in that brand and its identity as well.
Being in this middle ground does seem to be working for us as our sales are up in both the young target market at online retailer Asos and a slightly older demographic at Waitrose.
We are launching a men’s range Manatomicals and a tan range called Tanatomicals. The self-tanning range will be priced about £7 compared with a normal price point for the market of £18.
Tragus Group (brands include Strada, Cafe Rouge and Bella Italia)
Generally the restaurant sector is holding up but it doesn’t surprise me that it indexes under 100 [meaning shoppers may trade down to cheaper brands]. People are being more careful with how they are spending.
The sector is taking a very tactical approach to dealing with the recession discounts and offers help to protect the affordable feel that dining out still has. As well as using tactical offers, Tragus has also developed a customer relationship management database.
This means we can measure activity much more closely to understand who our customers are and whether they are ’voucher hunters’ or ’brand loyalists’. There’s no point sending a 2 for 1 offer to someone that loves your brand rather than a voucher hunter who is coming to you mainly because you have a deal on offer.
There is a proportion of voucher hunters on both the Strada and CafŽ Rouge databases. You would think that Bella Italia might attract a younger urban person, but we can see that the voucher hunters here are about 35 to 45 years old with kids. These people might also be on the more traditional Cafe Rouge database.
Customers always find a way of continuing to enjoy and have what they want. Restaurants will have to adapt. I think people might realise that perhaps the recession hasn’t bitten quite as hard as they thought, particularly if interest rates stay low.
Those of us who will come out of it strongest will be those who don’t just focus on the voucher hunters but continue to develop the brands.
Head of corporate communications
People are always looking for a deal but thanks to social changes that have occurred, people now expect an annual holiday in the sun. They consider it to be part of their ’right’.
So it doesn’t surprise me that the travel sector indexes so high [meaning buyers are less likely to trade down to cheaper options]. It has always been an important sector online and this has continued with the growth of the internet and mobile.
We are not a travel company we are an online media company so this growth has helped us in general. We have always known that travel is one of the most searched things online, after financial services.
Mobile applications have also helped us grow, making access to travel deals easier. When things are easy, you do it. On the day of the national public sector strike last month we saw a 16% jump in searches compared to the previous Thursday.