Winning the battle for the big spenders
New research seen by Marketing Week shows that the top 20% of spenders on consumer products generate the majority of sales. Michael Barnett says that for a brand to succeed it must raise its stake in this lucrative group.
The top 20% of spenders average nearly 60% of consumer product sales, according to new research into UK shoppers seen exclusively by Marketing Week.
Across all types of product, these big spenders are six times as valuable per head as the other 80% of shoppers. They are even more valuable than average in most everyday grocery categories and 12 times as valuable than other shoppers for jewellery brands in particular. The findings cast doubt on the efficacy of many brands’ current price-led marketing to cash-strapped consumers.
The study of 6,000 shoppers by management consultancy Bain & Company finds that big spenders are more important to some product categories than others, but even at their least influential, in clothing, the top 20% of spenders still comprise 47% of sales.
According to Bain’s head of consumer products, Tory Frame, British consumers are “not consistently acting like they are battening down the hatches”. Over half of those surveyed have purchased premium or luxury products in the past year.
“Even for something like chocolate, without spending that much money, someone can give themselves a treat by buying a premium or luxury item,” Frame says. “The brands we see winning are those that have a good range of products and give consumers a clear functional or emotional reason to trade up.”
In most of the categories in the study, shoppers who have bought upmarket products are likely also to be buying mass market brands. So when buying clothes, for example, 95% of people who have bought premium products also shop for cheaper ones. This behaviour is prevalent for products that consumers need to buy relatively frequently, but a few everyday categories buck the trend. The majority of premium cider, tobacco and beer buyers say they never buy mass market products.
Many consumers making these pricier purchases are also planning to spend more on them in the next 12 months, particularly for everyday products. A majority of people who made premium purchases in 2011 expect to spend even more in 2012 on high-end beauty products, food, beer, chocolate and cider.
Spirits and tobacco are the exceptions – small-ticket items where premium shoppers think they will spend less. They also expect to spend less on big-ticket luxury items such as jewellery, cars and clothing, presumably because these are less likely to need replacing within the year.
One of the big questions for marketers from this study is whether brands should focus on generating loyalty among the top 20% of shoppers, who are spending most and are probably therefore buying most often, or going after all potential customers in the mass market. The research suggests there is a divide over the best approach – between product types where sales are driven by brand loyalty and those where consumers pick from a wide repertoire of providers.
Frame says: “It is a good idea to focus on those big spenders if you are in a ‘loyalty’ category where consumers do not buy many brands, like cigarettes or jewellery; or in a ‘repertoire’ category where there is a big difference between what big spenders do and what everyone else does, like clothing. They are either different types of people or they shop in different ways.”
Clothing shows the biggest difference of any category between the number of brands bought by big spenders and the number bought by the other 80% of shoppers. While the top 20% of spenders say they buy from a selection of 6.4 clothing brands on average, other shoppers choose from just four.
She adds that, in categories where big spenders’ brand repertoires are not markedly bigger than those of the other 80%, marketers should be focusing their efforts on creating “distinctive, salient brands” that consumers associate strongly with a specific need or occasion. They should also target these messages within stores, and to media channels where shoppers are most likely to research and buy, she argues.
The research shows that the number of brands that people buy in general is going up and this is more pronounced in some categories than others, says Frame.
“In some categories, such as beer, we have seen the repertoire sizes grow quite significantly over the past five to ten years. There is a ‘chicken and egg’ question as to whether, because repertoires are widening, supermarkets find it worthwhile doing promotions; or whether the promotions are driving trial, which is widening people’s repertoires,” she says.
Not all product categories are seeing consumers’ brand repertoires grow. They remain particularly small in cars, tobacco and jewellery, where consumers say they buy from fewer than two brands on average. In personal technology, there has been a particularly notable shrinking of consumers’ brand repertoires to 1.9 on average.
The influence of Apple is apparent in this, with buyers of iPods, iPads, iPhones and Macs often sticking with the manufacturer for all their technology. But Frame says there is not enough evidence to determine whether Apple has been the main cause, or whether it is simply one part of a wider trend.
“When we have looked at that category in the past we saw that there was nowhere near that same level of loyalty. We observe both an emotional attachment to Apple and also incredibly smart product development. The products all work together and there is an incremental benefit to having a full suite of products,” she says.
Apple is a large component of the level of loyalty and advocacy among technology brands, according to Frame, but rival smartphone manufacturer HTC is also identified among the most recommended brands of the 350 surveyed. Based on net promoter scores (NPS), Apple’s iPhone comes third with 60%, while iPod and HTC rank joint-seventh with 53%.
The brand with the highest NPS, by a margin of 14 points, is L’Oréal-owned haircare brand Kérastase with 80%. The only British brand in the top 10 is Hotel Chocolat, coming joint fourth with 59%.
The achievement is particularly notable for Hotel Chocolat as it is the only brand in the top 10 that comes from a repertoire category (where a large range of brands are considered) as opposed to a loyalty category (where consumers pick from a smaller number of brands) – and, indeed, the one where consumers are most promiscuous with the brands they buy.
Given Hotel Chocolat’s premium positioning, it appears well placed to attract and keep the valuable big spenders that the study identifies.
But marketers must take note that in most retail categories, brands are facing more competition, as consumers expand their repertoires. Unless they can steal a share of the top 20% of spenders that make up the majority of sales, or can create strong associations with particular needs or occasions, many brands could find themselves in a no-win situation.
Chocolate consumers are the most promiscuous in this research. I can only assume that is because people are doing the household shop and buying for the children as well as themselves.
Some of our customers have been with us since the beginning. Everything we do is with an eye on the long term, so short-term churn is anathema. When we look at some of the businesses we might have competed with in the past, having a three-year chief executive cycle is so damaging to them.
We brought elements of fashion retailing into our chocolate. We like to do collections for different seasons, and to commit to them and celebrate them in a big way.
At the fundamental level of taste, we have a mantra of ‘less sugar, more cocoa’. We know it is an investment we are making because the cocoa beans are more expensive than sugar.
Like any other category, there is always a hardcore, loyal cider customer, but there is also a promiscuous customer shopping for a deal. Our customers are making similar kinds of educated decisions to those we have seen for a while in the premium bottled ale category and the wine category.
They are looking for the cues about provenance, the kinds of apples or pears we use and how we produce the cider. The cider category is maturing. If you go back to 2006, Magners came along and pretty much changed the entire market. It allowed consumers to re-evaluate cider.
Most drinkers now will drink across the alcohol category. Depending on the time of day or time of year, they are as likely to drink a glass of wine as they are a bottle of cider, ale or a shot and mixer. What we have to understand and appreciate is that we are as much up against other cider producers as we are premium bottled ale producers, wine producers and premium lager producers.
Head of marketing
We do a lot of our own research regularly. We do not find that discount brands come up on our customers’ radars. They are not shopping in Primark, they are not shopping at Matalan. Our direct competitive set, in terms of the niche lifestyle clothing brands, is Fat Face, Boden, Joules and Monsoon – those brands have been fairly set for a couple of years – but our customers also shop at Marks & Spencer, Kew, Jigsaw and John Lewis.
Our research shows that 52% of our customers work in the public sector, so obviously with the recent announcements of another two years of virtual pay freezes, that is affecting them. They are still coming in, they are still shopping with us – we have very loyal customers – but we are seeing that they are maybe not buying as much as they did this time last year because they are more cautious.
Head of communications
There is a sense that what is happening in chocolate is what happened in wine, to the extent that people realised there are lots of different flavours you could be trying. ‘Portfolio’ or ‘repertoire’ buyers are obviously not brand-specific. In the same way as you might buy any bottle of wine for your ordinary dinner you know to buy something smarter for another occasion.
If you are an out-and-out Galaxy chocolate buyer and that is all you buy, there is not much point in us constantly seeking you out. An element of our consumer following is the grassroots Fairtrade group and more general ethical shoppers, but no one carries on buying because of those sort of credentials. If they buy us again it will be because they enjoyed the product.