Wednesday, December 31, 2008

Happy Holidays Without the Hype

There’s Chanukah and there's Santa at my house, so we have a lot of gifting going on – Santa usually ends up with one serious present to the girls (believers, still, so let’s hope they’re not among my loyal readers), while Chanukah is a lot of smaller things, alternating between fun and necessity. I’ve been out and about observing the shopping situation here in western Pennsylvania since prior to Thanksgiving and it’s been slow, no surprise. But just as a recent NRF survey indicated, there seemed to be a late surge with a lot of last minute purchasing going on, if my experiences were at all typical.

Many shoppers heading out the last weekend before Christmas indeed found the stores and malls fuller than they had all week prior. The deals certainly got sweeter too, with online coupons and direct mail flyers pushing more and more discounts as shoppers got down to the wire.Interestingly, my observations and personal experience follow right down the line with NRF’s survey information about what people are buying. Here are some notes to mull over while sipping on the last of your holiday eggnog or eating latkes or whatever edible pleasures your holidays bring:

  1. Clothing seems to be doing okay (about 48% of shoppers told NRF they’d already bought some), especially as the big retailers like Macy’s, Kohl’s, Target, and Old Navy barrage households with even deeper discounts as we get down to the wire. Advertising pays off here, as do loyalty discounts. Most purchases seem to be happening in the discount aisles, away from the frivolous and the "five-minute fashionables."
  2. Books, cds, dvds, and video games are second at around 40%. Again, preferred customer discounts and email offers seem to be luring people into the big chain bookstores, as both Barnes and Noble and Borders had customers lined up with printed out coupons all this week. People mentioned these items as reasonably priced, perhaps more thoughtful than clothing, and definitely something that didn’t fall into the “necessity,” category, but also didn’t feel frivolous.
  3. Electronics: sales are down (24%) but there’s a lot of online research going on behind those purchases. Santa’s bringing some small electronic gadgets to our house, since the price of video and digital cameras have gone way down and there are good comparative deals to be had, even if you weren’t willing to risk it all at Circuit City. The electronics clerk at Target mentioned that his customers seemed to be doing less in-store decision-making, ponying up to the counter with the information in hand.
  4. Gift card sales are way down. Not surprising, given the vast number of store closings that make people nervous about sticking their loved ones with a useless piece of plastic (example: Sharper Image). Even American Express seems shaky to some people nowadays. In our household, a few iTunes cards seemed a safe bet for music teachers and college-age cousins.
  5. Online Shopping Rules! Everyone I know has bought something from Amazon or eBay this season because of the bargains, lack of crowds, better variety, and good ideas. That’s a first. It’s also more of a topic of discussion, with people trading tips in person and, of course, on social network sites. “When heading online to shop, consumers are increasingly web-savvy in the way they look for bargains: 85 percent of online shoppers use tools or websites to find good deals online… they use price-comparison websites, online-coupon websites, online advertisements, bargain-tracking websites and shopping-themed social networks,” according to the Marketing VOX Web site. Art Technology Group, Inc. claims that close to half of the people they surveyed would shop online for gifts this year, while 44 percent said they still expect to frequent stores.
  6. Chocolate, chocolate, chocolate. Watching people's carts, even with all the careful shopping, it's clear that indulgences are still important. I venture to guess that they’ve gotten smaller and more meaningful. Everyone – and I mean everyone except my dad, who likes everything except chocolate – is getting some form of the good stuff this year. From wine-infused bars to hazelnut dark chocolate logs to simple bonbons to, my favorite, the Vosges Bacon Bar – there’s chocolate for everyone. That kind of gelt still, as they say, holds currency.
Happy Holidays, and Happy New Year!

Chocolate gelt: available everywhere. Chocolate Christmas Trees c/o The Chocolate Tailor.

Friday, December 19, 2008

Not All Shoppers are Equally Frugal, Not All Coupons are Equally Creative

For as long as I’ve known her, my one sister-in-law has been an amazing coupon user. I just never really noticed it. To me, coupons evoke images of my mother in the 1970s, with her little file box full of tabs for certain items (“household,” “dairy,” “paper products,” they read). She managed the shopping for a medium-sized family on a tight budget until the '80s, when coupon use was just her routine and not a necessity. But my mom’s bargain hunting was really focused on groceries and everyday items. My sister-in-law, on the other hand, had perfected the gift buying bargain well before the current economic climate put a damper on everyone’s holiday shopping.

Back before I knew it was possible, she was using online savings, bookstore coupons, and, most creatively, discounts. We once got a holiday package from Amazon with the sales slip accidentally left in: she had so many discounts and qualified for free shipping that the entire 3 foot box had cost her a total of $5.00. And the most interesting thing is that of all my relatives, she’s in the most comfortable financial situation, in the high upper income brackets. As another family member put it, “well, that’s probably why she’s got money and we don’t!”

Anecdotal evidence aside, it’s quite obvious that coupon use is going to go way up in the coming year. What’s less obvious are two things: one, who’s going to be the main users and two, what kinds of coupons and special offers will work to entice very reluctant consumers to spend. The answer to the latter is complex, since the markets are multi-faceted and the full extent of the economic downturn is still up in the air. It seems likely that people will be more drawn to bargains in stores where they already shop. It’s also likely that younger consumers, who have been a steady market but are now slowing down, will have to learn some thrifty shopping skills. Here’s some other useful information: Packaged Facts has a recent study that gives some depth to my sister-in-law story.

When it comes to money-saving coupons, the highest-earning segments are most active. Coupon penetration is at 69% of all households through the early part of this year, but 46% in households earning less than $25,000--and it jumps to 71% in families earning more than $75,000. Usage is highest among those working in such white-collar functions as management, finance and administration. Also intriguing: Smaller households use coupons more than larger ones.
On-shelf point-of-sale coupon dispensers in the supermarket have been one of the most successful programs, making my mother’s file box obsolete. Here’s a lesson to be learned from this, though: Rather than barrage consumers with endless paper deals for items they don’t need, retailer should use their data to target coupons to people based on their purchasing history and demonstrated needs.

Tuesday, December 16, 2008

Fear of Falling? Organics, Slow Growth, and Making Too Much of Market Data

This week Mintel’s research on organic foods is all over the press, especially with the catchy headline “organics are not recession proof.” This strikes me as another one of those no-thinking-involved stories: let’s start at the beginning. First, is ANYTHING recession proof? Because if it is, you should let us all in on the secret now.

Second, we run into the same problems with definitions that we had prior to the economic fear factor. “Organics” means a whole lot of things – and often, not enough to define entire segments of the consumer population. People may be hesitating about buying organic shampoo, but they’re not ready to give up on organic meat or eggs. Or, more likely, they’re cutting back on meat (organic or not!) until the prices are more in line with their current budgets. Still, it looks like they’re still buying their essential pantry items from the organic side of the fence (not much downturn in sales of Annie’s Mac and Cheese, for example…).

It’s absolutely true that, despite its current legal battle and identity switch from "Whole Paycheck" to "Whole Deal," Whole Foods is not going to show the same profits and growth it has in its pre-recession history. CEO Mackey claims it’s not as bad as we think:

“We have worked hard to increase the value choices within our grocery and Whole Body departments without sacrificing our standards," he said. "We believe our efforts have been successful since these departments are continuing to produce positive comps. While we saw a decline in average transactions in grocery, our average basket size was up, which we believe is a reflection that customers are making fewer trips but stocking up with more on each trip."
Here's three things to consider when evaluating the organic market:
  • One, it’s still expensive, especially in the produce aisle (here’s a hint to all you green consumers: shop local produce markets and shop sustainable rather than organic).
  • Second, a good chunk of WF’s big sales have been in regions that have experienced big population and economic growth, but are now at the forefront of the real estate crash (Arizona, Florida, and California, for example). These areas are hard hit by the recession and all businesses will be struggling a bit here.
  • And third, it depends on what you look at that people are buying. What's green is more often mixed in at mainstream stores now (ironic that WF is being accused of having a monopoly when some of their biggest competitors are now supermarket organic brands and the real candidate for global market control, Wal-Mart).
Although the Organic Trade Association has charted a greater price convergence between organics and conventional food (especially with the development of in-house organic brands), it’s important to note that certain items are going to remain high. Organic produce that’s not in season and difficult to transport is still selling at premium prices in supermarkets. Comparatively, organic vegetables and fruits that are locally sourced and sold in local markets generally sell for the same if not less than their supermarket counterparts. Certainly, consumers have gotten used to buying strawberries even when there’s snow on the ground, so the shift away from those products may be a general trend, not limited to oganics. On the other hand, some of these items may return to their original status as luxury goods, which would mean producing less, but selling for more.

Non-perishable organics like cosmetics and household cleaners are a more complicated question. If the price differences remain high, expect sales of the organics to drop, except in the very high end. But OTA editor Barbara Haumann points out that big companies like P&G are striving to keep their green goods in the same ballpark as their regular line. To me, the Natural Specialty Foods Organization sums up the whole situation:
Organic category sales - not including store brands or bulk sales - were forecast to grow by 14 percent in 2008, compared with increases of 16 percent in 2007, 22 percent in 2006 and 21 percent in 2005, according to market research firm Mintel International. We think the 2008 forecast is probably off by about 4-5%, meaning overall organic category growth is more likely in the 10% range for 2008.
Mintel’s study is more subtle than the headlines would have you believe. Senior analyst Marcia Mogelonsky claims, "Economic struggles will undoubtedly change the way organic food and drink is sold. But we don't expect people to completely stop buying organics… We anticipate more subtle changes, such as the formerly all-organic shopper who returns to traditional cookie brands while sticking with organic produce. These small changes will slow market growth."

Pantry staples remain solid sellers. We still load up the cart with Annie’s Mac and Cheese, some Arrowhead Mills mixes (Hains Celestial is the parent company), and Stonyfield Yogurt, all of which are slightly more expensive but brands with loyal followings, as their steady sales indicate. Stonyfield’s CEO Gary Hirshberg says it all: things may be slowing down, but "Anybody else would be envying our growth" given current economic conditions.”

Maybe not recession-proof, but certainly still kicking.

Monday, December 15, 2008

In Defense of Good Data

Last week in Marketing Daily, Adrian Chedore, CEO of Synovate, made an argument for the more robust use of big data sets along with smaller, in-depth studies of consumer behavior. One of the challenges, he suggested, is being able to make use of the massive amounts of data that we are now able to collect. Putting aside my objection to reducing the full measurable reality of people’s lives via their consumption habits, it’s important to recognize that information is useless without two things: reliability and interpretation.

Reliability means we know the information is good. I know this is a standard social research rant, but every day there’s new reports touting data that proves what people want, who they are, what they buy, based on sample sizes and questionably designed survey techniques. In a frantic attempt to name and claim segmented markets, research firms will prematurely christen fragments of the population with ridiculous nomiclatures. I spend a fair amount of my research and reading time figuring out the design and sampling procedures of studies. Even the good ones tend to generalize too far out from their data. Intepretation means what ideas are being used to make sense of the data. I'm also constantly digging to make sure that the studies cited really do measure what they purport to measure. In the desire to say something new and useful, the data often gets left behind. For a good explanation of how to decide what statistics are good or bad, here's a recent broadcast from noted sociologist Joel Best on Kojo Nnamdi's radio show.

Given that, I’m in agreement with Mr Chedore, but I want to put a plug in for the most important source of data we have: one that is not generated by commercial entities, but by the government. It’s the Census. Recently the New York Times included an editorial supporting the new administration’s concerns about the 2010 census, specifically about finding a director with proven experience. The last eight years have seen reduced funding and administrative upheavals at what was once a very reliable agency.

Indeed, Chedore insists that market research's strength lies in its foundation in academic discipline and commitment to sound, reliable data. He pushes for more coordinated use of data and international comparisons – something that might be more effectively handled with government-generated data rather than across different companies. Case in point, Chedore laments the highly fragmented nature of current market research efforts. Using the Census might be an important corrective.

The census is extremely important to all of us who are interested in the demographic makeup of this country. It’s also necessary as an unbiased benchmark against which we can compare other kinds of data. In January, John Tizzi reminded the business world that the census is the best free market data around, another smart tip in lean times. The public accessibility of the data is one of the most remarkable things about it. (Tizzi’s other suggestions for “marketing on the cheap” are actually some very sound, basic research principles that companies seem to be forgetting in their constant search for something new).

So it may be smart for companies to put in a good word for the new administration's efforts to revitalize the US Census. After all, there's nothing like good data.

Map above is from Google Earth's census mapping program: it is a map of the counties in the United States colorized by median age. Lighter colors are older.

Thursday, December 11, 2008

Nielsen's 2009 Outlook: When times get tough, the tough go back-to-basics

Nielsen's Consumer Insight Magazine put out a set of predictions for the retail and advertising landscape next year, and as one might expect they're not too optimistic about experiencing a quick economic turnaround. In summary, they expect:
"a no-frills philosophy to kick into high gear in 2009, reflecting not just a consumer mindset, but one that is paramount to retailers and manufacturers alike, who are looking for growth in a downturn economy. From sustainable manufacturing techniques to innovative national brand offerings, the products and services likely to succeed in 2009 will be those that appeal to the sensible consumer looking for a rational benefit."
They go on to highlight twenty trends across the consumer spending board, a few of which gave me pause. Consider:
Marketers will think "renovation" as much as "innovation"

Nielsen has seen steady growth in testing of established brand restages and re-launches over time, and we expect this trend to continue into commercialization as marketing budgets are tighter. Reinventing established brands can be managed as a lower risk innovation strategy.
However, making this strategy a success requires a delicate balance of providing continuity to current buyers while offering sufficient novelty to attract new triers.

Ad spending will be tight.

Nielsen reported significant ad spending declines in the first half of 2008 by eight of the top 10 advertisers—down roughly 6% during the same period in 2007. As companies continue to downsize and scrutinize spending, expect these declines to continue, especially within the automotive category and with Financial Services companies. However, product categories such Direct Response Product, which increased spending 20.48%, and Credit Card Services (+18.95%), should continue to spend on advertising.

Coupon redemptions will rise.

As consumers look for more deals, expect coupon redemptions to increase. While coupon activity is actually flat versus year ago, this is positive news as it is the first time in many years that redemptions didn’t fall. As more manufacturers and retailers make it easier for consumers to gain access to coupons via email, mobile phones and in-store methods, consumers will take advantage of this cost-cutting strategy.


Brand prestige will be driven less by premium price.

Expect to see fewer premium-priced new products introduced into the market in 2009. However, focusing on low price may under-deliver on expectations. Marketers should look to emphasize a brand’s value proposition in new and unique ways by linking the value message to the consumer benefit.
These three, if true, will present some unique challenges and opportunities for in-store marketing experts. Price differentiation, typically considered a form of trade promotion, will probably be king for the time being, especially if the shift from brand-name to lower-priced private label or off-brand continues. But the opportunity to deliver customized marketing and promotions via interactive loyalty terminals or digital signage systems that can beam offers to a shopper's mobile phone could make them more valuable during the recession than previously expected.

Wednesday, December 10, 2008

Text Me Those Bargains

Like some bad stereotype come to life, I find I have a teenage daughter who can text faster than lightening. She can hold three conversations at once: one with me about something she left at home on her way to school, another with her local friends about what everyone is doing today, and a third with her Massachusetts buddies about what movie they saw last week. She even has mittens with flip top thumbs, so she can text comfortably even when it’s cold outdoors.

While I’m not as fast as she is, I use texting a lot more frequently as a means of communication for shopping. We email grocery lists as text messages, send photo messages to friends to see if the color or style of an item is what they want (before they buy it), and most importantly, check in with other folks to see if a bargain item is still there, on sale, or at another store. Even without barcode scanning capacity (which some phones actually do have), the cell phone is an ideal way of instantly finding out if one store is less expensive than another.

Scarborough Research has done a recent survey of “Texters” and generalizes that most texters are young, active, spend a lot on their cell phone bills and technology in general, and do a fair amount of shopping on line.The study indicates that in cities like El Paso, Salt Lake City, Dallas, and Memphis young consumers use the greatest amount of text messaging. Further, the study suggests that there’s racial diversity among this demographic, which also shapes their consumer tastes. Market researchers are already salivating over the possibilities in “tween” and teen markets (a new study by the University of North Carolina even suggests that the cell phone text message can be used as a motivational device to help monitor teen behavior and increase weight loss!), so the minority-tech savvy market seems almost too good to be true. But Scarborough's findings about the group's interests lack depth. Michael Hastings Black makes a great point about this: if viewed properly, social media can actually illustrate a greater complexity to consumption and identity among people of color, particularly since the content is being created by the individuals rather than for them!

While there is definitely a segment of the consumer market that fits the profile, I’m not convinced market researchers should be encapsulating text message users as a consumer category “texters.” The research identifies a subgroup, one that may prove profitable to manufacturers of certain types of goods (sports events and gear, music and concerts, media-based and technology-driven items, for example). At the same time, my ethnographic observations and other cell phone use surveys suggest that texting is becoming a general part of consumer behavior, more broadly distributed across the population than this study suggests. The Nielson group reported in September that most mobile customers are receiving more text messages than actual phone calls. Indeed, they cite a 450% increase in text messaging since the same time period two years ago!) One group I almost never see texting is people 65 and older (the only exception I noted was in relation to President-Elect Obama’s campaign use of text messaging to let supporters know about such things as his choice of Vice President. One older woman said to me, “I’d never gotten one of those before!”) More than other new technologies, the current platforms for texting favor those with experience using small keys. It’s taken so long for computer screens and keyboards to be adapted for use by older readers who need bigger text, it’s not surprising that the current cell phone designs favor users with small fingers and good eyesight.

While technology marketing tends to fawn over the users described in Scarborough’s study, it would be a mistake to aim ad campaigns more pointedly towards this group rather than expanding the possibilities by paying closer attention to social media. And, lest there be a post without mentioning our current economic state, keep in mind that young consumers are not necessarily the ones who’ll be controlling the household spending as we ride through the recession.

Friday, December 05, 2008

Will convenience stores thrive or fail in the recession?

Recessions can be funny sometimes, rewarding companies that are usually associated with low-touch, high-margin products that are readily available from numerous competing outlets.  Case in point? Convenience stores. C-Store News noted that 2008 was not a particularly great year for c-stores, thanks in large part to very high gas prices that encouraged consumers to spend less time in their cars, and consequently, less time getting the gas that so often leads to a c-store visit. So, while the total number of stores decreased by about 700 this year, and people have been spending less on impulse items like candy and cigarettes, as Inside the Aisle notes, "two facts offer some
encouragement: consumers are driving fewer miles and stopping luxury
spending, focusing on necessary items, and c-stores sell necessities."

Because consumers are traveling less distance, going out fewer times for dedicated shopping trips, and generally finding ways to consolidate their spending, C-stores might actually see profits rise next year thanks to the lousy economic climate.  That, in spite of the fact that they often charge higher prices for staple items like bread and milk than dedicated supermarkets or megastores like Super Walmart or Super Target do.  Interestingly, Inside's blog post also suggests that this might be a time for C-stores to innovate, finding new ways to encourage shoppers to make unexpected, impulse purchases while filling up their tanks and grabbing a gallon of milk. Indeed, stores are experimenting with self-checkout systems (despite some research that these devices can actually decrease impulse purchases, ironically), and other time-saving conveniences to get customers to spend more.

I'm not convinced that the recession is going to be good for anybody just yet, but considering that people will always be willing to pay something for convenience, c-stores may well indeed be poised to profit from these hard times.