Thursday, March 12, 2009

Marketing milk and detecting demographic differences

By now, almost everyone is feeling the reverberations of the economic crisis, whether immediately in their wallets or less directly through stress – and smart marketers have been attending to these shifts, designing campaigns that demonstrate what a good value one can get by shopping at WalMart or eating at McDonald’s. Most of these campaigns are spun in a positive fashion rather than blaring red sale signs (except of course, Circuit City, where it is already too late to resuscitate).

But not everyone is worried about the economic crisis in the same way nor shops in the same way. Even before there was an official crisis, we suggested that retail markets were not attending to the differences between consumer segments. As the low income category grows in all directions, IRI (which has been exploring this demographic group since 2007) helps track, categorize, and explain segments. While their catchy names for population segments seem a bit arbitrary to my skeptical eyes, the study does show some general trends and highlights the need to see differences even when they resist categorization. For example, many of the people they surveyed are more interested in good values than in sale items. However, price is only one factor in how they choose stores. Issues like health and well being, family and media use vary across the age cohorts, regional pockets, and cultural differences based on race or ethnicity.

Although we can critique the idea that baby boomers (a group that spans a huge age range) have anything consistent in common, we do know that those who are closer to retirement age are obviously more concerned with investment, savings, and health. Other huge aggregate segments like Latinos and African Americans seem consistently worried about managing and keeping full time work. For most of these groups, family is extremely important, but younger low income shoppers worry about more debt than savings and are more focused on friends.

In marketing to these groups, IRI suggests that less is more – less variety and category assortments, but also having stores that are open more hours to accommodate different work schedules, accept many forms of payment, and offer guarantees for store brand products (the last one comes up frequently in qualitative interviews: people buy brands only if they trust them. Being on a budget means that any risk with a new brand is a huge budgetary consideration. Guarantees take out some of that risk.). There is a strong interest in healthy foods and dollar store bargains all in the same mix. Today almost anyone can fall into the lower income shopper category (hence its lack of usefulness as a broad rubric), but it’s clear that there’s room for thoughtful promotions, product innovation, and strategic marketing within that framework.

Take this example from the food industry: according to Natural Specialty Foods Memo, Dean foods, the largest dairy food processor in the US, is predicting sales growth despite the economy because milk prices are down (good for them, not good for the dairy farmers, not good for everyone in the long run). Its line of organic products – including organic milk and soy milk – has successfully expanded into non-traditional venues like convenience stores and pharmacies. As NSFM points out, people have a strong brand association with Dean products like Silk and Horizon, so sales remain steady. However, even as the price of milk drops, the cost to consumers of organic milk will not be dropping at the same rate. At the same time, the research shows that middle to lower income consumers are equally interested in organic and natural foods, even as they are forced to cut back on some organic consumption. Fresh products rank consistently high even as consumers cut back in other areas, such as packaged organics.

So, the challenge would be to generate and market a line of lower cost organic milk. Right now, a gallon of organic milk is still 50% higher than its regular counterpart. According to NSFM,

That's a stiff premium, which is why many consumers just can't afford to buy organic fluid milk in this economy (and often in a good economy) even though they want to. The core organic milk consumer still seems to be sticking …but there is significant overall sales erosion in the category as evidenced by recent data. A slightly lower organic milk retail price is a good goal."

Keeping the price in line and selling in venues that are accessible to everyone is one way that companies can corral that elusive but necessary low income dollar, segments or not.

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