Loyalty Loses: Economy Driving Consumers from Favorites to Less Expensive Brands

Americans are deciding that upon further reflection, the lower priced spread will do just fine.

Major retailers like Walmart started reporting over a year ago that their sales are off because their customers simply do not have the income to shop at previous levels due to the recession. Now, brand managers are beginning to see a related phenomenon: customers forsaking their preferred, more expensive brands for less expensive alternatives.

This is significant because of the resources and effort put into building customer loyalty. This was not altruistic, but based on research that showed loyal customers provided higher margins due to the reduced cost required for marketing to them and to their penchant for repeat purchases and upgrading. The implication is that in times of chronic economic malaise, scalable brands are going to have to address the cost issue in a meaningful way or lose market share. Commentary about inflationary price spirals for supermarket basics have become a talk show and campaign trail staple.

The internet has certainly contributed to consumer promotion-mindedness, but the harsh reality of lower incomes, lost jobs and the rising prices of essentials like gas, electricity and food are forcing choices not seen in decades. Businesses will have to decide if there is a point at which further investment in loyalty will have to be deferred until the economy regains traction. Just like customers did. JL

Mark Miller reports in Brand Channel:

As the American workforce continues to struggle with the lack of jobs, the overwork of those that do have jobs, and the lower salaries coming out companies as they ride out a difficult economic time, one of the many effects can be seen on the shelves of America’s grocery stores.

U.S. consumers are reaching into their wallets and shelling out for the brands they desire less than they were just four years ago
according to a new research report from comScore titled, “The Effects of the Recession on Brand Loyalty and ‘Buy Down’ Behavior.”

“Buying down” is, of course, the fine art of buying a lower-priced brand than the one you actually desire, a situation that is becoming more and more the norm. In 2008, the study shows that 54% of respondents bought the brands they wanted.

This year, though, that number is down to 43%. Sorry to hear it, America.

"In the aftermath of the recession, and with unemployment remaining stubbornly high, U.S. consumers have been feeling the pressure to spend less and save more, resulting in increased buy down behavior for CPG (consumer packaged goods) and other product categories," said comScore director Doug Crang in a press release.

"Our research shows that over the last four years, not only are more consumers switching from their preferred brand when others are on sale, but they are regularly buying less expensive brands in an effort to save money. These economic conditions pose a real threat to premium brand market share, as consumers view cheaper brands, often private label, as a more affordable and necessary option during these hard times."