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01/31/2022

Quality-driven customers drive growth in grocery

Laetitia Berthier
Head of client engagement
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At several points in a shopping journey, consumers move along a sliding scale between two considerations: price and quality.

Their motivations can fluctuate depending on the product or the category. For certain food staples or pantry items, the lowest price may be the deciding factor. For other items, the perception of quality takes the cake. This might be where a higher price point is accepted for access to a brand name or perception, a particular product characteristic like nutrient profile, or a healthier choice. 

In between those two ends of the spectrum, there are promotional moments that can further tip the scale one way or the other, if a discount or offer might sweeten the deal.

Because this dynamic is ever-changing, it’s critical for retailers, particularly those in the fast-moving consumer goods (FMCG) space, to understand how their customer base is moving along the price-quality continuum, so that retailers can make the optimal marketing, merchandising and promotional investments.

This is especially true in the present market. With inflation riding high, one might assume that price is the biggest determining factor of a grocery purchase, but we found that to not necessarily be the case.

Grocery shoppers are moving toward quality
When Symphony RetailAI analyzed 2.2 billion shopper transactions over the course of 52 weeks, we were interested to learn that traditional grocery retailers are gaining quality-focused customers faster than any other customer segment. We saw 10% growth in the segment of quality-focused shoppers compared to a shrinking (-6%) price-focused segment.

Remember that sliding scale I referred to? Symphony RetailAI research revealed that a shopper is nearly 1.5x more likely to migrate up to the quality-driven segment of customers (24%) than they are to move down toward a more price-driven mindset (18%).

What’s more, if they’re a brand-new shopper to a retailer, chances are they’ll be focused on quality, too. We concluded from our data that new customers were also up to 1.5x more likely to be quality-driven shoppers. And knowing what motivates those new-to-you customers is an important foundation for building a long-term relationship.

Customer behavior is always changing, so what’s the point of trying to pinpoint what motivates a shopper? What influences shoppers’ decisions affects what they will buy, and therefore contributes to your realized revenue growth. And who doesn’t want that? By our calculation, quality-driven customers are contributing up to two-thirds of grocery revenue growth.

While an important trend to take notice of, this migration toward quality doesn’t mean a retailer should neglect their price-driven shoppers, nor does it signal the ineffectiveness of price-oriented retail promotions.

Customer-centric approach to price and promotional investments
Shopper data revealed clear growth opportunities for retailers to assess whether their price and promotional investments are reaching the right customer need, and whether they have the right assortment of key quality items (KQIs) and key value items (KVIs). Here are a few key takeaways, which highlights how customer behavior should affect business decisions.   

There are some categories important to price-driven shoppers that tend to be underperforming. These are categories that haven’t quite bounced back since the start of COVID: canned goods and soups, meats, poultry, dairy, and baking goods. In canned goods and soups for instance, winning strategies are to invest more in promotion, driving category growth through promotionally sensitive customers.

On the other hand, certain categories, such as the baby category, attract mostly quality-focused shoppers. Knowing this, retailers should balance the range of products offered within the category, and consider spending less on promotional activity.

At the same time, the soda and juice category was important to both price- and quality-focused shoppers, and promotions resonated mostly in the quality-driven segment. This should inform promotions, so that retailers promote only the items that resonate with that group of customers.

Likewise, spirits are seeing growth from both the price- and quality-focused segment, despite there being below average promotional activity. So an “everyday low price” (EDLP) strategy and promotions are not important in this category, since growth has been observed even in the absence of promotions.

Retailers must also assess aggregate shopper data for themselves, embracing a customer-centric view of categories to determine where growth is seen, with which segment a category is resonating, and where price and promotions are contributing to observed growth. It’s an ongoing exercise, requiring advanced analytics, including AI-enabled recommendations, to understand customer behavior and fine-tune investments.

Understand what’s important to your customer base
Rather than approaching pricing decisions based on price elasticity alone, embrace a more customer-centric approach that looks at price sensitivity. This will allow you to look at a customer’s relationship to price, but also to promotions and to quality, elements that are not considered in a traditional product-centric approach to pricing.

Determining customer price sensitivity will also clue you in on where your customer base lands along the price spectrum and what the most important categories or products are for their price perception. With this understanding, you will be able to engage personally with each customer, based on what matters most to them.