How Retailers Can Appeal to Cost-Conscious Consumers
Retailers can thank the recession for birthing a new class of consumers. These are consumers who started counting their pennies during the economic downturn from 2008-2009 and are still doing so despite the economy being on the upswing. While some retailers hypothesized the new level cost-consciousness resulting from the recession would be just a phase, they have discovered it might, in fact, be here to stay.
To appeal to the growing number of deal-seeking consumers, retailers are experimenting with new discounting approaches. J. Crew, for instance, recently opened J. Crew Mercantile, its value-driven label, in addition to its existing J. Crew Factory stores. Macy’s Inc. will test four off-price locations known as Macy’s Backstage come the fall. And finally, Whole Foods is planning to open a discount grocery store targeting millennials.
However, for most retailers who are looking to attract a greater number of budget-conscious consumers, adding value-driven lines and locations to their portfolios are not always an option. In order to compete, they can consider other options to appeal to these discount-hungry consumers, including:
- Leveraging Event-based Discounting: A recent example of this is Amazon’s Prime Day. While this was self-manufactured by Amazon for Amazon, other retailers, including Wal-Mart, Best Buy and Target, latched on to this event to attract new customers. Connecting to events like this allows retailers to disguise price reductions, which may be the result of excess inventory, as customer favors that customers then feel motivated to capitalize on. And often times, this approach can work. Integrated Solutions for Retailers reported that on Prime Day, Wal-Mart reported the highest figures of the year for same-day pickup in stores, with orders increasing triple digits over the same day last year.
- Offering Ongoing Savings: Whether this is through a discount associated with an in-store credit card or a customer loyalty program, retailers can both appeal to the frugal and cultivate loyal customers by making ongoing savings available. Just look at Target. According to NASDAQ, “Target’s REDcard and pharmacy rewards programs have been very important in attracting value conscious customers. The 5% reward loyalty program allows customers to save money when they shop at Target stores. Over the past four years, there has been a significant increase in the total REDcard penetration. From 5.9% in 2009, the figure jumped to 13.6% by the end of 2012. Interestingly, REDcard penetration soared to 19.3% in 2013 as U.S. buyers became extremely cost conscious, pressured by increased taxes, slow job growth, higher healthcare cost and gasoline inflation.”
- Consider Shipping Incentives: Based on data pulled from 100 million online transactions, 20 million user profiles and 100 email campaigns, marketing solution provider Retention Science discovered online shoppers are twice as likely to respond to free shipping offers than to price discounts. And unexpectedly high shipping fees are the number one reason consumers abandon online purchases, according to a recent survey by PayPal and comScore. Because free shipping can lead to conversions, retailers should consider offering this incentive either around holidays or permanently to capture more consumers. According to BroadVision, “With increased competition for budget-conscious customers, stores and online sellers are negotiating lower rates with shippers, or eating the rising shipping costs themselves, and dealing out offers for free shipping or delivery.”
Penny pinching appears to be a practice that’s here to stay. So retailers, prepare to discount for the long term. If you do, you will be in the position to count your blessings, not your pennies.