Urban Behavior

FMCG and Retail Companies Need to Capitalize on New Shifts in Consumer Shopping Behavior

The 2011/2012 Consumer and Retail Trends survey by Global Intelligence Alliance (GIA) consolidated the responses of 45 senior executives at some of the  largest global or regional consumer and retail companies around the world, and provided some interesting insights.

The question is no longer how much consumers spend but how they spend it

Technology has made consumers more powerful than ever, as they search for, source and compare products all over the world within a few clicks or tabs in a matter of seconds. While this benefited consumer products and services that offered good ‘value for money' in recent years, consumers have now started to demand much more than value.

In sophisticated European economies for instance, consumers are looking for good value products that are environmentally friendly in themselves or originating from companies that have strong social responsibility mandates.

In less sophisticated economies like the Asian emerging markets, consumers are also demanding much more than value. For the first time, consumers in markets like India, China and South East Asia are demanding quality and sometimes attributes like the ‘organic' and ‘green' labels. According to another GIA survey among 67 Asian consumer and retail industry professionals in China, India and South East Asia in November 2010, industry players say that on average over 50% of Chinese consumers  are  willing to pay a little more for organic/green food, beverages and personal care products, and approximately 10% are willing to pay much more. The same survey in India and South East Asia produced similar results with a much higher percentage of people willing to pay much more (25% in India and 18% in South East Asia). On the other hand, the survey also revealed that consumers are less willing to pay more for organic/green household or furniture and fittings products.

Consumers are not asking for new products, they're asking for new shopping experiences

Food and Beverage, Retail chains, Fashion houses, FMCG and other consumer goods companies are concerned about how they will respond to reduced consumer spending in mature markets and how to target new demographic groups and emerging markets.

GIA's 2011/2012 Consumer and Retail Trends survey revealed that companies see innovation is a key factor for successful strategies in mature markets. More than 65% of the companies interviewed said innovation for growth will be their focus over the next two years.

But what does innovation really mean in the Consumer and Retail industry these days? In a world inundated with all kinds of products, it is practically impossible to think that companies can launch really innovative products. Even pioneer companies like Apple struggle to launch products which are truly new and unique every year. More often, consumer and retail companies simply launch new, improved versions of old products. This difficulty in generating new products was certainly the driver that pushed the ‘discounting' effect as an innovative way of selling in the last decades. Studies however, show that discounted periods are not giving retailers the same sales kick as in previous years.

The modern answer for innovation probably lies in the shopping experience. Consumer research reports show that people are not necessarily enjoying or looking for new products but they are responding well to new ways of shopping.

Some retailers have been particularly smart about this: Apple has created stores which are more experience centers than stores. In the fashion world, Abercrombie and Fitch has also been clever at creating stores that feel like trendy night clubs.

Other than the physical experience, retailers can also be innovative in delivering different shopping experiences through the Internet. Amazon was the pioneer providing instant social reviews and since, many more innovative models have emerged. Examples include Gilt which brought the concept of private sales online, Groupon which developed the group buying experience, and many other retailers, like Etzy, which focused on high technology to deliver unique browsing experiences on their sites.

Innovation is indeed needed and demanded, especially in the mature markets, and retailers need to invest in creating stores (physical or online) that deliver a new and different shopping experience; be it through designs that get talked about, high touch, high tech or any other creative means.

Reaching deeper into the emerging markets requires customization

GIA's 2011/2012 Consumer and Retail Trends survey also revealed that companies see reaching deeper into the emerging markets as the key driver for growth in 2011 and 2012. More than 55% of the companies interviewed said they would focus on emerging markets over the next two years.

Fortunately – for companies and consumers alike – different elements are in place to facilitate the growth. Urbanization rates are rapid in the emerging countries. Logistic companies have developed networks allowing manufacturers to reach into emerging markets. And most importantly, the overwhelming expansion of the internet and other media create demand by delivering product information and making consumers desire all kinds of products, especially foreign ones.

Despite the huge progress that local manufacturing has made in markets like India, China and South East Asia, our survey in the region reveals an overwhelming majority of the people in these markets believe foreign products are better than local products (93% in India, 94% in China and 88% in South East Asia), while they all acknowledge that local brands are improving in quality.

In order to reach deeper into the emerging markets and to capture this large, hungry consumer base, companies need to be clever about what markets they target and the products they deliver. The game is no longer about entering China or India but rather being present in hundreds of cities in China and India, and being aware that the cereals and drinks people in Shanghai (approximately 16 million) are craving for are not quite the same as the ones people in Chongqing (more than 31 million) would like to buy.

The successful stories of companies penetrating new, emerging markets are almost always the result of extensive preparation and customization. Companies need to adapt their products to the local tastes, preferences and, requirements and constraints. In many cases, customization means changing the flavor of a product to cater to local habits. Coca Cola's Minute Maid Pulpy, a juice drink dense with pulp, is the customized version of the Minute Maid brand specifically catering to Chinese tastes. The product recently became one of Coke's brands to reach the US$1 billion sales threshold.

But occasionally, innovation has more to do with  the image or the message delivered. An example would be Kit Kat's "have a break, have a Kit Kat" slogan which has been around for many years. The interpretation given to the slogan in the television advertisements is completely different in each country. In Argentina, they use elements from a popular local joke that would probably be banned or considered completely inappropriate in many other countries. As a result, Kit Kat enjoys a very strong positioning in Argentina's confectionery market.

In other cases, innovation might mean changing the format of a product. An inspiring example is India's CavinKare who in the 70s launched the shampoo sachet, making shampoo affordable for a whole new and very large demographic group. With this simple but extremely clever innovative format, CavinKare positioned its Chik brand way ahead of Unilever and P&G in the Indian market. A decade later, all the shampoo giants were copying the strategy not only in India but all over the world. 

When we asked companies about the main challenges they face for 2011 and 2012, 46% said competing in the emerging markets is at the top of their list and 38% placed targeting new demographic groups at the top as well.

Customization of the product, the brand or the format and packaging is the answer to both of these challenges.

 

Author: Angela Quintero, Consulting Director, Global Intelligence Alliance

This article and others from GIA's Consumer & Retail practice can be found at Global Intelligence Alliance Insights and Analysis

About the Author

Global Intelligence Alliance (GIA) is a strategic market intelligence and advisory group. GIA was formed in 1995 when a team of market intelligence specialists, management consultants, industry analysts and technology experts came together to build a powerful suite of customized solutions ranging from outsourced market monitoring services and software, to strategic analysis and advisory.

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