April, 2009

Fruits of Thought

Staircase Of Value

In our mad rush to deliver value during these economic times, there is great danger we will inadvertently and unnecessarily move the produce industry from the normal distribution of demand along a range of value propositions and head straight to the bottom. This is of no small import as a generation of work on issues such as food safety, sustainability and traceability threatens to be lost in the avalanche of “value.” Yes, this recession seems certain to hit long and deep, and it has citizens from the rich to the poor reevaluating their spending.

Yet value — rather than being seen as an absolute fealty to the lowest price possible — is best seen as a staircase. Imagine the staircase of consumer purchases, climbing from economy products up through core products, passing on to premium products and then reaching the rarified luxury products.

Regardless of where consumers find themselves on this staircase, they can economize and enjoy greater value in three ways: First, consumers can be offered a lower price on the products with which they are familiar. Second, consumers can be offered the same quality, but with a marketing change, perhaps a switch to a private label or a requirement to buy a larger pack. Third, consumers can take one step down the staircase of value and buy, for example, premium products, rather than luxury products.

In the vast majority of cases, this is what consumers define as value: products similar to what they have typically purchased, but at a better price — not an opportunity to totally abandon the products they have enjoyed and buy the cheapest thing the market can produce.

Of course, retailers have powerful influence on consumers, and if retailers are promoting products that fall on the lowest steps of quality — defined both explicitly in terms of the goods themselves and implicitly in the inclusion of a range of supply chain responsibilities, such as sustainability — we will be quite effective in driving the consumer to the bottom. Coincidentally, we will also erase most of the industry’s profits at the same time.

Yet this is all very unnecessary and not in the best interest of consumers. In fact, as consumers look to trade down, each retailer is given an opportunity to woo and win new, more upscale customers. This is visually obvious at retailers such as Wal-Mart, where consumers who are clearly strangers to the store can be seen navigating the seemingly infinite aisles of supercenters across the land.

The truth is that value is an amorphous term, and different consumers perceive it differently. One group of consumers, for example, is right now cancelling their memberships at warehouse clubs to save the fee, which may explain why Sam’s Club is now offering a $10 coupon with new memberships.

Some consumers identify value as a reduction in their cash outlays, so they use up their home inventory of canned and frozen goods and thus, in their minds, eat for free for a while. They are not interested in warehouse clubs and club packs at supermarkets because they don’t want to make a large cash outlay, even if the price per pound is very good.

Other consumers see value in precisely the opposite way. They head to club stores and look for sales in the grocery store as stock-up opportunities. Some are even buying secondary freezers specifically to take advantage of such opportunities to save money by stocking up.

Even within a store, consumers who are trading down by buying private label goods are really offering stores a sampling opportunity to prove the quality of their offerings. Are these products really as good as national brands at lower prices? Will the consumers stick with the products, especially when prosperity returns? Certainly, much depends on how consumers enjoy the experience with those private label goods.

Consumer behavior during tough times tends to become risk-averse, and this may mean that suppliers and retailers would do well to rethink merchandising and marketing approaches, especially efforts to get consumers to try new items.

More demos and sampling are important to make the trial of new products essentially risk-free. More generous return-and-exchange programs may also merit consideration. Restaurants such as California Pizza Kitchen have long attempted to increase business by encouraging consumers to try new types of pizza. The promise? If you try something new and don’t like it, just tell your server and your old favorite will be served at no additional charge. One could easily adopt such a policy boosting sales of different specialty produce items, for example. It is certainly worth an experiment.

It is important for retailers and suppliers alike to think of the space they occupy in the minds of the consumer. A chain such as Whole Foods may feel the pressure to offer value, but it needs to keep in mind that the prototypical Whole Foods customer is attracted to the store because of a belief that the products offered are better than those offered elsewhere. Better may mean higher quality or produced in accordance with more humane values or better for the environment. Whatever the case, simply rushing to create value by showing it can sell some things cheaply is probably a strategy more likely to alienate than retain customers.

Think of that staircase of value and how you can offer value on luxury goods, premium goods and core offerings. Don’t assume that a leap to the bottom is the only option. With patience, testing and an avoidance of panic, you may find a landing where you and your consumers can be happy together.  pb