Generalize Or Specialize? That Is The Question

By Jim Prevor, Editor-in-Chief, Produce Business

What does it mean for consumers to be price-sensitive? How does one appeal to such a consumer? It is a bit of a quandary. For some consumers, a low price per pound on a package at a warehouse club is enormously appealing. Other consumers might shy away from the actual cash outlay required even though they might ultimately use that volume. For others still, they can’t use the quantity, so the best value, when defined as the best price per pound, is actually not the best value for them, since they would just waste the excess produce.

Motivations matter as well. A great deal offered by Whole Foods might appeal to a consumer, but if the concern is appearing “showy” before friends, the consumer might not even walk into Whole Foods, and instead, wind up paying more to get the same item at a supermarket with a less pricey reputation. Other people, perhaps desperately seeking value, would die before they let their friends know that the lunch they are eating came from the Wal-Mart deli.

It is also true that the lines of who buys what are kind of blurry. As the Perishables Group points out, the produce department at retail offers a range of different items from low-cost basics, such as potatoes, to exotic specialties, organic options, value-added options, special varieties, etc. Yet the customers for each are not easily predictable. Plenty of multi-millionaires are meat-and-potato folks, and people who are struggling can often cut back in ways that lead to high-end produce purchases.

For example, a two-income family where one spouse gets laid off may economize dramatically. That economizing, though, could take the form of no longer eating out. If they used to go out with friends and now they visit each other’s homes, they may buy some pretty pricey raspberries to entertain, though it is still economizing compared to going to the steakhouse.

Another family may economize by doing things such as postponing the purchase of a new car or canceling a vacation. These moves both free up income and create frustration, a perfect combination to allow the purchase of a small indulgence such as a preferred apple variety.

Some items that seem pricey are actually cheap if viewed from the right perspective. A stir-fry package, for example, may be a high price per pound, but if you make one stir fry meal for two people, it is probably cheaper than buying all those ingredients and throwing half of it out.

Also as the Perishables Group notes, generational perceptions alter what one perceives as an extravagance. There are young people in America who have never seen their parents make a salad from a head of lettuce; supposedly “convenience” items are staples to these people.

Psychographics and life stage make a difference as well. Starving Ph.D. candidates may buy a pricey organic product because it fits into their ethos, and more than a few moms give up things for themselves to make sure their baby’s food is organic. Whole Foods didn’t always search out the most affluent communities for store locations; it searched out high educational attainment.

What this all means is that while it is interesting to know what consumers, in general, are doing, it is much more important to know what the particular consumers at your store or, for a producer, the particular consumers at the stores he is selling to, are thinking and doing. That is not easily predicted solely based on income.

The Perishables Group’s suggestion that retailers need diversity to appeal to “both ends of the polarized consumer” is obviously true if what one wants to do is offer a broad-based assortment to attract a diverse community. The more interesting question, though, is whether that really makes much sense any more as a business strategy. Maybe the thing to do is specialize. Wal-Mart’s efforts to move upscale brought little but pain.

Maybe the future is Aldi, Trader Joes, Whole Foods, Costco, dollar stores, a back-to-basics Wal-Mart, HEB Central Market, Balducci’s, etc. Maybe it is stores that don’t try to be everything to everybody, but that delight particular types of consumers. Inherently, this means they also disappoint those customers for whom they are not suited, which adds the final complication. At any given moment, there is some product and promotional mix that will maximize profits. Yet switching back and forth between these strategies, even if possible, might still depress profits over time.

The problem is multifaceted. Part of it is that the consumers see the product intended for other consumer types and may feel alienated. Part of it is that there is limited space, so putting in items to appeal to a different demographic or psychographic can lead to a reduction of assortment aimed at the primary shopper. Part of it is that people have prejudices and preferences. So if the plan to attract diverse shoppers works — say the store attracts a whole new Latino population — one can easily wind up alienating the original consumer base.

Great data, such as that the Perishables Group has been kind enough to share with us, is, in fact, only the beginning of the process by which we learn how to best serve consumers.