In the heart of the recent recession, no one was surprised when consumers chose more lower priced alternatives, especially for basic purchases such as paper towels or laundry detergent. But most observers expected a return to previous habits once the economy rebounded.
We might still debate how far the economy has come back, but all indications are that customers have not changed their economical attitudes: They appear to have traded down for good. Now that they are accustomed to the lower cost options, consumers evidently see no reason to start paying more, when the basic version will get the job done.
Such trends are not unprecedented. Overall, customers shop according to their paycheck cycles: When paychecks arrive, shoppers feel flush and stock up on products. Near the end of the pay cycle though, reserve funds are low, and shoppers turn to smaller sizes to get by, until their next paycheck arrives. Accordingly, retailers have always made adjustments to their product availability and promotion schedules. In light of recent trends, many retailers are promoting their private-label options, noting their lower price points compared with national brand alternatives
Another retail tactic with a long history, though one that seemingly disappeared in the boom years of the American economy, is layaway. Although Walmart eliminated this option years ago, several other retailers, including Kmart, Sears, and Toys R Us, have reintroduced it. The method not only provides a means for cash-poor shoppers to get what they way, but it also encourages consumers to start thinking about starting their holiday shopping now, so they can have all the best toys paid off in time.
Target’s approach is a little different: It offers a credit card that provides 5 percent back to customers, so the overall prices are about the same or less than those of its competitors. Shoppers who hold the Target card spend 50 percent more than non-cardholders each visit. But Target also enjoys the enviable position of attracting shoppers whose average incomes are higher than those of Walmart shoppers. Thus its goal is a little different, and instead of focusing on frugality, Target has begun adding fresh grocery sections to its stores to encourage one-stop shopping.
1. Why are consumers trading down for good?
Ann Zimmerman, “Frontier of Frugality,” The Wall Street Journal, October 4, 2011.