Price Transparency, Meet Pavlov's Dog
Consumer price sensitivity has always been on retailers’ radar but it didn’t really rise to the top until the Great Recession – essentially from late 2008 onward. At that time, it was all about the budget. Consumers were looking for the best deals because they had to stretch their finances. During that time, coupons came back into serious vogue, and online shopping behaviors that were in their infancy – like comparing prices online before going into stores – got a huge uptick in adoption as consumers looked for any tool to save them money.
We’ve written a lot in the past about how price transparency has changed the way consumers shop, and it still continues to have an impact on shopping behaviors today. And right along with consumers’ continued interest in comparing prices and finding the best deals, retailers stay focused on consumer price sensitivity as one of their top business challenges.
But this week we completed our analysis of some consumer research, focused specifically on online research behaviors and how consumers shop for consumer electronics and for apparel, “RSR/Local Consumer Research November 2014″. And in that analysis we uncovered a worrying trend: as the economy has improved, consumers remain as price sensitive as ever – they are still in search of the best deal. Why? Not to stretch their budget, but simply for the thrill of the deal. This is bad news for retailers. Let me explain why.
First, the basics of the research. In October, we conducted an online survey of 5,041 U.S. consumers who own smartphones and asked them about their primary motivations for shopping (for example, saving time, saving money, or finding the best product), as well as how those motivations translated into their research and buying behaviors (for example, their willingness to buy online instead of in stores, or how much of a shopping resource Facebook is). The survey was on behalf of Local Corporation, and the results were so interesting that we asked permission to share this particular insight even before the full results were available. Because for retailers, alarm bells should be ringing.
We asked consumers to identify how frequently certain factors influenced their shopping behavior. . Combining “frequently” and “often” we found that there are more consumers who are motivated to find the best deal because of the thrill of the deal (72%) than are looking to stretch their budgets (62%).
But even more worrisome, whether a shopper is motivated to shop primarily to save money, primarily to find the best product for the needs, or even if their prime motivation is to save time, forget about cost – all three of these groups put the thrill of the deal at or near the top of their list. Obviously money savers are going to motivated to find deals no matter what, but what’s most surprising is that product-driven shoppers are also most motivated by the thrill of the deal, and even time savers are at least as equally motivated by the thrill of savings as they are by avoiding stores and shopping online.
You can be pessimistic or optimistic about this. Pessimistic because yes, retailers, you are training your customers to salivate every time the bell rings, just like Pavlov’s dog. And that means that the consumer price sensitivity habit is going to be all that much harder to break. When even people who say they would rather pay more than waste their time shopping are more likely to say they get a thrill from finding the best deals than they are from saving time – their defining shopping behavior – then retail has a problem. A big problem.
But there is a silver lining here. If you’re willing to roll with consumer behavior (and let’s admit it, they are the ones in control anyway), then gamification should become increasingly important to you. If your deals contain an element of thrill or give shoppers a feeling of victory, then you’ve hit a sweet spot in what they’re looking for. Because getting the best deal apparently is no longer about saving money. It’s about spearing that mammoth or scoring the winning goal in the game (and if you think that these are male behaviors, think again –women were almost twice as likely as men to say that they got a thrill from finding the best deal).
Bottom line? If you’re playing your promotions as some kind of utilitarian offer that saves money and makes life easier, you’re singing the wrong song. As the economy improves, consumers aren’t cherry-picking to help the budget. They’re cherry-picking because it’s fun! So you either need to make promotions less fun in an attempt to wean them off, or you need to seriously consider ways to feed the beast: let them feel like they won. Either way, consumer price sensitivity and retailers’ challenge in responding to it is here to stay.