Price-Sensitive Shoppers Can Be Profitable for Brands
Price-sensitive shoppers have long been pariahs of marketing, seen as cash-strapped deal seekers who are unprofitable because they switch brands relentlessly.
But research from a marketing-analytics firm finds price-sensitive shoppers come from all income and demographic groups, are often more brand loyal than others and spend more in supermarkets on average than shoppers less focused on price.
The research disputes conventional wisdom that loyalty programs should shun the biggest deal seekers because they're unprofitable.
Income is "only slightly correlated" with price sensitivity, said Justin Petty, VP-client solutions, media and partnerships for Dunnhumby USA, which conducted the research and handles loyalty programs for Kroger, a part owner. "You will find pockets of high-income households that are still heavy coupon users."
But what really flies in the face of conventional wisdom is the study's finding that even the most price-sensitive shoppers are profitable for retailers -- and they can be profitable for brands, too. Brands hurt their profits the most, said Mr. Petty, when deals that should be targeted just to price-sensitive shoppers also reach others who would pay full price without them.
Dunnhumby defines "price-sensitive" shoppers depending on how much they use coupons, how much they consistently purchase the lower-price items in categories and how often they buy items on promotion.
Among the groups that overindex for price sensitivity are millennials, Mr. Petty said, and that's one reason price-sensitive shoppers are also bigger spenders. "Millennials do use coupons more and look at promotions more, and they make less money," he said, yet they also spend more on groceries because they're more likely to have kids. "They're one of the highest-spending groups and yet they're very price sensitive."
A similar paradox arises among people who sign up for brand customer-relationship management programs or are "brand advocates" who follow brands on social media. They're more price sensitive than average, but also more brand loyal.
For one multicategory food brand in the study, which Dunnhumby declined to identify, around 60% of all buyers were found to be "price sensitive" or "very price sensitive" by the firm's classification. Among the brand's social-media advocates, 75% were price sensitive or very price sensitive. More than a third -- 38% -- of the brand's social-media advocates fell into Dunnhumby's two most brand-loyal shopper segments based on their purchase behavior, nearly three times the rate of loyal buyers in the brand's overall consumer base.
Among average households, the brand studied got $188 in sales annually from price-sensitive shoppers vs. $168 for households in the "least-price-sensitive" group. Among social-media advocates, price-sensitive households spent $420 annually vs. $384 among the least price sensitive.