Using Advertising to Engage
the Price Sensitive Consumer
The level of a consumer’s sensitivity to price has a significant impact on how they respond to advertising online and in traditional media. As more product purchase decisions are being made based on price rather than the brand or convenience, it is important for marketers to understand which advertising methods are most effective at driving action with these consumers.
This research reviews how a consumer's demonstrated sensitivity to price influences how they respond to direct mail, TV advertising, CRM and social media. It defines the different levels of price sensitive behavior and explains how marketers can leverage that insight for more accurate and efficient media plans.
Price Sensitivity is Increasing
Within today’s uncertain economy, everyone is a value shopper. According to Forrester Research, price is becoming a more important driver in the purchasing decisions of consumers. 52% of American consumers agree that the price of a product is more important than brand names, a figure that has increased significantly over the past five years. Even as the economy has improved, price sensitivity is a habit that continues to rise. Research from Parago found that 3 in 4 consumers are more price sensitive in 2013. 42% of them feel their purchasing power has decreased.
Key Drivers of Price Sensitivity
To better understand consumer attitudes towards price and how that changes over time, dunnhumby surveyed a panel of consumers each month over a period of time. We saw that price, even more than convenience, was the most important factor determining where consumers decided to shop. Everyday low prices, sales and promotions are key drivers for price sensitive consumers. The promotions and media formats marketers use to appeal to these consumers have a significant impact on campaign performance.
Marketers are Reinforcing Price
Sensitivity and Hurting their Brand
Brands and retailers have become more promotional over time, feeding the price sensitive nature of their customers. Instead of building long-terms sales and growing loyalty, constant discounting attracts cherry pickers causing brand equity to erode. Customers’ favorite brands are now the ones they have a coupon for this week. 96.8 million adult internet users are using online coupons in 2013, with mothers twice as likely to search for them. (source:
ilovecouponmonth.com)
Mobile coupons are growing in popularity, but if they are not accurately targeted, they will quickly lose effectiveness. Juniper Research Senior Analyst David Snow has stressed the importance of targeting to avoid declining effectiveness of mobile coupons.
“The major challenge on the user side will
be ensuring relevancy - once someone
starts to receive too many badly-targeted
offers, or even worse, unsolicited offers,
they will view mobile coupons as spam
and cease to be part of the market.”
Four Levels of Price Sensitivity
By understanding consumer behavior across different lenses like price sensitivity, marketers can create a clearer picture of the perfect target audience. Segmentation according to price sensitivity classifies households based on their purchase behavior toward price over time and across multiple departments. dunnhumby’s analysis of buying patterns reveal four levels of price sensitivity. Consumers range from Very Price Sensitive
(VPS), Price Sensitive (PS), Splurge & Save (SS) to Least Price Sensitive (LPS).
Price Sensitivity is Not Related to
Income or Demographics
Through dunnhumby’s analysis across brands and retailers, we have been able to dispel some common marketing myths about price sensitivity and the price sensitive consumer.
Price sensitive consumers can’t be defined by income, age, ethnicity, gender or interests VPS shoppers are cost conscious but they are not disloyal or low spenders
Promotions can be an effective tactic for driving the behavior of very price sensitive consumers, but they are not as effective for least price sensitive ones. dunnhumby found that in a distribution of females aged 25-50, age/gender demographics does not align with price sensitivity. There are almost the same number of females aged 25-50 that are PS (38%) as LPS (33%).
Least Price
Sensitive
Purchase above the
average price
Less restricted
by budget
Most Women 25-50 Demonstrate
Price Sensitive Shopping Behaviors
Splurge
& Save
Behave differently in
different parts of the
store
Might “splurge” in
produce and “save” in
soft drinks
Price
Sensitive
Purchase around the
average price
Very Price
Sensitive
Purchase below the
average price point
Total price and price per
volume are important
Most frequent
coupon users
.
Least Price Sensitive
Most Price Sensitive
dunnhumby’s Levels of Price Sensitivity
These two groups have very different responses to promotions, suggesting that a brand buying TV ads targeted to “moms” may be wasting a lot of their advertising dollars on a non-responsive audience.
0%
10%
20%
30%
40%
LPS
SS
PS
VPS
Direct Mail Coupon Redemptions
Increase as Price Sensitivity Rises
Coupon redemption rates are highest among VPS shoppers. In a direct mail campaign study, VPS shoppers redeemed over 15% of coupons for a single brand mailer and over 35% for a multiple brand mailer. Redemption rates steadily decreased along the price sensitivity segments.
TV is Most Effective When Combined
with In-Store Promotions
Different consumer segments respond to TV and store promotions inversely as well. If your brand is a higher priced item in the category and appeals to LPS shoppers, TV and in-store may not be as effective at changing behavior as other marketing vehicles. That doesn’t mean there isn’t place for it, it is more to drive trial and awareness.
For brands appealing to VPS shoppers, the
combination of TV and in-store promotions are most effective at driving sales with typical shoppers.
Marketing to Price Sensitive Consumers
Marketers have been trained to think in terms of demographics but now there are more precise ways to view consumers. By evaluating what a consumer buys over time, marketers can build a shopping DNA for each household that provides insight into their sensitivity to price so advertising can be differentiated for the specific audience. Price sensitivity is an important consumer dimension when targeting and measuring advertising. Here are examples of how price sensitive consumers respond to direct mail couponing, CRM programs, TV and in-store promotions, and social media.
0%
10%
20%
30%
40%
Single Brand DM
Multi-Brand DM
LPS
SS
PS
VPS
Very Price Sensitive Consumers are Most
Responsive to Direct Mail Coupons
0
50
100
150
200
Yogurt A Yogurt B Cereal A Cereal B
TV Only
Circular
TV + Circular
0
50
100
150
Yogurt A Yogurt B Cereal A Cereal B
TV and Circulars are Most Effective with
Very Price Sensitive Shoppers
TV Alone is Most Effective with
Least Price Sensitive Shoppers
CRM Programs Increase Price
Sensitivity and Improve Loyalty
Consumers participating in a company’s CRM program are 19% more likely to be VPS. Although not the most extreme coupon users, they are very responsive to coupons offers. CRM members are
70% more likely to buy the brand with a coupon than typical consumers.
Once engaged in a CRM program, VPS shoppers are valuable and loyal to the brand. They spend
14% more than the average retained customer and are 36% less likely to leave the brand.
Marketing to Price Sensitive Consumers
Social Media Brand Advocates are
Price Sensitive, but Very Loyal
It is widely accepted that Twitter followers and Facebook fans tend to be deal seekers. Our analysis has shown that brand advocates do skew towards the price sensitive and very price sensitive segments.
Social media brand advocates are much more brand loyal than average brand buyer and spend more on the brand than the average household – proving that price sensitivity doesn’t necessarily equate to brand promiscuity.
These are some of a brand’s best customers. Advocates are very loyal to the brand. They have personal experience with the product and a willingness to share their opinions and
recommendations with many others in person and online across social media.
0%
10%
20%
30%
40%
50%
%
H
Hs
in
S
eg
me
nt
Average HH
Brand Advocate
Brand Advocates in Social Media
are the Most Loyal Customers
Price Sensitivity Impacts All Types of Products
Price sensitivity is not limited to certain types of product categories. Brands appealing to all types of consumers can improve relevance and response rates by targeting based on price sensitivity. While analyzing three online media programs across very different product categories, we found they resonate differently among the price sensitive segments.
Even products with the broadest appeal can benefit from targeting the most price sensitive. A product of a famous, global brand in the carbonated soft drink category appeals to everyone. Yet the highest response to the online ad came from VPS shoppers. VPS shoppers contribute a
19.1% salesand 28.6% unit uplifts, while LPS shoppers contributed 0%. A brand manager with this type of promotion cannot think that their ad will appeal to everyone.
Price Band % Sales
Uplift Uplift/HHSales Significance Level % Units Uplift Uplift/HHUnit Significance Level
Least Price Sensitive 0% $0.00 - 0% 0.00
-Splurge & Save 3.1% $0.003 Not Significant 2.8% 0.002 Not Significant
Price Sensitive 7.9% $0.01 99% 9.9% 0.01 99%
Very Price Sensitive 19.1% $0.04 99% 28.6% 0.04 99%
Broad Appeal Products
Upscale products can resonate more with price sensitive consumers depending on the vehicle. A premium whitening toothpaste brand may target LPS shoppers, but the competitive nature and frequent in-store promotions in this category drive a high proportion of purchases from PS. Yet this online ad, with a downloadable coupon, only resonated with the PS and VPS shoppers. If the target audience for the product is LPS and a brand manager is planning an online ad just to those households, this data suggests that isn’t the right approach.
.
Price Band % Sales
Uplift Uplift/HHSales Significance Level % Units Uplift Uplift/HHUnit Significance Level
Least Price Sensitive 0% $0 Not significant 0% 0 Not significant
Splurge & Save 0% $0 Not significant 0% 0 Not significant
Price Sensitive 2.2% $0.005 83% 3.7% 0.0026 95%
Very Price Sensitive 8.4% $0.017 98% 8.9% 0.058 98%
Upscale Products
In a counterintuitive example, a product frequently purchased by VPS shoppers, frozen handheld sandwiches, saw a 23.31% sales uplift from LPS shoppers. This ad was for a product in the frozen handheld sandwich category. You would expect a product like that to match the graph above – the distribution skews towards PS and VPS. However, the online ad performed best with LPS shoppers and didn’t work as well for VPS.
Convenience Products
Price Band % Sales
Uplift Uplift/HHSales Significance Level % Units Uplift Uplift/HHUnit Significance Level
Least Price Sensitive 23.31% $0.11 89% 5.68% 0.010 Not Significant
Splurge & Save 0.00% $0.00 Not Significant 0.00% 0.000 Not Significant
Price Sensitive 22.31% $0.16 100% 23.33% 0.063 100%
About This Research
“Using Advertising to Engage the Price Sensitive Consumer” is the culmination of a series of case studies conducted by dunnhumby linking anonymous, privacy-protected data of in-store purchase behavior for over 60 million U.S. households to the media exposure data of those households. dunnhumby partners with companies like Datalogix and TiVo Research and Analytics (TRA) to link the data sources.
About dunnhumby
dunnhumby is the world’s leading customer science company. We analyze data and apply insights from more than 400 million customers across the globe to create better customer experiences and build loyalty. Our insights and strategic process help clients create competitive advantage and enjoy sustained growth. dunnhumbyUSA is a joint venture of The Kroger Company and London-based dunnhumby. dunnhumby employs more than 2,000 employees in offices throughout Europe, Asia and the Americas, and serves a prestigious list of companies including The Kroger Co., Tesco, Coca-Cola, General Mills, Kimberly-Clark, Macy’s, PepsiCo and Procter & Gamble.
