A Predictable Change

I've written a number of posts over the past year-and-a-half -- including "Welcome to the 'Trading Down' Economy," "'It Hasn’t Gotten to Human Food Mixed with Pet Food Yet...,'" "A Shift in Spending Behavior," "Postponable Luxuries," "Proving Me Wrong," "More on What the Consumer Is Up To" -- detailing the dramatic impact the financial crisis has been having on consumer behavior.

However, up until recently, many so-called experts have insisted that when it comes to the power of brands, not much has changed, even in the current environment. Consumers would remain willing to stick with and pay extra for market-leading goods and services, even if there were plenty of cheaper or more reasonable options available.

Moreover, like those who didn't see the Great Unraveling coming, no small number assumed that the downturn was cyclical rather than secular, and that any major market disruptions would be temporary, so they failed to plan accordingly.

To top it off, it seems that many analysts and industry insiders did not anticipate that the short-term price increases numerous "brand name" firms pushed through early in the downturn to compensate for falling volumes, while providing a one-shot profit boost, would make it much easier for cash-strapped consumers to take their business elsewhere.

Under the circumstances, only those who should have known better will be surprised to learn, as Reuters reports in "Recession Takes Bite Out of Brand Loyalty: Study," that the rules of the consumer marketing game are not what they were.

The U.S. recession is taking a bite out of national brand loyalty in products ranging from Advil pain reliever and Green Giant frozen vegetables to Jif peanut butter, according to a study released on Monday.

Just four out of 10 brands held on to at least half of their highly loyal customers from 2007 to 2008, according to the study from Catalina Marketing Corp's CHKHDC.UL Pointer Media Network, which gathers purchasing data at 23,000 stores nationwide.

Retaining customers is a challenge for food sellers in any economy and keeping them in a weak economy can be even more difficult.

Forty-eight percent of highly loyal consumers stayed that way during the study period, while 19 percent reduced their loyalty and 33 percent completely defected to another brand in the same category in 2008, the research showed.

The study defined highly-loyal consumers as individuals who made 70 percent of more of their purchases with a single brand in a given product category.

The study authors said Coca-Cola Classic (KO.N) is one of the nation's most successful brands. Even so, 25 percent of Classic Coke buyers were less loyal during the study period.

That compares with Procter & Gamble Co's (PG.N) Crest toothpaste, which saw almost 59 percent of its highly loyal buyers become less committed.

This time around, retailers such as Kroger Co (KR.N), Safeway Inc (SWY.N) and Wal-Mart Stores Inc (WMT.N) are aggressively expanding their own private labels. Those products often cost less than national brands and appeal to consumers looking to stretch every dollar.

The United States officially slid into recession in December 2007, but consumer spending was showing signs of weakening prior to the official start of the downturn.

When asked if the loyalty decline could intensify from 2008 to 2009, Catalina Marketing Vice President Todd Morris said: "It likely could."

WINNERS/LOSERS

The Pointer study was based on an analysis of the purchasing behavior of more than 32 million shoppers in 2007 and 2008 across 685 leading brands, Pointer said.

Catalina Marketing has a system that selects and prints coupons at checkout based on what a shopper buys. Full study results are available here: here

Other data from the study showed that Wyeth's (WYE.N) Advil suffered a 7 percent drop in high loyals from 2007 to 2008. On the flip side, the number of people who were highly loyal to General Mills Inc's (GIS.N) Cheerios brand rose 6 percent.

J.M. Smucker Co's (SJM.N) Jif peanut butter lost 7 percent of its highly loyal customers from 2007 to 2008, while General Mills' Green Giant frozen boxed vegetables lost 9 percent.

Comments

[Brett]

It would be interesting to hear about the effect of couponing as well - IOW how much of the brand products' sales involved coupons over a year ago. Speaking for myself, there are some brands I used to buy regularly that I now only purchase after coming across a coupon of decent size.

[ArtE]

I constantly test my wife. So far, the things that I cannot switch to generics/store brands are these: Nike (shoes), Charmin (toilet paper), Bounty (paper towels), Grape Nuts (cereal), Breyers Vanilla (ice cream).

I'm constantly buying store brands or generic OTC medicines with little pushback. I can save 10-15% on store brands food. On OTC medicines, it is around 50%.

Shopping, in general, I buy bulk and stand my ground to wait for sales. The downsizing of ice cream from 1.75 to 1.5 qts along with doubling the price makes me ONLY buy Breyers during 2-for-1 sales. Period. Breyers thinks we are suckers by downsizing package and retaining a super high price from last year even though last year's dairy price run-up is long gone (milk is 50% of last summer). We are not fooled.

Costco is THE ONLY source for low cost good meat in my area. They are 30% less than any market with a much broader selection. I do all my bulk buying at Costco.

Brett, we haven't gone down the coupon route yet. Most of the ones we see are for the national brands.

[Independent Accountant]

MP:
I saw this story too.

[Jennifer]

We only have one brand loyalty: Pampers Sensitive baby wipes. It's the only thing (including homemade wipes) that doesn't cause my daughters butt to break out. She's potty training now though so that loyalty should be over by the time the bulk box of wipes is done.