It’s a tough time to be in the grocery business. Walmart, which derives nearly half of its revenues from grocery sales, recently reported that February 2013 was the worst sales month they’ve had in 7 years — an absolute disaster, according to leaked internal memos. The SymphonyIRI Group, in a report entitled 2012 CPG Year In Review: Finding the New Normal, points out that consumers are shopping fewer grocery stores — 3 rather than 5— and they’re buying less when they’re there. What sales growth there has been is largely attributable to inflation. Customers are very aware that they no longer have the purchasing power they used to.
Given these facts, doesn’t dropping prices seem like a smart strategy? When things cost less, people buy more: it’s not a complex equation here.The answer seems obvious.
Obvious, that is, unless you’re Whole Foods. Whole Foods is facing the same problems as the rest of the grocery industry. Droughts and extreme weather anomalies have negatively impacted the supply chain while transportation costs have increased exponentially at the same time customer confidence in a better tomorrow is lower than a snake’s belly. Nearly 3 out of 4 subjects in the SymphonyIRI report feeling that their financial situation will deteriorate or remain unchanged in the coming year.
And Whole Foods has one problem that’s uniquely their own. Ever hear the phrase “Whole Paycheck”?
Brand Modeling: Who Does Your Customer Think You Are?
Whole Foods, understanding the heightened value customers are placing on value given the current economic situation, has begun dropping their prices. Despite some initial success, the move concerns financial experts, who fear that too significant a price drop will negatively impact the Whole Foods brand identity. Can Whole Foods continue to offer what makes them unique—namely high-quality, healthy, organic food—while successfully competing on price? Will the changes that must inevitably come in the wake of lower prices disrupt the Whole Foods experience so significantly that their loyal shoppers will take their business elsewhere, or will the move draw in new customers?
These are some pretty big questions to leave to trial and error. Preserving brand integrity and promoting growth during difficult economic circumstances don’t have to be mutually exclusive goals. Finding the sweet spot that allows you to accomplish both simultaneously requires the use of modeling.
A model for your brand should identify the range of beliefs your best customers have about your store. By determining how important a role each of those beliefs plays in your customer’s relationship with you, it becomes possible to predict the outcome of any operational changes you make. A mathematical analysis of the behaviors and beliefs of your customer base eliminates the need for trial and error. You won’t have to guess how much to lower prices. You’ll know.
In this instance, we’d examine how central Whole Foods’ high prices are to their brand perception. Is paying top dollar an essential of the Whole Foods experience, or is there room for those prices to come down?
What percentage of customers will be alienated by embracing a different pricing strategy? How much new traffic will you attract? An effective Brand Model can provide these answers. Armed with this information, you can weigh the costs and benefits of many different pricing strategies objectively. Choose the option that best meets your company’s needs, with the confidence that every move you make will appeal to your existing customer base.
You can strengthen existing relationships while attracting new business, even in a tough economy. Sometimes that means lowering prices, and sometimes that means keeping your prices high. What strategy is right for your company? We’ll help you figure that out.