Price sensitive consumers can be loyal, high spending shoppers, and active brand advocates, according to new research from customer science company dunnhumby. A consumer’s sensitivity to price greatly influences his or her response to advertising tactics and the channel of delivery.
According to dunnhumby’s report, “Using Advertising to Engage the Price Sensitive Consumer,” price sensitivity does not equate to brand promiscuity. For example, the report indicates that social brand advocates and CRM program members tend to be more price sensitive than the average brand buyer, but are also more loyal and spend more on brands than the average brand buyer.
What’s more, very price sensitive shoppers within CRM programs spend 14% more than the average retained shopper and are 36% less likely to leave the brand.
Traditional assumptions have categorized price sensitive consumers as lower-income households that tend to spend less on brands and are not as brand loyal, according to the report. But the research shows that very price sensitive shoppers are more cost conscious and the most frequent coupon users, but in many cases, these are a brand’s best customers.
Dunnhumby’s research revealed that for brands appealing to the least price sensitive customers, television advertising used in conjunction with in-store promotions is not as effective in changing behavior as other marketing vehicles. TV advertising used without in-store promotions are more effective than the two combined for these brands.
But if a brand appeals to the very price sensitive, a combination of TV and in-store promotions is very effective at driving sales. Products with broad appeal also benefit from targeting consumers based on price sensitivity. Display ads featuring a downloadable coupon resonate well with moderately price sensitive and very price sensitive shoppers, but had no impact on the least price sensitive shoppers.
Common demographically-based media targets do not align with price sensitivity, the report says. For example, a brand buying ads targeted to “moms”, is wasting a large portion of its advertising spend on the wrong consumers.
“The biggest surprise was the lack of correlation between demographics and price sensitivity,” Justin Petty, Vice President of Media Solutions, dunnhumby, told Loyalty 360. “We have always put more emphasis on behavior-based segments and this is a case where that is definitely the right approach. Trying to reach a price sensitive or non-price sensitive audience when your media buys are based on demographics just creates a lot of waste.”
Can brands combat price sensitivity among consumers?
“If a brand really wanted to combat price sensitivity, it would stop running all promotions, but when the competition runs promotions and you don’t, you lose,” Petty said. “Instead of trying to combat it, learn to be more targeted with promotions and advertisements. Understand the role each media channel plays and how it affects different price sensitivity segments. Then pick and choose the right promotions at the right time to the right audience. In today’s world of Big Data, being more targeted and personalized is possible.”