Price Isn’t Always King, According to Study
● The report from Boston Consulting Group reveals what drives consumer choices at the time of purchase, finding retailers may be overestimating value consciousness.
The recent findings from Boston Consulting Group’s consumer price sensitivity survey show that it could be a serious mistake to base global pricing strategies on the assumption that
“value consciousness” is an overarching preference across customers.
One of the companies’ largest studies, the survey interviewed 40,000 consumers across the globe about what truly drives decisions at the time of purchase and at the time a product is being used across multiple markets and categories.
Overall, while price is important to consumers Boston Consulting Group’s research found its usually not the overriding consideration when a consumer buys a product and even when pricing is a competitive differentiator, consumer behavior will vary depending on the market, the product category and the context or situation in which the consumer is shopping.
Interestingly, although differences by gender and income level are narrow, age was found to be a significant factor in price sensitivity with 14 percent of Gen Z respondents being found as price sensitive compared with just 3 percent of those older than 56.
Notably, the report acknowledges the pandemic’s impact on lower-income and middle-income households trading down to lower-value options in many product categories. However, the authors of the report said that the “findings imply that brands shouldn’t define pricing strategies based only on consumer mindsets, such as value consciousness” with a key takeaway being that brands need a much more nuanced understanding regarding how purchasing decisions are made in different markets and categories.
“Pricing is a powerful tool for wooing such consumers, and many brands have concluded they can gain a competitive edge by offering the lowest prices on the market,” said the authors of the report. “But our research found that a bargain price usually doesn’t trump all other factors when it comes time for consumers to make a purchase. And it’s not safe to assume that consumers around the world, and in certain income and demographic groups, respond the same way to price.”
Meanwhile, the company’s research found that context is a powerful influence in recognizing when price competitiveness makes a difference. For example, more consumers reported that they are likely to choose the lowest-price option when shopping for apparel for their children or spouses than for themselves. And similarly, twice as many consumers are price sensitive when the item they are purchasing is a gift than when it is not.
As consumers continue to trade down in many product categories, especially when faced with challenging economic times, authors of the report said, “it is critical that brands gain a nuanced understanding of the motivations that drive price-sensitive purchases in specific markets, categories and circumstances. Such knowledge can be the key to winning in a market — by being both price competitive and profitable.”