Consumer Trends and Product Changes Impact on Value – Valutrics

Consumer trends and product changes are forces driving the retail industry. Changes in the needs and wants of customers may be slow and hard to detect, but they should be taken into account in the operations and product offerings both of retailers and manufacturers. As mentioned earlier, retailers are losing their share of the consumer’s wallet and consumption is shifting elsewhere. This is partly due to the increase in income level; there is money to spend on non-obligatory purchases. On the other hand, however, the prices of necessities like electricity have risen and take an increasingly larger share of consumers’ spending. Time pressure and consumers’ convenience orientation have meant an increase in eating out and the buying of ready-made meals. Also, more and more money is spent on services like cleaning and beauty care. Retailers and manufacturers must become better at responding to the needs of the changing consumer to be able to defend their share of the consumer’s purchases. The list below highlights some key consumer facts and trends facing retailers:

eating out – home-meal replacement;
time-rushed consumers;
cultural awareness and adoption of ethnic foods;
health and healthiness;
‘welfare diseases’, such as obesity, diabetes and allergies;
an ageing population with free time and capability to consume;
growing singles and ‘dinks’ (dual income, no kids) segment with ability to consume;
experience economy and hedonistic consumption;
online shopping;
product and price information availability;
the new and growing iPhone/Ipod generation;
social networks;
sustainability and ‘green’ values;
ethical consumption.

However, many of these trends may differ country by country. Consumer markets are still very local, and so are many consumer trends. However, key mega trends, such as sustainability, are affecting all markets to some extent.
Products develop at a fast pace, and there have been signifi cant changes in product offerings during the past 10 years or so. Thanks to new product development and international sourcing, consumers are offered products they could not even dream of in the past. Products are becoming evermore sophisticated and new materials among other things are continually taken into use. Examples include ‘intelligent’ clothes with embedded microchips, or Adidas running shoes where a small computer controls the degree of attenuation based on how hard the ground or running surface is. At the same time, a typical product lifecycle has become considerably shorter and new innovations are launched at an accelerating rate. These changes bring opportunities to manufacturers and retailers but they also require them quickly to adopt innovations and know how to develop products without delay. Internationally known brands, mega brands, have spread all over the world and have replaced old local brands in many categories. Brand management is no longer so much about product development as marketing and creating an image among the desired target groups. Fashion and trends are now more international, with the same trends occurring all over the world. Even multinational giants have cut back some of their brands and increasingly focus on developing a few strong brands. As an example, Unilever has announced that it will dramatically decrease the number of brands. Instead, it will emphasize the group’s own brand. On the fl ip side, there is a myriad of product copies and fakes, the number of which has risen at least at the same rate as global brands have strengthened. Private labels act as a sort of counterforce to mega brands, and their share in retail assortments is continually rising. Traditionally, most private labels have been basic products, which have eaten market share from weaker-selling ‘B brands’ and have also improved margins. Over the long term, this refl ects a signifi cant change in the retail value chain, as the product development process shifts from manufacturers to retailers, at least partially. This is natural as retailers with customer interface and insight can make new product development an integral part of category management. With private labels, retailers have started to differentiate and selectively target certain consumer groups. Good examples include Tesco’s Finest and Value product lines, which target different shopper segments.

What makes responding to consumer needs particularly challenging is the heterogeneity of the consumer base. Demographic factors are no longer suffi cient to explain the consumer’s behaviour. Instead, all age groups include many micro segments. As an example, young people can be further divided into representatives of many subcultures such as brand-conscious consumers, fi tness fanatics and organic products consumers. These groups can also include people of various ages. The core family is no longer the standard, the daily rhythms differ and individual needs vary. Life in a family with two adults and three children is very different from that of fi ve students in a city commune. Similarly, the shopping habits of individual consumers may vary to a signifi cant degree, and they may be very different on weekdays from habits at the weekend. Moreover, the same consumers may emphasize quality in some purchases and just price on others, even during the same shopping trip. Many people want to eat healthy but they also want to enjoy the food experience. In some cases, retailers have even managed to identify yo-yo dieters based on their purchasing behaviour: sometimes they buy nothing but diet foods, while at other times they indulge in loads of delicious high-calorie goodies. One of the most dramatic demographic changes is the ageing of the population. The average age of the population is rising in the industrialized countries, with an increasing share of people retiring. A signifi cant difference from earlier generations is that ‘old people’ now retiring are usually in good physical condition and interested in using their time actively. Some use the expression ‘free 2’, the second free period in life, or the third age, starting for a person, for example, when the children have left home and the career is already past. Moreover, the generation soon to retire has a considerable amount of money, making it an attractive shopper segment to retailers. In fact, those belonging to this age group are used to spending money and demand that they get their money’s worth. An increasing share of the money spent by the ageing population goes to services that make life easier, such as cleaning, and to hobbies and travelling. Retailers are in a position to capitalize on this, if they take the needs of older consumers into consideration.
From an overall economic perspective, the situation is not quite as sunny. This is because a smaller number of those working have to support an increasingly large amount of retirees. The situation also poses major challenges to local administrations. However, retailers may play new roles in developing the necessary local services, such as home delivery of groceries. One trend related to the growing number of retirees is the fact that more and more people have second homes and live there part of the year. The trend poses new challenges and opportunities to retailers operating in locations that are popular for second homes. Consumers who are used to city store offerings may spend considerably more at a local store if the retailer has the ability to listen to their needs. Some retirees also move to another area either permanently or for part of the year. For example, Florida in the United States and the Malaga area in Spain are popular destinations for retirees. In addition to retirees, the number of singles has also been growing, making them an attractive market segment with a high purchasing power. Smaller packs and individually packed foods are favoured by singles for the simple reason that mega packs meant for families with children easily perish in a single-person household. The assortment in convenience stores located in a town centre looks very different from that at supermarkets located in a residential area full of families with children. In addition to singles, the number of ‘dinks’ (dual income, no kids) is also increasing. Dinks focus on indulgence and gathering experiences, and they often have the money to do so. Dinks may also have more time for shopping and cooking as a hobby than do busy families with children.
Furthermore, retailers have to be prepared to serve the consumers of the future, including the iPod generation. This consumer group will behave in quite different ways from today’s consumers, and they already infl uence their parents’ shopping behaviour. This generation is thirsty for information, and with the web having always been present in their lives, they expect to get information easily. Instead of indulging in a passive activity such as watching television, they have become used to interactive services and having a say, a trend further strengthened by the development of Web 2.0. Peer group opinions and recommendations are also important, and the new consumer generation wants to make decisions based on available information and not just be on the receiving end of conventional push marketing communication. They know how to pick the information, which poses challenges to retail operations. The consumer of the future can be approached with a well-targeted event-based communication, for example through virtual communities. The new generation is also accustomed to a wide assortment as, thanks to the internet, the whole world is open to them. New technology is nothing to be feared; they are open to try anything new, and are generally more informed and thus also more demanding customers. In many countries, the new generation has a healthy attitude towards working and desires to have free time, too. Leisure time is optimized, so products and services making everyday life easier are in high demand. Thus, the new generation is willing to buy many kinds of services. Unlike the baby boom generation, they fi nd the buying of cleaning services, for example, natural. Many ethnic groups today are more visible in society than before. In many areas, Chinese communities are a classic example of a distinct ethnic group, but today there are a large number of other groups as well. Spanish is the number one language in many areas in the United States. Similarly, there are now more than 2.5 million Turks in Germany; and the Swedish capital of Stockholm has areas where more than 80 per cent of inhabitants are immigrants. International crises continually increase the number of refugees, and the fl ow of immigrants from Africa to Europe, for instance, is ongoing. In addition, new generations are more willing to relocate when studying or working.
The trends related to ethnicity force retailers to reconsider their product offering and labelling. The number of languages in product labelling refl ects not only the needs of ethnic groups, but also the internationalization of sourcing. The aim is to design a product package that can be used in as many countries as possible. Ethnic food has been included in almost every retailer’s assortment, but it seems that its share is still on the rise. Ethnic food trends vary and TV shows featuring celebrity cooks also play a role in building new trends. The needs of ethnic groups will drive ‘genuine’ ethnic foods in the assortment and not only adapted versions targeted at the mainstream population. On the other hand, the demand for ethnic food has grown among the mainstream population as well. Real food lovers often buy original ingredients at small speciality shops, which help to maintain the wide range of retailing. But also big retailers can play this game. For example, Wal-Mart operates Arab-America’s store, where several hundred additional stock keeping units (SKUs), including falafel, Halal meats and Islamic greeting cards, are presented in addition to the traditional supercentre assortment. Wal-Mart has also hired several Arabic speaking people for customer service.
Consumer income level has risen steadily all over the world. In addition, emerging markets, like China and India, have a large number of middle-class consumers who can afford luxuries. The number of wealthy consumers is increasing in the West as well, and the demand for luxury and designer products is on the rise. Consumption rates vary in different countries and customer groups; while expensive bags and designer clothes are important status symbols for some, others may prefer a state-of-the-art phone or MP3 player. Luxury brands have also become important to many consumers, even to those who actually cannot afford them. Consumer credit has become increasingly common, although there are big differences depending on how developed a market is. As some formerly exclusive brands are now owned by almost everyone who has an interest in them, the rich and famous are trying to fi nd new exclusive products to show their status. Some brands have suffered from their popularity as they have become too common.
With the increase in consumer income levels, time pressures have increased and most people have little time left, for example, for cooking. Over the years, the number of weekly shopping trips has declined in many markets. At the same time, the value of each grocery purchase trip has increased considerably. The trend is closely connected to the growing presence of large hypermarkets and shopping centres; it is now possible and desirable to spend a larger amount of money on each shopping trip. Time pressures have also affected product offerings; the number of convenience food items has gone up, for example. Convenience food that is quick to heat up makes everyday routines considerably easier. There is a wide selection of convenience foods, ranging all the way from hot dogs to complete gourmet meals. Recent development has put a particular emphasis on high-quality ready meals. These products have increasingly often been developed by retailers as part of their private label offerings. Time pressures have also boosted the demand for snack products. With no time for a decent meal, consumers have many small snacks during the day. They are often bought on the go: at a grocery store, service station, fast-food outlet, school or work. The snack offering is very wide, ranging from conventional chocolate bars and crisps to sandwiches and biscuits. New products are mushrooming as consumption grows and is more varied.
Though snacking is usually thought to be unhealthy, there are also healthy snack options: diced fruit and vegetables are available in many places. Healthfulness is a key trend having a strong impact on marketing and product development, both in retail and food service operations. Among the most popular health products are light products containing less fat and sugar than their standard version. Their popularity has grown steadily, and nearly all products now have a light version. There are light versions of basic foods such as cheese and meat, but also of food normally considered unhealthy, such as sweets. At one extreme, you can even buy ‘fatless fat’. With the current technology, almost any kind of product can be created. However, not all light products are healthy and low calorie. For instance, light bologna sausage is very fatty compared with no-fat turkey slices. Likewise, the healthfulness of synthetic non-fats and sugar substitutes has been questioned. There is a growing need for light products, since more than 60 per cent of US adults and about half of Europeans are overweight. Among major markets, the United States and UK consumers are most likely to be overweight, but the increase is fastest in France and Germany. The number of overweight consumers in the United States will also continue to grow rapidly. In addition, childhood obesity is a growing concern. The increase in obesity rates in many Western countries (and increasingly also in developing countries) has boosted the popularity of diets and light foods. The consumer products industry has also been criticized for the increased obesity rate. During the past few decades, packages have grown in size, and many unhealthy foods such as confectionery and crisps are sold in mega packs. Advertising also often emphasizes manufacturer brands with indulgence, but as retailers often handle marketing of perishables themselves with little manufacturer monetary support, fruit and vegetables have not gained much visibility in marketing.
Organically produced products with no preservatives are also considered healthy. Many consumers have started to fear potential dangers caused by heavily processed food. For example, sweets may contain dozens of different colouring agents and additives. Many sweeteners have been suspected of causing concentration diffi culties, especially when used in large amounts. Consumers have also been biased against GMO (genetically modifi ed organisms) products though there is so far no strong evidence of health hazards. In Europe, consumer resistance is currently so strong that many retailers would not take GMO products in assortments even if the EU legislation did not impose any restrictions on them. It is, however, still likely that GMO products will be accepted at some point, and the product offerings will continue to be developed. Non-additive products may bring competitive advantage in certain customer groups, and many children’s foods, indeed, contain no additives or preservatives. The popularity of organic foods has been rising for some time, and constitutes a signifi cant trend.
The increasing number of so-called welfare diseases, as well as allergies and the ageing of the population, cause retailers to address new needs, which can also be seen as a new business opportunity. Obesity causes many kinds of welfare diseases such as diabetes and cardiovascular diseases. Consumers are often willing to pay a higher than average price for products that are considered healthy. Manufacturers have tried to respond to the prevention of welfare diseases by launching functional foods, or foods that promote health benefi ts. These refer to preparations that have an intrinsic health-promoting effect or that together with added ingredients have a healthy effect. Examples that have aroused a lot of attention include cholesterol-lowering Benecol margarine and Danone’s Actimel products. Health-promoting ingredients such as vitamins and digestives are often added to juices, milk products and margarines. For instance, Kroger carries cholesterol-reducing milk in its assortment. Besides functional foods, various performance-increasing products have grown in popularity. Sports drinks have been on the market for a long time, but performance drinks and foods are being consumed by other consumers, too. Various kinds of waters and juices are advertised to improve concentration, raise the energy level or help people slow down and relax.
The growth of allergies and other conditions requiring special diets leads to increased requirements for products and labelling. Packages contain more – and more detailed – information on the products and the ingredients used, partly due to legislative requirements. The challenge is to present information in a simple form in spite of increased information requirements. The label space available does not increase, and small fonts make labelling hard to read. Manufacturers might also use vague terms, like ‘spice’, and technical terms, such as ‘casein’ instead of milk, or ‘albumin’ instead of eggs, which make it diffi cult to know what the product actually contains. There is a continuing stream of new products related to special diets as the customer base grows and requirements rise. For instance, more than 5 per cent of US adults have food allergies; the most common food allergens are milk and other dairy foods, fi sh, eggs, crustaceans such as lobster and shrimp, tree nuts such as walnuts, peanuts, soy and wheat. The number of multi-allergic people is also increasing.
Health and a healthy diet are accompanied by different fashion diets emphasizing a certain type of foods, such as the Atkins diet, which encourages avoiding carbohydrates. Many retailers have answered to this call with low-carb products in assortments. Protein has been added to some surprising products, such as pasta. Though some diets have a very short life, retailers may enhance customer satisfaction and sales by offering products compatible with them. The low-carb fervour has calmed down but new diets are introduced continually. Some consumers are interested in the GI (glycaemic index) values of foods, whereas others wish to follow the South Beach Diet, or ‘Stone Age’ diet.
On the other hand, consistently following a healthy diet is also catching on. Fairly commonplace products can be branded to suit a particular diet. For example, WeightWatchers has had products made with its own brand. Moreover, retailers have built services around various diets. For example, Tesco’s web service helps customers follow their preferred diet by providing recipes and product lists to make shopping easier. The K-Supermarket chain in Finland offers its customers a service called Food Code, which uses receipt data to analyse the nutritional values of the shopping basket compared with recommended levels. The service is subject to a fee, and customers may analyse their shopping trolley over the internet either for a single shopping visit or over a longer period. The service enables those watching their weight to pay attention to ‘challenging points’ in their own shopping, such as products containing a lot of sugar and fats. Besides healthfulness, self-care and indulgence are a rising trend. Different health and luxury products have grown in popularity, as consumers seek to add those aspects to their lives. Indulgence products may be healthy but they do not entail abstinence. Food needs to be more than something to fi ll your stomach. Indulgence embraces many gourmet products, such as high-quality cheese and wines. High-quality chocolate is also in fashion, and some even savour chocolate in the same way as wines are tasted. Indulgence may also involve a good convenience meal, sparing the customer from having to cook. On the other hand, time pressures and fast food are offset by the trend for slow food. In some cases, the focus is shifting towards cooking and slow enjoyment of food. Many consumers are obliged to resort to fast food on weekdays, but offset it by focusing on slow food on weekends. Various home-spa products are also related to the healthiness trends. Time-rushed consumers do not necessarily have time to go to a spa, but they can create a similar experience at home with the help of retailers.
Consumers also seek adventure and experiences in products. Shopping is not supposed to be boring, but surprising and inspiring, and retailers can use this trend in many ways. The whole concept may be based on adventure. An excellent example is Stew Leonard’s, also called the Disneyland of grocery stores. Service at the store is excellent, and walking through the store’s departments offers inspiration and certainly leaves nobody cold. Individual products can also be used to create experiences. Many stores use storytelling to add a sense of adventure to products, and local products in particular often have a story behind them. Regularly renewed assortments and novelties also enhance customer experience.

In an internationalizing world, product safety is an issue that has received increasing attention. BSE (mad cow disease), avian infl uenza and other plagues as well as terrorist attacks have received considerable media coverage and made consumers cautious. Likewise, products manufactured in countries with low-cost production, especially in China, have recently hit the headlines because of product safety issues. The challenges have been caused by, for instance, the use of prohibited ingredients in manufacturing, dangerous electric devices and poisonous animal feed. Dangers are usually linked to a particular product category, such as poultry or beef, which may cause signifi cant changes in the structure of demand. In response to growing doubts, retailers and manufacturers have to work together to ensure that the products have a risk-free and safe flow in the retail value chain. A safe product offering may be used as a competitive advantage. Carrefour, for example, has advertised the retailer’s safety policies in China, where negligence has led to increased attention paid to product safety. With new packing methods, the shelf life of fresh products in particular has been greatly improved. Dates by which these products need to be consumed have become longer, and a considerable number of meat and fi sh products are now sold in manufacturer packages and not in the traditional way, at a service counter. ‘Intelligent packages’ are also emerging, especially for fresh products. These are packages that monitor the state of products and may issue an alarm if the cold chain is disrupted or if the amount of bacteria in the product is too high.
Product safety involves the tracking of product fl ow right from the beginning. This may, however, be diffi cult, particularly in the case of processed food. The fact that products are local may be a value as such and increase the trust level among customers. The same product may arouse suspicion if it has been produced abroad even though there are no differences in quality. Locality is sometimes a value in itself. An example is the Pro Mustard movement in Finland, which arose to protest against Unilever’s decision to move the manufacturing of the most well-known mustard in Finland first to Sweden and then to Poland. Former employees re-opened the factory with a new local brand. Another example is Superquinn in Ireland, that portrays the local meat producers and other farmers in pictures on the wall. This is a way of selling a story instead of just a product. At the same time, product safety has been translated into a differentiating factor and even a competitive advantage.
Green values and social responsibility are examples of other rising trends, which have a considerable impact on the product offering. Corporate responsibility and its consequences will be looked at in greater detail in the following chapter. To sum up, there is a host of consumer trends affecting retailers’ product and service offerings. Consumer groups become more heterogeneous, and the trend is strengthened by retailers with their differentiated offerings. Offerings are targeted at increasingly small segments with a wide spectrum of lifestyles. On the other hand, an individual customer may be interested in many things: the same consumer may have an interest in green values, state-of-the-art technology and fast food. With new technologies and loyalty programmes, retailers can reach the niche groups they identify through effectively focused communication.