value insights

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.