Frugal consumers continue to look for deals both in-store and online. At grocery, almost one-third of purchases are bought on deal and online visits to coupon and reward web sites are surging. It’s important to take note of the demographics behind the growing numbers of online deal hunters:  Consumers visiting couponing and rewards sites tend to be women, over the age of 55, residing in smaller households, without children and their household income skews toward the affluent ($100K+).

While beleaguered shoppers will be looking for ways to make the season bright, retailers can do their part by bringing some much needed holiday cheer to the shopping experience:

1. Tempt taste buds with in-store tasting and cooking demos.
2. Savor the smells of the season with aroma therapy.
3. Lighten moods with music from local school bands or choirs.
4. Touch the lives of others by collecting food bank donations.
5. Switch out in-store TV ads with broadcasts of holiday classics.
6. Reward frequent shoppers with holiday prize drawings.
7. Partner with manufacturers on donations to local charities.
8. Enhance the décor with holiday decorations.
9. Serve up a smile and an appreciative attitude.
10. Respect staff workers with reduced holiday hours.

As the Internet and social media continue to play a critical role in how consumer make purchase decisions, tune into the webinar, 2009 Holiday Season: What Consumers Have In Store for Retailers This Season on November 16 to learn more.

As we previously noted, consumers have re-embraced coupons as a way to get more for their money.  In the third quarter, year-to-date coupon redemption was up 26 percent to 2.4 billion redemptions, making it the fourth consecutive quarter of growth, according to new research from Inmar in collaboration with The Nielsen Company.  During 2006-2008, coupon redemption stagnated at 2.6 billion each full year.  Inmar, which provides logistic management solutions to retailers, wholesalers and manufacturers in the consumer goods and healthcare markets, is forecasting that 3.2 billion coupons will be redeemed this year, marking a significant increase over recent years.

But while food coupons have typically driven activity, non-food coupons for general merchandise, household items and personal care drove growth in the third quarter, up 45 percent over the same period last year (food items were up 26 percent over the same period last year).  While supermarkets remain the traditional coupon redemption channel, representing 64 percent of redemptions, the dollar/discount/variety and mass merchandiser channels are up at a faster rate.

“It’s clear that coupons have increasingly become an important way for consumers to save some money when shopping.  Digital coupons are driving a huge increase in redemptions but still represent a small percentage of distributed and redeemed coupons.  Meanwhile, freestanding inserts account for almost 90 percent of distributed coupons, but just over half of redeemed coupons,” said Todd Hale, Senior Vice President, Consumer and Shopping Insights at Nielsen.  “Moreover, coupon enthusiasts buy more products per trip and generally have a higher spend per trip in the grocery and supercenter channels.  The fact is, coupons can yield a significant return on investment, and savvy consumer goods manufacturers should seriously consider how they may be able to play a role in driving sales.”

SUMMARY: When the recession ramped up, retailers responded, passing along gasoline and commodity savings to shoppers, cutting prices to sharpen their competitive edge and leveraging EDLP strategies. Consumers also responded by clipping coupons and purchasing store brands to help ease the strain on the family budget. The net result: weak or declining sales on a department, category and same-store basis. Retailers should be highly selective about which categories get earmarked for price reductions in order to realize a sustainable volume competitive advantage.

Pricing these days is a balancing act. Cash-strapped consumers are pinching every penny and comparing prices across formats, forfeiting convenience for savings. Retailers have gamely responded by sharing cost concessions, but when retailers roll back prices en masse, two things happen: 1) no single retailer enjoys a competitive advantage from price cuts, merely maintaining parity with respect to traffic, and 2) category volume increases slightly, but not enough to offset the price decline.

Consumer packaged goods unit prices have nosedived in 2009. For example, as of March 2009, Nielsen research showed prices up 4.1% over the prior year, but dropping precipitously for the next few months as price increases ranged from just 1% to 1.9%. This stands in stark contrast to January results, marked by a 5.5% unit price increase across the store, more consistent with the aggressive 2007 and 2008 pricing patterns.

Handle with care
While food staples like cheese, milk and fresh eggs led the pricing pack in 2008, those price points proved to be highly perishable. Last year’s price leaders, according to Nielsen, became the biggest losers in 2009, with eggs scrambling to maintain profitability after a 23.8% price plunge to $1.63 per unit. A carton of milk sank 19.3% to $2.38 per unit, while cheese prices were shaved by 9.6% to $2.75 per unit.

Other poor performers among the 30 categories with the most dramatic unit price cuts were diet aids (slimmed down by 8.8%), baby needs (wiped out by 7.6%), fresh produce (a limp 6.5% decline in unit price), and shortening and oil prices (slid by 6.0%). Not a single category among those recording the greatest declines managed to eke out dollar sales growth. Conversely, five of the seven categories posting the greatest price increases realized dollar sales growth for the four-week period ending in July 11, 2009

Down, not out
Most economists agree that we can expect further contraction of the economy by approximately 2% for the remainder of 2009 and that waning consumer confidence will translate into less spending at retail and lower demand for manufacturers. The key to selectively—and strategically—lower prices is price elasticity of demand.

Nielsen research on pricing and promotion shows that most categories have a price elasticity much lower than -1.0, with most falling into the -.30 and -.70 range. For a sample category with a price sensitivity of negative .40, a price reduction of 10% converts into a unit sales increase of 4.3%, but a dollar sales decline of 6.1%. The recommendation then, is to be highly selective about which categories get earmarked for price reductions in order to realize a sustainable volume competitive advantage.

Clip it or click it
As retailers and manufacturers look to keep shoppers spending—and conversely, saving—they are leveraging ways to simplify the art of coupon clipping and clicking. Multi-tasking consumers are leveraging every possible vehicle for savings, with coupons enjoying an unprecedented resurgence. One reason is renewed reach and accessibility. Thanks to Internet, mobile phone and in-store kiosk distribution methods, coupon redemptions were up 23% for the first half of 2009, and redemption growth outpaced distribution, up by 20%. Key coupon activity stats from Inmar for the first half of 2009 show 188 billion coupons distributed and 1.6 billion redeemed.

The new generation of coupons reflects the immediacy of the media, with shorter expiration periods, fewer multiples and flat values. Food items represent the most active coupon segment and the 80/20 rule runs true to form: during the first half of the year—81% of units purchased with a manufacturer coupon were from just 19% of households. Both low and heavy coupon users have stepped up clipping activity, although all but the heaviest coupon user groups experienced negative total unit growth.

Winning numbers
Free-standing inserts (FSIs), a mainstay of the grocery channel, accounted for 89% of coupons distributed and 51% of coupons redeemed. The second largest category of redeemed coupons was electronic checkout at 10%, followed by instant redeemables at 9%, instant redeemable cross ruff (a coupon that’s on, or inside the packaging of, one product but good for another) at 6%, shelf pads at 5%, direct mail and handouts at 3%, in-packs and the Internet at 2%, and electronic discounts and in-ads at 1% each.

Internet coupon redemptions grew exponentially with a 308% increase over the prior year. Magazine on-page coupons (157%), instant redeemable cross ruff (177%) and direct mail (168%) enjoyed triple digit growth as well. While redemptions for FSIs were up 31%, only 0.5% of distributed FSIs were redeemed—a much lower redemption rate than what was experienced by all other forms except for magazine on-page coupons.

Well-heeled clippers
Coupon users represent an appetizing demographic comprising younger female heads of household (54 years old and under), larger households, and more affluent families ($70k+ annual income) who reside in areas designated as “comfortable country” or “affluent suburban spreads.”

Typically, coupon enthusiasts are frequent shoppers and bigger trip drivers who patronize most retail channels serving the consumer packaged goods industry. While non- and light-coupon users book bigger shopping trips—stocking up because of the lack of frequency—coupon enthusiasts represent the second biggest per-trip spenders in the grocery channel.

Store brands soar
In every downturn, there’s a beneficiary, and at grocery, it’s private label. For the year ending July 11, 2009, store brands hit an all-time high for dollar (16.9%) and unit shares (21.5%). Even as store brands continued to flex their marketing muscle in edible categories, they also racked up gains in the non-food, health & beauty and general merchandise departments. Lead brands—the number one or two brand when a store brand was the category leader—generally held their own against the onslaught of private label. Private label share gains were primarily at the expense of all other brands.

Store brand sales levels and growth are still skewed to edible categories, but store brand growth (not share) in non-food, health and beauty, and general merchandise departments has been generally stronger than brands. Store brand share development is greatest in commodity categories (e.g., milk and eggs) or those with little differentiation (e.g., first aid and pain remedies). As might be expected given their value positioning, store brand development lagged in categories with high levels of marketing support and those requiring high levels of innovation like beer, candy and health & beauty.

Accelerated development
What’s behind the surge in store brands? Which shoppers are most likely to purchase store brands at an account? Do their brand preferences differ by department or category? Shopper behavior across lead retailers within four different formats was analyzed, drawing on Nielsen consumer panel data.

Topline results reveal that the Kroger demonstrated the greatest—and most consistent—growth in store brand sales from low to very high spenders. Slower store brand growth was detected at Costco and Walmart, with Walgreens ringing up a second place ranking on store brand sales growth. In all four retailers, shoppers (even among very high-spend shoppers) are far more likely to seek branded offerings when shopping competitive retailers. Retailers need to understand if competitive shopping is driven by not having the right branded assortment in their stores or from competitors offering greater branded value or less store brand focus.

Walmart was the only retailer where their shoppers devoted a greater share of their total spend to store brands when shopping in competitive retailers.

While brands drive the majority of category dollar and unit sales, further store brand expansion is likely given the slow rate of economic recovery and the strong retailer focus against store brand label initiatives. Kroger, Walgreens, Walmart, SuperValu and other retailers have expressed the desire to expand store brand presence along with assortment cuts to reduce store clutter and improve store shopping experience. And retailer store brand focus has never been greater as there are better quality offerings, expanded assortment, and increased marketing muscle and support.

Small and mid-tier brands remain at risk from private label poaching as retailers push to shelve house brands. Unless these smaller brands are unique or niche brands, their manufacturers may initiate or expand into private label contracting or pursue direct-to-consumer options. In any case, these brands need to proactively leverage analytic insights to demonstrate why their brands are deserving of shelf space.

Tread carefully
A word of caution to retailers: don’t let price gaps between store brands and brands get so large that they drive declining category sales. While price decreases benefit consumers, both manufacturers and retailers would be rewarded with lower sales. And with more and more consumers turning to coupons in this tough economy, continue to make usage easier with increased distribution and delivery methods. Finally, promote store brands with brands where there is limited shopper overlap to drive category sales and along with non-competitive or complimentary branded offerings to build larger baskets.

SUMMARY: Four mega trends—convenience, Generation Y consumers becoming of age, increased broadband penetration and customization—have come together to fuel growth in the online grocery market. While the online channel is still small for the food and beverage sector, it is poised for growth. What are the key drivers behind the revitalized online grocery movement and how do consumers use the web, social media, and other online tools to plan purchases? Now is the time for retailers and manufacturers to maximize opportunities in this re-emerging market.

Since the early days of the Internet, companies have tried to capitalize on online grocery. Some have failed, some have held their own, but none have revolutionized the way consumers think about shopping for groceries. But now—almost a decade after the dot.com bubble burst—online grocery is beginning to show resurgence, powered not by venture capital dollars but by sustainable growth plans, broadband Internet and increasing consumer interest.

Online grocery shopping is poised for growth, currently at the intersection of four key mega trends:

1. Convenience—the growing need for convenience has already transformed the packaged goods industry
2. Generation Y—Gen Y shoppers are approaching grocery-buying age, and are comfortable doing so online
3. Broadband Internet—Almost two-thirds of Americans have broadband Internet access, making online grocery shopping easier and quicker
4. Customization—Digital platform allows online grocers to personalize the shopping experience

Poised for growth
With approximately $3.75 billion in online sales in 2008, online is a small but expanding channel for the food and beverage industry. Even though the majority of grocery shopping occurs offline—online purchases accounted for less than 1% of all food and beverage sales in 2008—on average, shoppers tend to spend twice as much online as offline when making food and beverage purchases.

Three variables lead to bigger basket sizes:

• Free shipping and minimum order requirements encourage shoppers to spend more
• Online grocery shoppers tend to be upscale shoppers and purchase expensive, niche products
• No heavy lifting—shoppers avoid lugging groceries

Shopper profiles
Two key differences distinguish the current online grocery shopper from their offline counterpart: income and household size. Online grocery shopping skews to upper-income “established” adults ($100K income per household) residing in smaller households (1-2 members) with no children. These consumers are more willing to pay the shipping fees and premium prices typically associated with online grocery shopping in exchange for the convenience and other benefits of online.

Time-starved large households, on the other hand, represent an untapped opportunity. Online grocers need to ensure that the process is easy and convenient enough to address the hectic lifestyles of large families.

Convenience drives satisfaction
While the majority (70%) of online shoppers reported having a positive shopping experience when purchasing groceries online, some attributes weigh more heavily than others as important drivers of satisfaction, as reported in a March 2009 Nielsen survey. The research revealed three key motivating factors that entice consumers to shop for groceries online: convenience, product selection and pricing.

Convenience—consumers like the ease of filling up a grocery cart with a click of a button any time of day, from any location. Online shoppers can stock up on staples without carrying heavy packages. Many online grocers offer automatic replenishment options so the consumer never runs out. Finally, online grocery shoppers avoid commuting, crowds, waiting in line, and inclement weather.

Product selection—virtual shelf space allows grocers to offer a wider product selection and in-depth product information, which is especially helpful for shoppers with dietary restrictions.

Pricing—comparisons are easier to do online, and running shopping-cart tallies help buyers stick to a budget and avoid impulse buys.

Frustrating fees and wait times
While shopping online has clear benefits, there are some barriers that impede acceptance. In the Nielsen survey, 65% of respondents indicated that the cost of shipping was the biggest barrier to purchasing groceries online. Additionally, a lack of control concerns some shoppers. Not only can shoppers not personally choose products, but waiting for the delivery can be perceived as countering the time-savings and flexibility of shopping online. Forty percent of consumers cited waiting for delivery as an obstacle. Other obstacles include issues with security/privacy (35%), not being able to use coupons (30%) and a perception of online as more expensive (30%).

Despite the clear benefits, many still consider online grocery shopping an indulgence—some who enjoy it seem a bit embarrassed, characterizing their decision to shop online as a form of “laziness.” As the market matures however, this perception should fade. And while most people are not accustomed to buying groceries online, this too will erode over time as Generation Y reaches grocery-buying age.

Lessons from abroad
The online grocery shopping market in the United Kingdom is more mature than that in the United States. Almost one-fifth (16%) of all British households have purchased groceries online in 2008—double that of American households. Similar to the U.S., online grocery shoppers in the U.K. tend to be more affluent. However, unlike the U.S., British buyers have larger, younger households.

Over the last three years, apprehension about online grocery shopping in the U.K. has shifted from fear of the unknown to practical matters. In 2006, the biggest barrier for British shoppers was not being able to personally choose products. This fear has decreased dramatically, and by 2009, the percentage dropped 15 points from 29% to 14%, providing a window of hope that U.S. shoppers will follow suit as the market matures. Similar to the U.S, the main concerns of British shoppers today include delivery charges and delivery time.

Successful endeavors
There are a number of initiatives that have worked successfully to boost the online grocery market in the U.K. One of the reasons online grocery shopping is more popular in the U.K. is the strong competitive market and heavy marketing support that is driven by four major national chains. Unlike in the U.S., British grocers use traditional media to promote their online shopping services—even creating ads that focus on a particular aspect of the shopping services, such as flexible delivery times.

Additionally, U.K. grocers are national chains as opposed to the mainly regional chains in the U.S., which facilitates ‘national’ pricing and makes it less confusing and easer to compete. Price wars between Tesco and Asda, for example, have driven price down and interest up. Another method used effectively includes the “switch and save” offer. Consumers are presented with similar product pop-ups offering much cheaper alternatives (usually private label brands), which have been known to achieve 40% click-through rates.

Importantly, distribution networks and availability of products have been greatly improved. British grocers are using online shopping to fill in regions where they have less brick and mortar stores. For example, Asda (owned by Walmart) has fewer stores in the southeast region and uses online shopping to fill the gap. Finally, customer service in the U.K. is strong, offering free delivery, allowing customers to choose delivery time slots, and using fewer bags to be environmentally friendly.

Making connections
The digital platform provides grocers with the unique ability to connect with and engage shoppers—value is not limited to grocers selling products online. From product selection to meal prep, shoppers are using the Internet as both an informational and inspirational tool. Online grocery shoppers are more than twice as likely as the average Internet user to read and post product reviews, download coupons, search for recipes online, and access the Internet through their phone.

Grocers can use their website to support the in-store experience by providing digital coupons, shopping lists, recipe ideas, advanced filtering by dietary needs, automated re-ordering and store availability searches. Mobile presents grocers with an additional touch point to engage shoppers via mobile coupons and grocery lists. Grocers need not be responsible for all content on the Web site; they can enlist manufacturers to maintain branded or sponsored sections of the web site. For example, a health-oriented brand could power a calorie counter on the grocer’s site, or an ingredient manufacturer might sponsor podcasts with celebrity chefs.

The bottom line is that online grocery represents a largely unrealized opportunity, but grocers must work to build awareness and establish the value proposition. The process needs to be easy and convenient, and online grocers must educate shoppers about the benefits in simple terms: buying groceries online saves time and money—two considerations that every shopper is looking for.

Download: Nielsen Online Grocery Report [pdf]

At the same time, technology is having a measurable impact on retail sales.  In a recent U.S. study, Nielsen measured more than 200 digital ad campaigns and found the following:

• Average of 32% sales increase
• $1.1 million hike in short-term incremental sales
• 157% return on investment
• 18% boost in penetration
• 14% surge in buying rate

In addition to online ads, retailers are using scanning technology to enable consumers to check-out faster, create and retrieve shopping lists and even find and print recipes.  Read more about how technology is transforming both the retail environment and consumer shopping experience in the new edition of Consumer Insight.

Howard Shimmel, Senior Vice President, Client Insights, The Nielsen Company

SUMMARY: While the economic downturn is affecting everyone, not all consumers respond in the same ways. Nielsen’s segmentation analysis pinpoints which consumer segments offer the most opportunities—and most challenges—for marketers.

With the country’s economy in the midst of a long-term recession, the behavior of American consumers is changing. The consumer confidence index reached an all-time low at the end of 2008, and spending is dropping rapidly. Although the downturn is seemingly affecting everyone, consumers actually respond in ways that vary significantly. And while almost everybody is cutting back, there are many different methods to trim costs. Looking at these differences can create opportunities for manufacturers and advertisers, even during a prolonged recession.

All consumers are not alike
In order to analyze how the economic downturn is affecting consumers differently, Nielsen created a segmentation that divided households into groups based on their behavior and reaction to the decline. The recession analysis groups consumers into eight segments. The segments range from the “Recession Indifferent”—those who do not alter their purchasing habits at all to the “Panic Stricken”—those who take drastic action to greatly reduce living expenses and cut back in all departments to do whatever it takes to save money.

The remainder six consumer groups are classified by their saving methods and are categorized as:

• Recession Insensitive—only slightly affected by the downturn and will cut back on spending for luxuries such as entertainment and dining out.
• Switch to Private Label—tend to be younger, larger households known as “young, bustling families” and often represent plain, rural living. They buy generic brands or store labels.
• Light Coupons & Sales—typically represent older and smaller households who take advantage of light coupons and sales.
• Stock-up & Save—generally older couples who live in a comfortable affluent situation and are know as “empty nesters”. This group remains loyal to name brands, but depends on coupons and sales to stock up while they can.
• Switch Stores for Best Deal—consumers who typically live in cosmopolitan centers and will switch stores looking for the best deal.
• Brand Disloyal/Promo Sensitive—these consumers will switch from name brands to generics or brands on sale looking for the best deal.

It’s more than just income level
Interestingly, income alone does not have a direct correlation with the economic impact segmentation. More than half (57%) of the “Stock Up & Save” consumers earn over $50,000 per year, compared to only 47% of the those in the “Recession Insensitive” group. Likewise, a higher percentage of people with lower incomes are in the “Switch to Private Label” group than in the “Panic Stricken” segment. Other characteristics such as household size, age and location are also factors in consumer’s ability to tolerate a recession. Which is why trying to reach “Recession Indifferent” consumers with an advertisement by targeting higher incomes is probably not efficient.

With the consumer landscape divided between consumers who seem to be minimally impacted by the recession and those who are extremely impacted, it’s vital for advertisers to effectively reach those consumers who will continue to spend through these tough times.

Connecting consumer behaviors
In order to guide that strategy, Nielsen executed a custom data fusion, linking households in the Nielsen Homescan Recession Segmentation (product-scanning households) to the Nielsen National People Meter panel (TV-viewing households). This provides a clear picture of the media habits combined with purchasing patterns of the various segments in order to identify optimum media strategies that best reach those consumers who are least affected by the economic downturn.

Being that income was not a primary determinant of the recession segmentation, there were no major differences in TV viewing by recession segment, with one exception. The most recession-impacted segment—the “Panic Stricken”—watch between three and four hours less TV per week than the other segments. The least-impacted groups, “Recession Indifferent” and “Recession Insensitive”, watch the same amount of TV each week as the general population.

In terms of Internet use, the heaviest user segments—measured by the percent that were active online and the amount of time spent online—are the “Switch Stores for Best Deal”, “Stock Up & Save” and “Recession Indifferent” groups. The least-active segment is the “Switch to Private Label” group.

Where to reach recession-proof consumers
To ensure that media schedules effectively reach the least-recession impacted segments—“Recession Indifferent” and “Recession Insensitive” consumers—a more in-depth analysis of program genres and popular websites is necessary. While Nielsen data shows that these groups reported average TV viewing and average Internet usage, diving deeper into the specific program genre and web site genres revealed important learnings.

“Recession Indifferent” and “Recession Insensitive” consumers are attracted to different genres of TV programs. “Recession Indifferent” allocate a higher share of their viewing to Sports and News programming, indexing higher than average at 109 and 106 respectively for that group compared to the total audience. “Recession Insensitive” allocate a higher share to Comedy and Quiz shows, indexing 102 and 101 respectively.

Although “Recession Indifferent” and “Recession Insensitive” groups may be watching different TV shows, their online surfing habits are somewhat similar. The best places to reach them are on news/information sites and search or community sites. They are less likely to visit family/lifestyle sites.

To weather this volatile economic climate marketers need to spend their advertising dollars where they have the most impact. The ability to target and reach an audience based on their purchasing habits during difficult economic times can help reduce the impact of these recessionary times.

For our March 11 webinar, “Retail Recession Realities,” I’ll be recommending coping strategies for retailers dealing with the ongoing economic crisis. The news has gone from bad to worse in the past six months, but there are approaches retailers can take to survive the lean times and even come out ahead when (dare I say it?) the economy recovers.

The Web offers opportunities for growth like no other channel. Quick case in point – readership of traditional offline newspapers has declined significantly of late, and with it, the consumption of newspaper circulars. Meanwhile, visitors to online coupon sites increased 42 percent from December 2007 to December 2008. And while an increase in visitors usually leads to a decrease in average time per person, in this case time spent is also up by 28 percent year-over-year, indicating that visitors are more thoroughly engaged.

Learn more and register for the webinar at Nielsen Online.

This article was originally featured in New Media Age Magazine.

The downturn in the economy has effectively rebooted the growth of the internet in terms of the time people spend online and the number of sites they visit. Over the first nine months of the year, people weren’t spending more time online than they did in the corresponding nine months the previous year. The average year-on-year growth each month, in terms of average time online per person, was just 1%.

Between March and June 2008, people actually averaged less time online than they did in the same period in 2007. However, during the last quarter of 2008 they spent 22% more time online than in Q4 2007.

The degree to which people are increasingly turning to the internet as a financial first-aid kit is shown by the fact that the two fastest growing sectors in 2008 were Free Merchandise and Coupons/Rewards (see graph). The latter sector was visited by 9.8m Britons — more than one in every four people online, compared to around one in every seven people a year ago. The tenth-fastest growing online sector was Loans, which grew by 55%, again far outstripping the overall internet growth rate of 11%.

In the first half of 2008 people visited 8% fewer sites than they did a year before. Yet in the second half they visited 7% more sites. The plateauing of behaviour consequently meant growth could only be achieved at the expense of someone else. The economic environment, perversely, seems to have changed this. For example, consumers in the Coupons/Rewards sector now visit 2.3 sites on average, compared to 1.7 a year ago — a small increase but relatively significant (38%). The two most popular sites in the sector, Nectar.com and MyVoucherCodes.co.uk, shared a very small audience. In December 2007, only 5% of people who visited Nectar also visited MyVoucherCodes; in December 2008 this figure had almost quadrupled to 19%.

Opportunities for growth in the current economic climate can be discovered by looking at which age groups are exhibiting large changes. For example, the biggest increases to the Coupons/Reward sector were among 12-17-year-old girls (an 184% increase in their numbers), men aged 18-24 (166% increase) and 55-64-year-old women (155%). What this shows is the economic situation is affecting people’s activity online across the board and the opportunity is there for everyone online to profit, particularly if they promote the web’s money-saving capabilities.

By: Todd Hale, SVP, Consumer & Shopper Insights, The Nielsen Company

CI SUMMARY: Poor people need low prices. Rich people love low prices. Either way, these are happy days for the promotion industry, as manufacturers and retailers update time-proven promotional techniques and unleash a new arsenal of Internet and wireless-based delivery systems.

Let’s make a deal! In good times or bad, everybody loves a bargain. It’s validating. It’s empowering. It can even make us spend more than planned. Given the extreme volatility in current financial and employment markets, buying on deal will increasingly become the norm for cautious shoppers trying to balance the household budget.

Promotions already represent a universally popular marketing tactic, with some $129 billion of promoted dollar sales rung up across all categories in food, drug and mass merchandise outlets (excluding coupons) according to Nielsen in the year ending July 2008. Fully 35% of dollar sales were sold on promotion—temporary price reductions (TPRs) accounted for 16%, feature ads another 10%, displays added 6% and a combination of features and displays contributed 4% to the total.

The drug channel is slightly less promotionally-driven than grocery, with 31% of items sold on deal vs. 36% at food stores. The majority of drug outlet promotional sales (15%) were stimulated by feature ads, while TPRs led the way at the more promotional-sensitive grocery channel (17%).

Heavy lifting
Products in search of a dramatic sales jolt should consider a combination of feature ads and displays, which pumped up dollar sales by 180% on average in the grocery channel and 124% at drug stores. Display-only, feature-only and TPR grocery promotions outpulled drug channel results by 21%, 14% and 9%, respectively.

Holidays are happy times for buyers and sellers alike, as base and incremental sales spike in the traditional December shopping period. Last Thanksgiving, shoppers bought nearly 40% of consumer packaged goods on some type of promotion. Easter sales were not much different, with 37% of product sales promotionally-driven. On Memorial Day and July 4 th, patriotic consumers marched through check-out with 35+% of the basket on deal.

Gainers & losers
Promotional popularity across categories can wax and wane with inflation. Nielsen reports that bottled water, frozen unprepared meat and seafood, candy, batteries/flashlights, liquor, breakfast foods, frozen novelties, teas, nuts and non-carbonated soft drinks recorded the largest increases in promotional support from July 2004–2008, most likely driven by new product introductions.

Conversely, refrigerated juices and drinks, canned seafood, eggs, diet aids, shelf stable meal starters and frozen juices and drinks fell off the promotional wagon, reporting the largest decreases in promotional support during the same time period, most likely attributable to inflationary pressure on suppliers that got passed along the food chain.

Coupon-ometrics
To sketch a clearer picture of the coupon constituency, some 68,000 Nielsen Homescan panelists were segmented into five groups based on annual coupon use across categories. These cohorts ranged from non-users who never presented a coupon, to super-low users who bought fewer than 5% of units on coupon, to low users who purchased 5-20% of units on coupon, to medium users in the 20-40% redemption range, to heavy users purchasing 40+% of units on coupon.

Overall, coupon-using consumers comprised 86% of households and drove 89% of all-outlet dollar sales. However, it was the low and super-low coupon users who represent the greatest volume opportunities as they drove the majority of dollar sales. Low coupon users (26% of households) made up 28% of dollar sales and super-low users proved to be a super big segment, accounting for 50% of households and 51% of dollar sales. In contrast, heavy coupon users spend the least annually, contributing just 3% of total dollar sales, medium coupon users rang up 8% of total dollars and non-coupon users delivered 11% of sales.

Coupon heavyweights
Based on overall volume, marketers looking for the sweet spot among coupon users should incentivize trial by targeting the low and super-low segments, which account for three-quarters of households and 80% of non-promotional dollars. Some consumers appear to “cherry pick” scheduling purchases around special deals—such as the very promotion-sensitive heavy user (54% of product dollars on deal) and medium user (41% of product dollars on deal) groups.

Heavy coupon users shop more often, making 85 grocery and 28 drug store trips per year versus 44 grocery and just nine drug store trips for non-users. Another measure of shopping “addiction” is the total trip index, which compares the percent of trips per group with its incidence in the population. A trip index value of 100 means that a segment comprising 50% of households also accounts for 50% of shopping trips. A score >100 means the group is disproportionately active; a score <100 suggests lower than expected activity.

Heavy coupon users index at 197 for drug store shopping trips, almost double the expected frequency, and almost 50% more for the news/bookstore, grocery and home delivery channels.

Demographic balance
From start-up families to senior singles to empty nester households, there is not a great deal of variation in terms of coupon usage. Nielsen found that across all categories, coupon usage has broad appeal. There are, however, some exceptions that translate to big opportunities. For example, within the heavy coupon user group, families are underdeveloped. With more mouths to feed, noses to wipe, and bodies to clothe and clean, this high-volume demographic segment represents a real volume opportunity to use more coupons and drive sales.

Manufacturers and retailers should look for ways to make it simpler for households to both receive and redeem coupons. Today, manufacturers and retailers are bypassing some direct mail efforts and offering e-mail—or in some cases, mobile-phone—coupon offers, to their shoppers. These methods still require too much action on the part of consumers. Current and future technology could be better leveraged to simplify the process and grow coupon usage.

Race for dominance
Technophiles take note—your day has come. Nielsen experts analyzed current promotional activity and made some predictions regarding the featured roles of the Internet, credit cards, frequent shopper programs, mobile phones and in-store options in the promotional world of tomorrow. Here’s what’s ahead for today’s coupon shopper:

1. Reduced reliance on paper-based feature and coupon circulation.
   A race for dominance is taking place with computer-based Internet applications, mobile phones, credit cards, frequent shopper cards and in-store applications. Global positioning systems (GPS), radio frequency identity tags (RFID), eye movement tracking cameras and similar devices will enable location- and interest-specific promotional offers to be delivered at actionable sites.
2. Electronic or store entrance coupon delivery.
   Instead of tagging consumers as they leave the store post-purchase, next generation systems will deliver coupons via mobile phones, via Internet or via in-store devices when shoppers enter the store or are in the mood and in the aisle, ready to buy.
3. Smart appliances provide in-store shopping assistance.
   What’s for dinner tonight? Visit the produce or meat department and allow your personal chef avatar to generate some electronic menu suggestions and automatically create a shopping list with aisle and item locator cues.
4. Stores offering engagement and entertainment opportunities.
   Look for personal shopper holograms to guide you through the store or shelf talkers activated by your cell phone to offer up special discounts. Walmart has pledged to invest $10 million and two years of testing to determine the optimal placement of in-store screens and special shopper programming.
5. One-to-one personalized promotions.
   Stores will become increasingly interactive and consumer-specific, marrying data from multiple sources to deliver an involving shopping experience that reflects individual interests and buying preferences. Social networks based on shopping proclivities will be formed to build demand and drive sales.
6. Integrated strategic promotional planning.
   Shopper marketing comes of age, dominating the retail landscape, displacing product-centric marketing planning. Technology enables a holistic planning approach that puts the consumer front and center while “benefitting the brand, the consumer, the shopper and the retailer”.

The bargain hunters of today will become the treasure hunters of tomorrow, discovering all the once-buried items store-side that will be presented to them as they stroll the aisles. As envisioned, it will be an effortless and entertaining way to feed body and soul, and Nielsen has the infrastructure in place to track these multiple media touch points in order to accurately measure the return on marketing dollars.

With the holiday shopping season about to begin, Nielsen offers U.S. retailers and marketers five key insights to aid in attracting and retaining the loyalty of increasingly value-conscious American consumers.

1. Stick To The Basics

Necessities — rather than novelties and luxuries — are expected to drive holiday sales this year.  Practical apparel, like socks and fleece jackets, and basic household products, such as diapers, household cleaners, pet care products, and food items, are all expected to see strong sales.

2. Staying In Is The New Going Out

Items that are well-suited for in-home consumption — food, beverages, DVDs, books, and games — are also expected to sell well during the holidays and into 2009, as consumers increasingly seek out less expensive entertainment at home.

3. Value Brands, Coupon Clipping Gain Mass Appeal

Consumers are increasingly “trading down” from higher-end retailers and brands to retailers and brands associated with greater value.  Some consumers may also replace more expensive fresh foods with canned and frozen varieties.  Look for coupon clipping to become a necessity for many families.

4. Where It’s At

Online retailers, dollar stores, grocery stores, supercenters, mass merchandisers, and club stores are expected to attract the lion’s share of holiday spending, as consumers seek to minimize the number of shopping trips they make — and find good values.  In contrast, department stores and retailers of electronics, toys, home improvement supplies, and office supplies are likely to feel the brunt of the economic slowdown as consumers shift their purchases to more value-oriented retailers.

5. Perceptive Marketing Is Essential

Marketing messages that acknowledge consumers’ financial challenges and clearly communicate a brand or retailer’s value proposition will build consumer loyalty now, in the short term, and for the longer term economic recovery.

Read Nielsen’s holiday sales forecast.

View in depth Nielsen data on consumer holiday spending projections.

Go behind the numbers: read NielsenWire’s Q&A with James Russo, co-author of Nielsen’s holiday retail forecast.

Submit questions about Nielsen’s holiday retail forecast co-authors, James Russo and Todd Hale, by commenting below.