With the nation seemingly emerging from recession, American consumers remain skittish about spending their money during this upcoming holiday season according to new research from The Nielsen Company.  Households continue to focus on “essential gift giving” such as staple consumables, candy, beverage/alcohol and entertaining at home, and 86 percent said that they expect to spend the same or less this year than last — with a 7 percent increase in those indicating they would spend less.  Overall, Nielsen is projecting that holiday sales will rise 0.03 percent this year, accounting for $90 billion in dollar sales.

“Given everything the consumer has absorbed over the past 12 to 18 months, the fact that we expect this coming holiday season to be flat in dollars can be viewed as a modest positive,” said James Russo, Vice President, Global Consumer Insights at The Nielsen Company. “Americans have undergone a fundamental change in how they spend their money, and the days of stretching finances to make purchases not deemed as necessary are over, at least for the time being.  That said, our research has shown that consumers are looking forward to loosening their purse strings a bit, but only once they feel more confident about the state of the economy and their personal financial situation.”

Update: James Russo Discusses Holiday Spending on CNBC

Other key findings from the research include:

• Traditional items such as apparel, toys and technology will be most popular categories, albeit at restrained levels and primarily sold in “value” channels.
• Products aligned with at-home entertainment such as cookware, kitchen items, bed and bath accessories and alcoholic beverages will do well.
• Gift cards are one category where consumers plan to spend more this holiday season, followed by toys and apparel.
• Value retailers such as dollar stores, online, discounters and club stores will attract the lion’s share of holiday spending as consumers minimize trips and search for the best values, while office supply, pet stores, home improvement and drug retailers are likely to feel the brunt of the economic slowdown.
• Some 20 percent of households said that they had no plans whatsoever to entertain at home or away from home during the holidays.
• Spending cut-backs are being driven by all income groups.

So how can retailers make the most of this season? They need to recognize that U.S. consumers are, first and foremost, seeking value and will start their holiday shopping well before Thanksgiving.  They should also reach out to their best customers and make them feel special and give them a reason to shop at their outlet during the season and into 2010.   Successful retailing has always been about delivering the right product at the right price and in the right place.  The difference now is effectively mining and communicating to the right consumer as an active participant in driving growth.

The way consumers shop for everyday products continues its transformation towards the Web. In 2008, online retail accounted for approximately 7% of total retail sales in the U.S, with 1.5% of consumer packaged goods (CPG) spending done on the Web.

In the future, your children will likely conduct the majority of their shopping online. While online shopping accounts for a modest percentage of today’s sales, it is growing rapidly – Nielsen estimates that online CPG sales alone increased 25-30% between 2004 and 2008. And there are compelling reasons to believe that growth will continue, as overall online sales are projected to increase almost 200 percent between 2008 and 2012.

Shopping Evolution Centers on Convenience, Choice and Value

Shopping has evolved along three dimensions, with each new phase increasing consumer convenience, choice and value – the three main reasons consumers shop online today. Online shopping redefines convenience and choice and equips consumers with unprecedented way to seek value.

Convenience – online is a simpler, faster, more hassle-free way to shop for frequently purchased products.

Choice – online offers more variety, which services like Peapod’s “endless aisles” clearly demonstrates.

Value – while value isn’t the primary reason most consumers shop for “everyday” products online today, it will become increasingly important as e-commerce becomes more mainstream. Tools to rapidly compare product prices already exist and online coupon sites have become the rage in the down economy.

Smaller, Niche Retailers Can Reap the Benefits of an Online Presence

Whether searching for solutions to a specific need, directly accessing retailer Web sites or deciding to click on an advertisement or link, consumers have far more control over what they are or are not exposed to online than offline. This offers smaller brands the opportunity to generate an online presence that is effectively larger than their big brand counterparts are, while serving up compelling messages and undercutting leading brand prices – all at the point of purchase.

Take the beauty care category as an example. Boutique retailers with fewer stores and lighter foot traffic than the large offline chains are as readily accessible on the Web as a Walmart or Target, which sometimes do not carry the leading offline beauty care brands on their Web sites.

What is interesting to note though, is that the online commercial challenge for leading consumer brands has less to do with the “long tail” than with the collapse of physical structures that literally help distance leading brands from smaller brands offline. It is not the number of brands available online that matters, but that there is less separation between them, which levels the playing fields, creating a flatter, broader marketplace for everyday brands.

To learn more about digital opportunities for leading brands, download Building Great Brands in the Digital Age: Guidelines for Developing winning Strategies.

SUMMARY: Advertisers are aiming to reach the value-minded consumer with creative advertising executions that deliver recession-themed messaging. Nielsen IAG examined 67 value-themed ads across 11 national advertisers and found that breakthrough retention rates were not as expected. It turns out that the same creative attributes that make for good advertising also make for good value-message advertising. Discover which ones worked and why.

Recession has gripped the economy since December 2007, but by the time it was officially declared a year later, the announcement only affirmed what had already been felt by consumers for many months. Consumer confidence had already plunged 17 points from the second half of 2007 to the first half of 2008. Although it leveled off by the second half of 2008 and through the first h alf of 2009, it has remained in a trough—about 20 points below 2007 levels.

National TV advertisers also began reacting to the recession before it was declared—a deluge of value-focused ads began appearing in the second half of 2008, and value

brands honed their messages to fit the economic environment.

Consumer or consumed?

If consumer state of mind is any indication, receptivity to value-message advertising should be strong. The American Psychological Association reported in February 2009 that 80% of Americans were stressed due to the economy. And behavioral indicators are confirming that sentiment as consumers are seeking value—spending less and saving more. Nielsen reports that 61% of consumers are using coupons and sales, stocking up, switching brands—especially to private label brands—or switching stores. They are also saving more, putting off buying new cars, and even pulling back on buying property, life and health insurance.

Capturing a captive audience

“Staying in” has become the new “going out” and cocooning consumers are tuning-in to television at record-breaking rates. In Q4 2008, time spent watching TV in the home per month reached a historic all-time high, and then went even higher in Q1 2009 when it topped 153 hours.

Capitalizing on a new consumer mindset, advertisers have flooded the airways with recession-themed commercials. But do these value-messages capture more consumer attention?

Breaking through

In a review of TV ad recall, Nielsen IAG found that value-message and recession-themed ads did not breakthrough TV ad clutter at higher rates than ordinary ads. In fact, across an identified set of 67 value-message or recession-themed ads across 11 national advertisers that aired between late 2008 and early 2009, ad recall was slightly lower than the advertisers’ own historical averages in most cases.

Across the spectrum, retention rates varied. Consumer packaged goods brands within this group saw no decline in their breakthrough rates on the whole; retailers saw minor declines; financial services, insurance, automotive and telecommunications advertisers tended to see significant declines.

Yet, not all advertisers who saw a decline in their breakthrough rate were necessarily unsuccessful with their value/recession ads. Breaking through to the widest possible audience certainly plays an important role in ad impact, but for some ads, a moderate breakthrough rate combined with a high-impact message was enough to get the desired effect.

High-performers

A case in point is the value/recession auto campaign that topped Nielsen IAG’s list for surpassing the advertiser’s own ad performance norms. One Asian auto maker addressed the anxieties of potential car buyers head-on by delivering a unique, innovative and timely buyer protection offer, allowing the owner to return the car without damaging his/her credit score in the event of job loss.

Although it was not the best remembered (auto ads tend not to be well-remembered among general audiences), it was the best liked value/recession campaign and the strongest message conveyor among the smaller base of viewers who recalled it. Most importantly, it generated more ad performance improvement for the advertiser than any other campaign studied. It may also have been the most written-about campaign of the TV season, raising the auto makers profile as a challenger to two bigger American motor companies that spawned rival offers.

Proving that getting a jump on competitors with a unique value message pays off, the Asian carmaker returned far better sales results than its domestic competitors. Its sales were down just 1.5% in March 2009 vs. 50% for the American rivals in the same month. Yes, in a deep recession, success may be measured in terms of minimizing revenue losses. But the Asian carmaker continues to see U.S. market share gains.

This example illustrates another important finding about value/recession ads. When a creative campaign is designed around the message, it often inadvertently sacrifices breakthrough. Apparently, entertainment value is dampened when the value/recession theme is dialed up. And viewers look to TV primarily to be entertained—perhaps even more so in a recession. Hitting the bull’s-eye with its message, the Asian carmaker overcame the handicap of lackluster breakthrough.

But what happens to advertisers without a ground-breaking value message?

Messaging masterpiece

Walmart and Target came aboard the recession-themed bandwagon in late 2008 with new value campaigns. For Walmart, value has always been a central message, but the shift from “Always Low Prices,” to “Save Money. Live Better” signaled Walmart’s acknowledgment of a tougher economic climate for customers. They showcased a series of ads that demonstrated how to stretch a budget with lifestyle trade-offs, including:

• Buying a coffee maker for home-brewed coffee vs. daily coffee shop coffee (save $400/yr.)
• Making home cooked meals vs. dinner out for a family of four (save $425/yr.)

The ads were short and straightforward with a clear message echoed in the voice-over and in the visuals. They were not blockbuster ads by any stretch of the imagination, but they did capture more viewer attention than Walmart’s previous ad campaigns and gave the retailer a slight edge in the crowded world of retail advertising at a crucial time when consumers were actively seeking value

Messaging miss

Target on the other hand, had less impact with its “Brand New Day” campaign, which also conveyed lifestyle trade-offs, including:

• The New Movie night—a DVD
• The New Vacation Glow—self-tanner

The campaign married Target’s playful style-focused approach with the recession-themed message, but the feel-good visuals and music arguably overshadowed the value messaging, and it fell short compared to Walmart’s more direct and unambiguous approach.

In its later ads, Target took a completely different path when it introduced the moms who “love Target” because they can get “bargains on basics” and “steals on staples.” The new creative did indeed have more overt messaging, but it came at a price. Without Target’s iconic and stylish visuals and music, viewers were less able to connect the ads to the retailer

Staying true

Brand equity is precious. The core messages associated with a brand will be the ones that consumers are most likely to remember—even when presented in a new way. It may also follow that the primary reasons why consumers bought the brand in the first place will be the same reasons they continue to buy the brand.

Take the example of a major consumer packaged goods manufacturer that launched two similar creatives which were simultaneously aired in late 2008 supporting the message that their brand was an economical way to feed the family. While both ads conveyed this essential campaign message, the second one also utilized the brand’s traditional nutrition/taste message.

Viewers of the second ad had no trouble recalling the nutrition/taste message, but viewers of the first ad were hard-pressed to accurately recall the ad’s value message. This is more remarkable considering that recall measures were based on real-world viewing of the campaign and that most consumers would have been exposed to a heavier dose of the value message because it was in both ads.

Guiding principles

Ultimately, whether an ad is value-focused or not, success is highly dependent on creative execution. The same creative attributes that make for good advertising also make for good value-message advertising. Some rules-of-thumb include:

• Give viewers a reason to watch;
• Be entertaining;
• Use easily recognizable brand cues;
• Have a clear and simple message;
• Don’t cram too much information into a single ad;
• Keep the visuals uncluttered.

Contact us to learn more.

The economic downturn continues to put stress on consumers, resulting in accelerating changes in basic purchasing patterns. An important part of the overall equation for consumers is the relationship between price and value. As consumers develop new value systems, how should manufacturers and retailers view and manage the other side of the equation-price?

If your business models and pricing strategies pre-date recent changes in the economy and consumer behavior, you could be headed for trouble. Perhaps now more than ever, pricing can serve as marketing’s most powerful lever to drive performance. We all realize we’re dealing with unprecedented circumstances, and need to act, but what are the guiding principles for successful price planning? These Six Keys for Successful Price Planning provide a roadmap for marketers to navigate through our new pricing environment.

Download the complete Price Planning whitepaper.

I recently shared some thoughts on how CPG manufacturers can protect their brands from private label expansion. Of course, it didn’t take long to hear back from retailers asking for tips on growing their own brands so here are a few private label ideas for our retailer friends.

1. Study the category consumer before going upscale. Consumer understanding is the common thread among top-selling brands. It’s not enough for a retailer to roll out a quality product in premium packaging.
2. Disguise your premium store brands. Many consumers still associate private label with cheap knockoffs. There – I said it. But what if they don’t know it’s a store brand? Look to position premium store brands as exclusive products like Choxie at Target and Canopy at Walmart.
3. Get your pricing right. The price gap between store brands and national brands varies significantly across categories. The same shopper who chooses private label bottled water for a 3% discount may require at least 20% savings for private label barbecue sauce.
4. Offer multiple brands in multiple tiers. Although Costco may be the exception, most retailers are finding growth with multiple store brands. No one brand can stand for value and gourmet and healthy eating.
5. Eliminate weak links. One bad product experience can hurt the entire store brand, not to mention the retail banner itself. Product quality needs to be consistent across each store brand. Your brand’s perceived quality is only as good as its weakest SKU.
6. Drive trial. If your store brand is really as good as the national brand (or better), let your shoppers try it. Offer a free package with a $50 purchase. Consider a trial size or in-store product demos.
7. Promote your store brands. There’s a wide range of feature ad support for private label. Using ECRM’s Marketgate data, we found that private label’s percent of feature ads ranged from 45% at Wegmans to 25% at HEB to only 10% of ads at Publix.
8. Don’t be too quick to drive out value brands. Some value brands can drive lower price and higher margins than retailers can achieve through private label. The shampoo category is an excellent example with some well-known brands at very low prices.
9. Embrace a cause. Use package labeling to show how your store brand supports local suppliers, promotes health & wellness, saves the environment, or funds local charities. You’ll find that many of these causes attract similar consumers. Regardless of sales performance, taking the high road can help to build a retailer’s image.
10. Understand the difference between strong sales vs. strong brand equity. Walmart’s Great Value brand claims to be the #1 food brand across categories, but would shoppers ever choose Great Value over a national brand at the same price point?

Bonus: (It’s one better than a top 10 list) Sell your store brand in someone else’s stores. Safeway is taking the lead by selling its “Eating Right” and “O” brand at other retailers in non-competing markets. Opportunities exist for retailers to sell their store brands not just in new markets, but in new channels (convenience, hardware, toy stores) in their own. Share your tips, stories, feedback in the comments below.

The recession gripping the U.S. has prompted many families to eat in and to entertain at home, and in many ways, return to basics in an effort to save money.  Many analysts are predicting that the changes being witnessed in consumer behavior will be permanent.  While these changes have had a negative impact on some sectors, others have benefited by adapting to the changing times and leveraging fundamental brand strengths.  Two such sectors — canning and freezing supplies, and gardening supplies – have posted solid growth over the past year, with canning and freezing supplies posting unit sale growth of 14 percent over the last 52-weeks, making it the lead category in unit sales growth across all mega-categories tracked by Nielsen within food, drug and mass merchandising (including Walmart).

Given the number of articles about how more households (including the White House) are planting gardens and raising their own produce, this growth is not all that surprising.  That said, it offers an excellent example of how manufacturers can continue to grow in a challenging environment by adapting to it.  Ball and Kerr, the leading brands in the canning and freezing supplies category, have been in this industry for over a century.  Yet because it has taken an innovative approach to marketing, it continues to be a relevant and successful company.  Its messaging has been simple and hits on some of the most important consumer themes: value, family and environment.  Their marketing has been effective not only because they offer value, but because it is integrated: they link to web sites that offer advice on canning and preserving, as well as highlighting new products.

Burpee Seeds, the nation’s largest mail-order seed company, is another example of a company making the most of the current environment.  It has reported record sales and has even sold out of some of its seed stock this year.  One element of its success: promoting the value gardening can offer by citing a study that claims $50 spent on gardening supplies can become $1,250 worth of produce a year, clearly a message with resonance in these uncertain times.

These are just a few examples of companies running complete and integrated marketing campaigns that have adapted to and capitalized on the changing mood and behavior of American consumers.  More CPG companies and retailers would be well-advised to follow the lead of these “old-fashioned” companies that have adroitly adjusted to the times.

###

“If we just listen to these consumers, they will tell you where you need to go,” said Nick Sorvillo, Kraft Senior VP Consumer Insight & Strategy.

Kraft’s driving mission is to reconnect – emotionally and functionally – with consumers. Sorvillo stressed the path to that connection includes building an image of trust, dependability and value solutions.

“Those of you who understand the value equation for the category you are in will succeed,” he explained. “And value is not all about price.”

Kraft’s Consumer Channel research spotlights the shopping psychology of today’s consumer. The economy has changed the attitudes of consumers – 61% of Kraft’s consumer surveyed said their attitudes have been permanently changed. These consumers are cooking more at home, entertaining at home – with a mantra of ‘back to basics’ and family. They are practicing what Sorvillo termed as “brightsiding” – looking to the brighter side of a situation.

Seventy-two percent of those same consumers will continue to use the same shopping strategies they’ve begun to practice under the present economic crunch. In order to continue to service these consumers, the industry will have to change its own focus and provide solutions.

The emotional relationship with consumers translates into proving that the industry is partnering with them through not only this recession but throughout their lifetime. Retail speakers and attendees echoed the task of breaking down barriers to the customer. Customer centricity is the hub of category management.

Food Lion demonstrated the power of the customer with presentations discussing its own shifts from a decades-long, low price-oriented inventory management to customer-oriented inventory management and store design. In a partnership with Kimberly-Clark, Food Lion SVP Merchandising & Distribution Derrick Penick said they revamped the baby care aisle with a focus on the primary consumer – Mom – with input from shopping mothers, the aisle was redesigned to better suit her shopping needs. The convenience of shopping the store is now a part of the value-proposition of Food Lion’s baby care category.

Overall in November, trips to retailers declined by 2.9% from the previous year.

Retail Channel Trends
Toy stores, electronics stores, and department stores saw the most dramatic declines in the number of shopping trips last month vs. a year ago.  Trips to toy stores dropped by 23%, trips to electronics stores were down by 21%, and trips to department stores fell by 17%, Nielsen reported.

Retail channels offering low prices and strong value fared the best during November.  Trips to dollar stores (+6%), online retailers (+4%), supercenters (+2%), and club stores (+1%) showed the only year-over-year increases in trip growth rates.

Private Label Trends
In October, value-minded consumers increasingly shifted their purchases to private label products, as the U.S. economy weakened.  Unit sales of private label brands grew by 5% in October — up from 2% growth throughout the past year.

Meanwhile, unit sales of branded products showed a mirror opposite trend, with growth declining by 4% in October after showing an overall 2% decline during the 52-week period ending November 1.  As the U.S. economy slipped further in the third quarter and continued to slide in the fourth quarter, unit sales of branded products worsened in every grocery department — except frozen foods.

In terms of dollar sales, private label products maintained steady 10% growth in October – a trend that has remained constant throughout the past year.  Private label alcoholic beverages, fresh and packaged meats, fresh produce, frozen foods, and dry grocery products saw the fastest dollar sales growth in October.

In contrast, overall sales growth for branded products slipped to 2% — down from 3% during the 52-week period ending November 1.  Although still growing, sales of branded dairy, deli, and fresh produce experienced the greatest declines in dollar sales growth.  Sales of general merchandise products dropped markedly in October and during the 13-week period ending November 1.

Given the continued weakening of economic conditions, Nielsen expects this behavior to intensify in December and into 2009.

Nielsen’s Tips For Manufacturers, Marketers, and Retailers
-Exploit new growth areas: consumer appetite for at-home products, basic necessities, and good values will only intensify.

-Don’t assume consumers are not willing to pay a premium: price is important, but delivering a clear value proposition is more critical.

-Protect your turf: manufacturers should work proactively with their retail partners on branded vs. private label shelf-set rationalization.

-Companies that maintain sales and marketing efforts during recessions typically enjoy better post-recession growth: now is the time to utilize advertising to build customer loyalty and differentiate your brand.

Stay tuned on Nielsen Wire for regular updates on U.S. retail trends and other key economic indicators.

So are consumer packaged goods (CPG) manufacturers and retailers, who have struggled in recent months to balance consumer demand for low prices and high value with abnormally high raw materials and transportation costs.

Rather than raising prices, some food manufacturers have reduced the size of their products.  Such strategies may minimize sticker shock at the grocery store, but are unpopular with U.S. consumers.

Instead, according to Nielsen, nearly half (47%) of American consumers would prefer to buy large, economy-sized products with lower price points per serving.

In comparison, only 17% of consumers surveyed by Nielsen said they would prefer CPG manufacturers to introduce new, smaller pack sizes at lower prices.  Another 9% suggested that CPG manufacturers downsize or modestly reduce the packaging size of products, keeping the price of the product the same. 

“CPG manufacturers and retailers have few options to manage rising commodity costs beyond absorbing increased costs, passing on increases to consumers by raising prices, or covering increased costs by downsizing offerings,” Todd Hale, senior vice president, Consumer & Shopper Insights, Nielsen, noted.  “Downsizing, in particular, is not a new option — we’ve seen downsizing over the last few years in a number of categories, including ice cream, cereal, candy bars, salty snacks, and paper products.”

View the media alert.

Declines were especially steep during the last four weeks of the quarter, which saw the collapse of Lehman Brothers, the near-collapse of Merrill Lynch, and the government bailout of AIG.

Traditional mass retailers (excluding supercenters), department stores, and office supply stores saw the most dramatic declines in the number of shopping trips last quarter vs. a year ago.  Trips to mass retailers dropped by 9.1%, trips to department stores were down by 8.9%, and trips to office supply stores fell by 7.9%, Nielsen reported.

Retail channels offering low prices, strong value, and mostly “need to have” products — versus “nice to have” items — fared the best during Q3 2008.  Trips to online retailers (+7.5%), supercenters (+3.6%), and dollar stores (+3%), for instance, showed the largest increases, compared with Q3 2007.

More affluent consumers looking for bargains drove the growth in trips to value retail channels, while lower-income households adopted more drastic cost-cutting measures, eliminating shopping trips entirely, according to Nielsen.

U.S. consumers surveyed by Nielsen in late September and early October also reported having significantly less discretionary income than their global peers. 

Almost 25% of U.S. consumers reported having no spare cash after covering their essential living expenses.  In comparison, just over 10% of consumers worldwide reported a similar lack of expendable income.

U.S. consumers were also more likely than consumers worldwide to use expendable income to pay off debts, Nielsen found.  More than 35% of U.S. consumers reported using their spare cash for debt payments, while only 30% of consumers worldwide reported the same.

In early October, Nielsen’s holiday retail forecast estimated that 85% of U.S. consumers plan to spend the same or less on holiday shopping, versus 2007.

Stay tuned on Nielsen Wire for regular updates on U.S. retail trends, and other key economic indicators.