How to entice consumers to buy while controlling costs
Inflation, the Pandemic, the Supply Chain disruption are affecting buyer demand in unexpected ways. Now it’s time for organizations to be agile.
This post introduces the first of a few fictionalized retailers that we will use to illustrate tactics, strategy, and competitive dynamics. The first, Red Square, is a national retailer aimed at the mid market.
The marketspace for consumer big-ticket items will change in a short-time to the merchandise market. Our fictitious example is large TVs though many merchandise categories see similar effects. Competitors will come to counter actions at Red Square with common merchandising changes and assumptions to cope with:
1) Consumers will be increasingly ‘price point’ and ‘value’ conscious even if in distinct buyer demographic groups and affinity groups (like people who game or watch live events)
2) Common consumer consumption including content (streaming services, traditional cable/satellite providers, physical media) can be packaged as add-ons or bundles to attract consumers and improve perceived value.
3) Concurrent buys of add-on products are not a major margin factor although helping capture spend.
4) Shipping, home installation, and related repair services are not material or significant merchandise distinctions.
5) Warranty and service plan sales revenues are present although not material.
6) Rates of inflation will drive costs of goods (and normally prices) upwards without any further action by any seller.
7) Costs of funds (merchandising floor-planning, consignment, store-credit) will increase seller and consumer costs.
8) Pressures on consumer basics and durable goods from perceptible price increases in food, energy, and basics will reduce consumer spend at all sellers.
9) Manufacturing suppliers are under pressures upstream (supplies and components), logistics costs, and revenue flow rates from sellers.
10) Although durable the purchases by consumers are still elective and not viewed as essentials.
Merchandise managers note that these common merchandising changes also apply to durable consumer big-ticket items like computers, appliances, and home features (HVAC, furniture, yard goods). The consumer behavior changes for experience buys like travel, vacations, and leisure (gambling, events) is also untested.
The combination of pressures in mid 2022 is unlike even the sharp declines and recovery periods at the start of COVID or when digital TV forced conversion of old cathode-ray-tube units. Manufacturers have high volume production lines at full rates. Millions of units are in the logistics process to fulfill prior demand orders. The pressure on Red Square and its competitors will have large scale effects.
Our next post – The Retail 3-D Chess Game talks about first and second order moves by competitors spurred by this shift in consumer demand.
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