According to a new research report published by customer science company dunnhumby, a consumer’s sensitivity to price greatly influences his or her response to advertising tactics and the channel of delivery. Further, common demographically based media targets do not align with price sensitivity, suggesting that a brand that buys ads targeted to “moms,” for instance, is wasting a large portion of its advertising spend on the wrong consumers.
“Price sensitivity is not predictable based on a demographics and it is a critical consumer dimension for effective media targeting and planning,” says Justin Petty, VP of global partnerships and media solutions for dunnhumby. “Traditional media targets like ‘moms,’ high-income households or millennials do not account for the wide range of price-sensitive behavior within those segments and, therefore, brands are missing an opportunity to target the right consumers, engage them with the right messages and then understand the impact of their advertising.”
The report, “Using Advertising to Engage the Price Sensitive Consumer,” looks at the rise of price sensitivity within U.S. consumers and evaluates the effectiveness of marketing tactics like direct mail, customer relationship marketing, TV advertising, display advertising and social media. The report challenges brand marketers to understand their shoppers, their brand and their advertising in relation to price-sensitive behavior in order to optimize media plans for advertising channels and consumer segments.
“As price sensitivity continues to increase and affect consumers’ decision-making, brands are increasingly using promotions, coupons, value-driven messaging and price discounts as key drivers within their advertising campaigns to increase sales,” says Petty. “However, because these advertising campaigns aren’t restricting this content to price sensitive consumers, many brands are overemphasizing price to the broad marketplace and driving erosion in brand equity and margin.”
Price-sensitive consumers are cost-conscious but can be loyal, high spending shoppers and active brand advocates
dunnhumby’s analysis found that price sensitivity does not equate to brand promiscuity. For example, the report found that social brand advocates and CRM program members tend to be more price sensitive than the average brand buyer but also are more loyal and spend more on brands than the average brand buyer. In fact, very price-sensitive shoppers within CRM programs spend 14 percent more than the average retained shopper and are 36 percent less likely to leave the brand.
“Traditional assumptions have categorized price-sensitive consumers as lower-income households that tend to spend less on brands and are less brand loyal,” says Petty. “Our research shows that very price-sensitive shoppers are more cost conscious and the most frequent coupon users but, in many cases, these are often a brand’s best customers.”
Very price-sensitive and least price-sensitive consumers respond differently to promotions and advertising channels
dunnhumby found that for brands appealing to least price-sensitive customers, TV advertising used in conjunction with in-store promotions is not as effective in changing behavior as other marketing vehicles. Actually, TV advertising used without in-store promotions are more effective than the two combined for these brands. However, if a brand appeals to the very price sensitive, a combination of TV and in-store promotions is very effective at driving sales. Products with broad appeal also benefit from targeting consumers based on price sensitivity. Display ads featuring a downloadable coupon resonate well with moderately price-sensitive and very price-sensitive shoppers but had no impact on the least price-sensitive shoppers.
