Pricing or Pack Size or Both? Strategies for Recession-Proofing Your Brand
Editor's note: Automated speech-to-text transcription, edited lightly for clarity.
On April 12, 2023, EyeSee gave a webinar in which they discussed the findings of a study they conducted with Raina Rusnak. In the study, EyeSee looked at the pricing and pack size in four categories across three years. What they found in this study can help brands navigate their way through the economic downturn we are currently facing.
Watch the webinar recording or read through the transcript below.
Hi everybody and welcome to our webinar “Pricing or Pack Size or Both? End-Client Strategies for Recession-Proofing Your Brand.” I’m Quirk’s Editor Joe Rydhom and before we get started let's quickly go over the ways you can participate in today's discussion. To interact with other attendees during the session you can use the chat tab. And there won’t be a formal Q&A portion with this webinar but you can use the Q&A tab to submit questions to the presenters during the session and they will be reaching out offline afterwards to answer any questions that are posted. Our session today is presented by EyeSee. Enjoy the webinar!
Hi there. Welcome to this edition of Quirk’s Webinars. We are so excited to be here speaking with you, a huge shout out to Quirk’s for graciously hosting us today. My name is Heather Graham. I'm a senior director of client services here at EyeSee. And I'm with my colleague Sasa Radojevic, a senior shopper insights manager to talk about navigating price sensitivity amid 2023 inflationary pressures.
Hi Heather. Super excited to talk about this.
Sasa and I are also very privileged to have Raina Rusnak, a 2022 top woman in grocery awardee here with us to bring some retailer and broader perspective to this important topic. Raina, would you like to introduce yourself?
Thank you, Heather. So, I got my career start on the supplier side, where I spent the bulk of my time getting grounded in research and then spent four years on the client side as consumer insights lead at Peapod Digital Labs, where I supported consumer insights for five great local brands of Ahold Delhaize. And one of the interesting pieces of that timing was that this all happened during COVID. So being able to have a pulse on the consumer during that time and to see all of these transitions is super interesting
As these are very unpredictable times. It is very interesting and important to understand how all these changes have been affecting consumer's behavior.
As we think back to the consumer mindset, three years ago, we saw a ton of stress from consumers as they were entering the grocery store, but the reasons for that were very different than what we're seeing now. Three years ago, it was health concerns, people were stressed about contracting COVID. There was no vaccine. That was the time period we were in. And we had one way aisles to try to combat that and to make people feel safe. Fast forward three years, we are still seeing a lot of stress around grocery shopping, but the reason for that is very different. And the reason now is that we're seeing these huge, unprecedented inflationary pressures and many consumers have a fixed budget. When we think about the number of households that are living paycheck to paycheck, that is roughly two thirds within our country, within the United States.
So consumers need to make adjustments at the shelf as other prices are rising and consumers will tend to focus on some of the big of the budgetary requirements first, like mortgage or rent, utilities, gas to get to and from work. Grocery spending sometimes becomes more of a discretionary spend. And, as we think about the different levers that businesses will pull, so CPGs and retailers, those are, are some of the things we're gonna dive deeper into with shrinking packages versus raising rates. But customers also have some levers that we're seeing them pull.
So we're seeing three main behaviors that customers are opting for at the shelves. And, and one is that 42% of current consumers are reporting that they are more aggressively searching for deals and discounts every time they shop. The second thing that we are seeing is that roughly a little bit more than a third, so roughly 35% of consumers have reported that they've switched to a lower cost grocery retailer in the past year.
And finally, the other behavior that we're seeing is that approximately one quarter of consumers are reporting that they are purchasing private label brands more often now than they were one year ago in an attempt to save money and to try to make their budget stretch a little bit further.
So taking a little bit more of a deep look in terms of four specific categories, EyeSee did some research earlier in March in the U.S. repeating research that was done in March of 2022 to track sort of consumer changes in attitudes and also behaviors
Exactly Heather. This year we've decided to pretty much replicate that pricing study conducted in March of 2022 and see if anything has changed over the course of 12 months. In order to investigate this the best way we can, we had two separate exercises using this study and independent samples going through these exercises. Those were virtual shopping exercises, which was followed by a traditional survey and conjoined exercise. Also followed by the same traditional survey and we decided to go with the same categories tested a year ago to be able to make those proper comparisons. And those were two lower frequency categories, body wash and dishwash into higher frequency categories, bacon and chips. And within these exercises, consumers face different scenarios.
In virtual shopping, it was ranging from the current pack price and size to increased prices of one third of the shelf and then the entire shelf, but also to decrease pack size of one third of the shelf and then also the entire shelf. And in conjunction, they were primarily faced with different price increase scenarios ranging from 5% increase all the way to 25% increase, but also a size reduction of its packs by 20%.
Before I get into the details of those four particular categories, I'd like to talk about some of the things that we asked folks a year ago to forecast what they might see themselves doing in the next six months combined with asking that same question again, but looking at their behavior for the past 12 months and how much do those align.
In most cases, the behavior versus the prediction aligns fairly well. If we look at cosmetics, if we look at confectionery, what folks predicted they would do for these categories versus what they have done the past year is about the same. Other things in terms of longer term situations, financial services, insurance service usage, etc. are also constant.
One thing that I was surprised to see is this time last year folks talked about stockpiling food and other items quite a bit more. Over a third said that they planned to do that in the next six months. Fewer actually did in the past 12 months, but it's still a sizable group of folks. A quarter said that they stockpiled food and other items
And not to miss some other interesting figures from this slide as well. Eating out has been affected more than consumers predicted a year ago, but also a purchase of food and beverages, which is sort of in line with the stockpiling finding where when you're trying to save as much as you can, whenever you can really, and some other aspects of the consumers were not so right about when it comes to their predictions are, also household essentials, clothes and sports equipment as well as subscriptions and memberships. And these have all been affected to a greater extent than predicted a year ago. And this absolutely makes sense especially for non-essential purchases such as clothes and subscriptions.
Looking at some of this view for the four categories that we focused on, which were body wash chips, dishwashing supplies, as well as bacon. Again, this forward looking versus past looking view, most folks say that everything has stayed the same in terms of what they've done relative to these categories.
Notably for dishwashing supplies, significantly fewer are claiming to have switched to more affordable or cheaper brands. But we all have or know someone with a story of small switching behaviors. Raina, you've got a great example.
I, as a consumer, was at the shelf taking a look at price comparison between my national leading brand that I typically use, which is Scott and the corresponding product at Scott for our toilet paper. That taking a look at here of 20 rolls, this private label brand was $10 cheaper than the product I normally purchase. So what really hits home for me here is that this is a decision that consumers are faced with.
The people are making these trade offs sometimes because of quality, sometimes because of price, but this is becoming the reality and this is one of the levers that consumers are actively pulling to fit within their budget.
From an EyeSee perspective, what we focused on in our research were two levers that are available to CPG brands and understanding consumer reaction to them. One is pack size and taking pack size. We'll, talk about it in a little bit more detail later, but the way that we looked at it was from a shopping perspective, what happens when we reduce pack size by 20% for a third of the shelf and what happens if we reduce pack size by 20% for the entire shelf? Before we get into that detail, Rainas got another great example that is very relevant for the research that we've got here. Raina.
Yes, as we think back to a year ago, major CPGs announced that they were looking to try to mitigate the impact on customers and they were trying to keep costs in line. So their response to that was to reduce pack size by an ounce amount that amounted to five chips per bag. Now, we as consumers, we internalize that we think about that. So pack size matters. If we traditionally buy a family size pack, maybe reducing it by five chips doesn't affect us. We're not gonna notice that. But if we're talking about a snack size pack and we reduce by five chips, then maybe that goes down to, you know, three or four chips and that makes a big impact.
And if we look at the research that we did in the four categories that we looked at,
So on this slide we have the data from both conjoint and virtual shopping exercises. And what we see is that when you decrease the size, not that much changes in their behavior with the conjoin exercise. But on the other hand, the right graph shows the data from virtual shopping exercise specifically through the lens of price sensitive shoppers only. And notice these shoppers are extremely sensitive to any type of shrinkflation when it comes to, primarily, body wash category. And on the other hand, chips and dishwash sales are affected, but primarily when only one third of the shells packs are reduced in size.
If we dive more deeply into the most price conscious of our sample and look at how their shopping behavior in front of the category is impacted, we've got three scenarios here. We have the current scenario where everything is sized. The weight that is in today's market is different than a year ago. A lot of manufacturers have already taken pack size reductions, but the current status quo as of today, if a third of the shelf takes a volume decrease and if the whole shelf takes a volume decrease, what we see is, when a third of the shelf for all four of these categories takes a decrease. It's quite noticeable, especially considering that these are the leading brands that we're impacting in our scenario with this pack size decrease.
And what helps explaining this is that in this scenario, with one third of the shelfs packs being reduced in size, we intentionally reduce the size of only category leading brands.
Looking a little bit more deeper into each of the categories specifically and when we're playing with price for these categories. Back to Sasa for additional details.
Okay, so starting with the chips, and looking at the conjoin data, we focused on chip variants such as original and flavor, but also big and small packs. And what we noticed right away with those dark bars on the graph is that no matter the price increase, the original pretty much remains intact. On the other hand, the same cannot be set for flavored variants that start to take a hit somewhere around 15% increase.
All the while big packs are also very likely to be affected as consumers show the tendency to substitute with smaller packs or some even walking away from the shelf or brand entirely for body wash.
The main data cut we had a chance to look into is between big packs with 30 ounces and more and small packs with less than 18 ounces. And what we noticed is a distinct shift from bigger to smaller packs and notice how white bars continue to decrease with every next price increase scenario.
While it is vice versa for smaller packs, this shows us that consumers are very sensitive to that current out-of-pocket situation, trying to spend as little as they can, even though we all know that might not be the best budget plan in the long run.
Okay, and at a macro level for dishwash, looking at those used for machine washing, we noticed that this subcategory stays stable and we saw the same for hand washing as well, just not displaying it on this particular graph. But more interestingly, looking at the second bar in the graph, market leader liquid, although not significant, it takes a slight hit at 5% increase and then stabilizes throughout the other price scenarios. Pods on the other hand, take a more notable hit, especially with a 25% increase scenario. And you might wonder where do these people go?
Well in part to private label pods, which is the top bar nearly doubling over different scenarios. And just to point out that once again, but just another words, so this is the dishwash is the subcategory where we saw, PL benefiting the most.
And last but not the least, bacon. And from conjure and exercise, we notice how the big packs, so 60 ounces and larger suffer to a certain extent all the while smaller packs see growth with every price increase scenario at the expense of those bigger packs.
Bacon for each of these four categories is the one that showed the most impact, particularly when the whole category takes a price increase. And that's what we're reflecting here as a bit of an explanation for this.
And remember I've said throughout this that we are using today's prices and today's pack sizes for this research, which already have changed since this time last year. And we can see that particularly for bacon, where bacon over time has just slowly increased price. And that is probably why last year it was fairly stable. But in 2021, 2022 bacon prices skyrocketed. And that is the level at which we are setting the current in this research.
So if we increase from there yet another 25%, which is of course in full transparency, a very, very big increase relative to what manufacturers may do a little bit at a time. I think what we do see here is a threshold for bacon in particular, folks will walk away from the category if we increase the price too much more. And that's one of the things that I think is quite interesting for all four of these categories and something that we need to pay attention to and we'll talk about on the next slide is there are thresholds and for bacon, we're almost there.
Raina, any final thoughts that you'd like to add to this for our audience to leave with?
Sure. So we would like to give you a very clean answer on which is the better option to decrease pack size to increase prices. But what we see through all of this research is that there's multiple right answers. There's no wrong answer here. And, what that comes down to is that the answer depends, it depends on the category, it depends on the pack size, it depends on how much we're talking about decreasing that or raising rates.
But what's important is for CPGs retailers to keep in mind the inflationary pressures that consumers are up against. And keeping in mind that two thirds of households do live paycheck to paycheck. So at a certain point, budget constraints become very real and like bacon people will start walking away from the category.
So as we think about that, wearing your business hat, thinking about what we as insights professionals need to bring to the table for the business to grow and continue to build that relationship with their consumers, but also remember to be the consumer we all are.
So think about how you would feel at the shelf, but then also keep in mind the lens that your target customer is viewing that change. And then the final piece is stay curious. Three years ago we would not have predicted the lockdown of the pandemic. And then similarly, we might not have predicted the inflationary pressures that we're up against now. So it's keeping an eye on the macroeconomic impact. It's all of the different things that are happening in the economy and also to our consumers and, and how that impacts research and the business. So stay curious and keep being the voice of the customer.
And I think just to, to build on that, we looked at categories in the EyeSee research that are not recipe dependent, right? So we need to, for those of you that do have products that are recipe dependent, more caution needs to be used. Because pack size may not be a lever that you're, able to use for your particular product, your particular category.
I think another point I would add to Raina’s conclusion is that while we absolutely should also put on our consumer hat and put on our empathy hat for the consumers that we're dealing with, we also need to remember that we as marketers, we as researchers are not necessarily our target customer. And so that's where that curiosity really needs to come into play and making sure that we keep a pulse on our consumers to understand the levers that they think that they have available and ensuring that we're doing our homework so that we can identify the threshold for our relative category before we hit it and before we're overly impacted.
Thanks for joining us today. If you have questions or would like the full report of results, please make sure to write in the live chat and we'll be sure to follow up with you.
Thank you to Sasa and Raina for your additional perspective and Sasa especially for all the hard work on the research that helps us all navigate the inflationary pressures CPG and retailers are facing.
If you're interested in these kinds of knowledge sharing sessions that EyeSee conducts, please tune into our monthly podcasts.