The New Market Perspective

Categories Economics, Market Research
Consumer Habits

We have to stop seeing consumers as entities to which we sell. Instead retailers, especially in the FMCG sector, should see consumers as commodities to be bought and retained – natural resources within the retail universe. Traditionally, the view of a market is such that there are three entities. There is the Product which can be bought and sold. This services a ‘want’ of the Consumer for that specific product. The Retailer sells the Product to the Consumer if, and only if, the price (a theoretically negotiated compensation between the two sentient parties) is agreeable. This tripartite view is often seen as a single shot game, played out repeatedly as the number of Consumer ‘wants’ grows and changes. As such, we have retailers naïvely basing their sales strategy on servicing, at an agreeable price, the perceived ‘wants’ of their target consumers as if they seem at random and completely sporadically. Many smaller retailers in the FMCG sector, when seeking sales revenue, will promote products without any clear justification for their choice of product to promote. More importantly, this is often without a view to the long-term of how their promotions will affect consumer behaviour and interaction with their stores. Consequently these retailers are now in a quagmire where the only sales they achieve in some categories comes through promotions and the footfall into their brick-and-mortar stores becomes a real issue. Their consumer base become hyenas, flocking from troubled retailer to troubled retailer, picking off the products which are promoted and on the lowest margins, then moving on. These consumers are the ones who have already shifted the majority of their consumption to the discounter stores – in hibernation until the much-touted financial turmoil blows over.

In reality the naïve traditional view of a market, whilst having the right structure, misinterprets the links between the three constituent parties. We see that ‘wants’, particularly in the FMCG sector, aren’t particularly significant – especially since the financial crisis – as consumers focus more on what they ‘need’. Consumer needs are much more predictable and far more targetable than their perceived ‘wants’. For when consumers can be segmented into groups such as ‘Cat Owners’ these groups are intrinsically associated with the regular purchase of specific groups of products (in the case of Cat Owners this could be Cat Food or Cat Treats). These products, with momentum that comes purely from that regular need and consequent purchase, do not need ‘selling’. Instead they merely need to be provided at the right place and time for consumers who are in that ‘right place’ at that ‘right time’. There is no coincidence in the fact that we talk regularly of the ‘rise of convenience’; these stores are outlets that are able to reach consumer needs more efficiently. It is of no consequence that prices in these outlets tend to be higher. It just so happens that when consumers have certain ‘needs’ they are more likely to be within range of a convenience store. We have moved far past the point where needs were aligned perfectly with the weekly shop – and it’s unlikely that this alignment will be able to be constructed again as the major supermarkets within the UK [and potentially worldwide?] lose market share and the FMCG market becomes more competitive.

It goes without saying that you can only sell to consumers that enter your store (online channels excluded). Thus is becomes clear that consumers, after entering a store, will buy what they need and leave. On the one hand, consumers are unlikely (in the case of FMCG) to buy more than they need, and on the other they are unlikely to buy less than they need – stock permitting. And that is the crucial point – retailers are stuck providing for consumers who each come into a store at different times, needing different products. As such, Consumer α who buys cereal from Retailer A one day might, ten days later, need more cereal on day in which they visit Retailer B; essentially switching their consumption week to week between the two stores. The trick is then for Retailer A to ensure that, when Consumer α needs cereal again, it is on a day that they intend to visit a Retailer A store. It is irrelevant how good the cereal is, what price it costs, or anything in that vein for that matter. Consumer α is not going to make a special trip to Retailer A for cereal and so if, after ten days, they need cereal again and Retailer B offers cereal, they will buy it there instead. The savviest of you will notice a model emerging, of a market centred on the alignment of store visits and product needs. So let me outline this new model of product markets.

A market is characterised by:

  • One Product Line, j – which is a regular need for consumers.
  • Two Pack Sizes for j – Small and Large.
  • N Consumers who each need j on a regular basis.
    • For each consumer, an Interpurchase Interval, the number of days between purchases of j.
  • K Retailers which each offer the full range of j.
    • For each Retailer, and then for each Consumer, a Visit Interval, the number of days between visits to a particular retailer ‘i’ for each consumer.

Under this structure Consumer α, from the previous example, could have: an Interpurchase Interval of ‘10’ for cereal, a Visit Interval of ‘12’ for Retailer A, and a Visit Interval of ‘8’ for Retailer B. Let’s view this example from a timeline perspective.

visit interval diagram

As is clear, at time T the consumer needs the product and thus purchases in A. However, at the next instance of need, T+10, the consumer visits B and thus purchases there. Thus the important question for retailers is: what can Retailer A do at time T to ensure that when Consumer α purchases again, it is more likely to be at Retailer A than Retailer B. The answer comes from A’s ability, or inability, to alter either α’s Interpurchase Interval for j or α’s Visit Interval for A. It is the factors that influence these variables which must be explored – and which aren’t being considered on a regular basis by retailers.

Assume, for instance, that α had purchased a small pack size originally. What would be the effects if α had bought a large pack size instead? Would α still need j again at T+10?

What if a new store for Retailer A opened closer to α’s home? What if Retailer A could reward α for shopping at A more regularly?

Let’s explore this further.

 

 

Currently studying Philosophy, Politics and Economics at St Annes College, Oxford University. I have a keen interest in applied economics, food and most types of sport.

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