Executive Briefings

Will Consumers Drop the Discounted Brands, Wholesalers When the Economy Picks Up?

Experts say warehouse club chains are likely to continue to eat away at the market share of traditional grocery stores even after economic conditions improve. By offering consistent value, warehouse clubs have impressed deal-seeking customers. But most experts predict that shoppers who are currently bulk-buying their groceries out of concerns about not having the means later will likely stop. Similarly, shoppers in general are likely to become less aware of store sales and price reductions.

At the same time, "Brands need to think strategically about how they use promotions and how they incentivize customers," said Frédéric Brunel, a marketing professor at Boston University's School of Management. "When the consumer gets something at a deep discount, they might perceive the quality [of the product] to be lower, or attribute their choice to the price discount versus the inherent quality of the good or service. This is not a good recipe for long-term brand equity building." Moreover, customers become addicted to the discounted price, says Barbara Kahn, director of Wharton's Jay H. Baker Retailing Center. "When you start playing the price promotion game, people feel that they're being cheated if they then pay more than the discounted price in the future."

Still, it is hard to say whether the couponing movement will remain as fervent once the economic landscape looks brighter. "In previous recessions and economic downturns, we saw things like an upsurge in store-brand products. People changed their behavior to weather the economic storm," said David Reibstein, a Wharton marketing professor. "But usually when it was over, people reverted to form and went back to their favorite brands."

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Experts say warehouse club chains are likely to continue to eat away at the market share of traditional grocery stores even after economic conditions improve. By offering consistent value, warehouse clubs have impressed deal-seeking customers. But most experts predict that shoppers who are currently bulk-buying their groceries out of concerns about not having the means later will likely stop. Similarly, shoppers in general are likely to become less aware of store sales and price reductions.

At the same time, "Brands need to think strategically about how they use promotions and how they incentivize customers," said Frédéric Brunel, a marketing professor at Boston University's School of Management. "When the consumer gets something at a deep discount, they might perceive the quality [of the product] to be lower, or attribute their choice to the price discount versus the inherent quality of the good or service. This is not a good recipe for long-term brand equity building." Moreover, customers become addicted to the discounted price, says Barbara Kahn, director of Wharton's Jay H. Baker Retailing Center. "When you start playing the price promotion game, people feel that they're being cheated if they then pay more than the discounted price in the future."

Still, it is hard to say whether the couponing movement will remain as fervent once the economic landscape looks brighter. "In previous recessions and economic downturns, we saw things like an upsurge in store-brand products. People changed their behavior to weather the economic storm," said David Reibstein, a Wharton marketing professor. "But usually when it was over, people reverted to form and went back to their favorite brands."

Read Full Article