Ongoing inflation, weak consumer confidence and mixed economic signals have left Americans skeptical of the value they receive for the prices they must pay. As a result, consumers across all generations and income levels are bringing new scrutiny to where their money goes and focusing on value.
Value is a term the consumer industry has traditionally used to indicate lower-income people seeking low-low prices. But low prices do not equal value – that’s a myth. Value is far more complex and potent than that, and the nuances are critical for retailers to understand as they contend with acute margin pressure in a hypercompetitive environment.
Who are value-seeking consumers?
According to our recent report, “The Value-Seeking Consumer: Competitors Could Lose Out to Brands Offering More than Low Prices,” value-seeking consumers are those who exhibit three or more cost-conscious, deal-driven or convenience-sacrificing behaviors each month across the grocery, retail, restaurant, leisure travel and automotive sectors. These may include trading down on brands or retailers, adding items to an online cart and waiting for a deal, or waiting longer for delivery to save on shipping. At all income levels, value-seekers spend a smaller portion of their money in discretionary categories, allocating more of their budget to mandatory line items like housing and transportation.
Our research found that 4 in 10 Americans identify as value-seekers, a behavior that has increased in prevalence.
But what is value? Call it bang for the buck that crosses the threshold of being “worth it.” It’s the elusive “something extra” that distinguishes a special brand from commodities in its category.
Not surprisingly, value matters at every socioeconomic level and price point, not just the low end. Half of baby boomers and Generation X, who are likely at the higher end of their earning potential compared to younger generations, are value seekers. And nearly 23% of consumers earning $200,000 or more identify as value seekers.
Price and value dance together
Although price still matters to value seekers, price is neither synonymous with nor distinct from value, according to our research. Rather, price and value in retail are intertwined. Deloitte regression analysis suggests that price accounts for 60% to 90% of consumers’ perceptions of value. Importantly, the analysis enables comparison of low-price brands and premium-price brands on a level playing field. The work demonstrates that having more value than expected for the price matters, busting the myth that value simply equates to low price.
In other words, value-seeking consumers will pay a little more money for a lot more value. Even a cost-conscious, deal-driven and convenience-sacrificing consumer might spend 50% more on a dining experience that offers a tangible sense of quality, from a brand they trust, delivered by friendly, knowledgeable servers.
While it costs more, the experience is delightful enough to justify it.
MVPs emerge
Our team sought to identify brands that offer “more value for the price,” which we refer to as MVP brands. We analyzed data from our collaborator HundredX consisting of more than 900,000 consumer responses across 290 consumer-facing brands. Brands whose value perceptions are at least 10% higher than would be predicted based on price perceptions alone were deemed MVPs. Only 1 in 3 brands made the cut.
Brands that consistently perform at this level can make significant gains in market share. Our analysis of over 5 million credit cards revealed up to a 2% household share shift to MVP brands across grocery, restaurants and hotels.
Based on data from HundredX, we also found that MVPs currently enjoy a 10% higher future purchase intent than brands offering less value. These wallet shifts have significant implications for long-term results.
Perhaps not surprisingly, MVP’s unique positioning is recognized and rewarded by markets. On average MVPs trade at 30-40% higher valuations than those offering lower value.
How to be an MVP
Providing more value than expected for the price is a real key to breaking through with value-seeking consumers. Here’s how brands can get there.
- Provide quality and earn trust. Across all retail subsectors, these qualities measurably enhance a brand’s value. In many cases, so does a warm, welcoming, upbeat attitude, both online and in the store.
- Employ Value-Aware Pricing. This means not over-optimizing prices to maximize margins and leaving some value on the table for consumers. High- and premium-priced brands should exercise caution when raising prices – and may even consider charging less.
- Deliver Cost-Aware Value. This means examining each element of value you are trying to create and ensuring that the expense of delivering it actually pays off in terms of consumer value perception.
Since price still constitutes as much as 90% of value, those who aspire to be MVPs should continuously review pricing by brand, product and locale against consumers’ next best options and willingness to pay. Use transactional and feedback data to help you quickly adapt on a local level. Also, ensure value-creation efforts fit your brand identity and business model.
Value should always matter
In strained economic times, spending is tight, but it’s a myth that the lowest price fully correlates with value. Instead, value in retail is more than just a fair trade for the price – it’s more for the money, whether you are buying laundry detergent or luxury cars.
The MVPs who offer it will likely win in this (and any) economic climate because they turn skeptical consumers into delighted customers who keep coming back.