Posted by Milos Sugovic
“Premiumization” was the buzz word in marketing until now. Consumers were bombarded with higher-priced, premium products capturing every possible niche. Now it’s on the sidelines as the economic downturn continues, which calls for major shifts in focus for consumer-oriented companies.
What we see is consumer demand for trading down, and that’s causing headaches for marketers. Economists call them “inferior goods,” and they’re the hot commodity during hard economic times as consumer habits change.
The demand for inferior goods actually increases when consumer income drops and they switch to low-quality products and services. This seems a bit counter-intuitive. Why would consumers increase purchases of particular goods and services in difficult times?
Think instant ramen. One doesn’t yearn for ramen, nor does one search the cupboard for it and discover Campbell’s soup instead. It’s usually the other way around. When times are tight, ramen is the comfort food. For 16 cents worth of dried noodles and chicken-flavored MSG, one can enjoy the comfort of a hot meal.
But many don’t realize that recessionomic consumer behavior creates superior opportunities for inferior products. Companies can maximize value in this environment, and here’s how:
A low price isn’t always right – Competitive price undercutting has only marginal demand effects but may be financially disastrous. The consumer who is opting to eat at home will stay at home as long as it saves him money. So instead of cutting prices across the board, stratify the offering to capture the market horizontally instead of vertically. Don’t forget, premiumization isn’t completely dead.
Create an inferior product niche – Introducing a sub-brand to capture consumer switching will make up for losses at the other end of the product spectrum. Granted, the introduction of non-premiums may chip away at the brand image, but it’s better than doing no business at all.
Bridge the gap using the brand – The consumer base associates the brand with a unique experience. Use inferior goods in tandem with brand perception to maintain relationships until the next economic recovery.
Make inferior feel superior – Downturns create opportunities to change consumer attitudes. The migration to inferior goods is driven by affordability, but if the switch is associated with acting responsibly, like replacing an Escalade with a Prius, the phenomenon may be permanent.
Brand owners that are able to use a broad spectrum of prices and qualities to their advantage are positioned to remain afloat during a business cycle slump. That’s good, but not good enough.
The ultimate challenge is: how do you make yesterday’s inferior tomorrow’s superior?
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