A delicate balance: price vs. value - The Customer Connection

Discount Store News, May 6, 1996 by Dawn Wilensky

[ILLUSTRATION OMITTED]

A low price tag will definitely catch a shopper's attention, but by no means will it secure a sale. Today's shoppers base their purchasing decisions on far more than price alone.

Value has become an important component of the price/value equation, since consumers seek a balance between the tangible cost of a product and the cost in terms of time and effort in making that purchase.

"The retailer that provides the best balance of what a consumer gets--the product and services like convenience, friendly salespeople, security, ambience and enjoyment--with what it costs the consumer in terms of time, frustration and inadequate or non-existent salespeople will be among the stores or places of business a consumer might shop," said Larry Gresham, a marketing professor with the Center for Retailing Studies at Texas A&M University.

Over the next few years, the purchase experience will become the dominant factor in where consumers make their purchases, and going forward the standard demands affecting this purchase behavior will have more to do with a retailer's ability to satisfy consumers' non-price purchase expectations.

"We have been noting over time the changing relationship between price and quality. There was a period during the '80s where quality was extremely important, but not much focus was placed on price. This changed in the early '90s, when price zoomed ahead of quality," said Brad Fay, vp of Roper Starch Worldwide, a New York-based research company. "One of the reasons for this was that most major brands had a high level of quality, so people began to focus on price. When prices were lowered and retailers couldn't bring them down anymore, consumers starting looking for value from certain kinds of extras or pluses."

Value-added incentives such as service, variety, in-stock positioning, image, knowledgeable salespeople and convenience have become an integral part of the shopping experience, and made even more important as prices have gotten extremely aggressive and quality has reached an all-time high.

"Value goes beyond price. Today, value relates to a broader picture involving the entire shopping experience. The price one pays for a product is evaluated against the entire purchase experience. While consumers enjoy getting products at the lowest possible price, there is evidence that they will pay more if the experience meets with their related needs and expectations," Weiss said.

Trading up the customer has become the buzzword of the '90s, with retailers investigating higher price points through the introduction of better-quality goods and categories with higher-than-average margins.

Home furnishings is a prime candidate, since margins can reach as high as 50% and consumers seem willing to spend more money on their home as the "cocooning" trend remains strong, with more people spending time in their homes for leisure and entertaining.

"The home area represents categories that appeal to the same customer who judges product on quality and fashion, and where price and price alone is not the only factor that will affect whether or not they buy the product," said Charles Ellis, senior vice president, general merchandise manager, hard lines at Bradlees.

[ILLUSTRATION OMITTED]

There is no disputing that price is and will remain important to consumers across all channels of distribution, but now retailers must take that next step and create some meaningful ways through which to differentiate and stand above the competition.

"Retailers must come to grips with the fact that everyday fair pricing will be the critical expectation for the majority of consumers and that price alone will not be a sufficiently attractive, persuasive motivator for most consumers," said Weiss. "The total shopping experience will dominate as the consumer navigates his or her way through the maze of distribution alternatives."

It is no secret that the number of retail options open to consumers nowadays is growing, especially as specialty stores, the Internet, catalogs and home shopping are proving worthy allies for consumers who don't have the time to wind their way through aisle after aisle of merchandise.

Time is today's most valued currency. To compete in today's distribution-rich environment, outlets will have to address the consumer's need to manage time efficiently and effectively. Today's harried consumers are consciously and unconsciously adding the cost of their time to the price of an item and calculating the total cost against their shopping experience/expectation mindset.

This is especially true of two-income families who are time-stressed and seek out environments that offer competitive pricing and a pleasant shopping experience, but not as much for lower-income families who are more price-conscious.

"Consumers with more discretionary income can trade money for time, but lower-income families have to deal with the frustration and pay more attention to price because that is part of the value equation for them," said Gresham.