Reflection assignment

Excerpt from Growth Opportunities for Brands During the COVID-19 Crisis

RESEARCH HIGHLIGHT MIT Sloan Management Review May 05, 2020

Small and midtier brands have unique opportunities to provide value in the new consumer environment.

Jonathan Knowles, Richard Ettenson, Patrick Lynch, and Joseph Dollens

COVID-19 has already had an enormous impact on consumers and brands. The stay-at-home directives, radical shifts in demand for certain product categories, undersupplied distribution channels, and supply chain difficulties for certain companies have disrupted habitual behaviors and required customers to shop in new ways.

This is significant for brands, especially market leaders in their categories, because humans are cognitive misers, meaning that we use mental shortcuts to guide our judgments and decisions. In terms of purchasing behavior, once a routine in a certain store or preference for particular brand is established, it becomes habitual and is difficult to change. In normal times, gaining consumers’ attention and moving the needle on key consumer-behavior metrics was a costly endeavor and often beyond the budgets and marketing capabilities of many small and midtier brands.

The current environment offers an unprecedented opportunity for these smaller companies to compete against their more established rivals for exposure, mindshare, product trials, and market share with a new and broader base of potential customers. In this article, we share the findings of our research into what percentage of consumer purchases is vulnerable to substitution and the ways brands can rethink their value propositions to customers in uncertain times.

A Shock to the System

Our research, conducted in late March, two weeks after stay-at-home directives were issued in much of the U.S. (see “The Research”), identified many new patterns in consumer shopping behavior and mindset. Aggregating the findings from our study with top-line observations from other research fielded in the same time period reveals some key findings.

The Research

· The author team administered a national survey of 1,233 U.S. adults over two days in late March 2020 (approximately two weeks after major stay-at-home restrictions were imposed in much of the U.S.).

· Consumers in our survey reported on their shopping activities relative to their purchasing behavior a few weeks earlier, prior to the COVID-19 crisis.

· The survey included questions about their store choices, the timing of their shopping trips, the purchase of new brands, and reasons for selecting new brands.

· Our analysis included only respondents who personally shopped in physical stores and/or online for themselves or for household consumption and excluded a small percentage of the sample who reported shopping for another household.

Broad shifts in consumer behavior:

· The location and timing of shopping (whether in person or online).

· The composition of the basket of products purchased (emergency preparedness supplies, health care products, and cleaning items).

· A reduction in shopping frequency and an increase in the average basket size.

· Stocking up on nonperishables and hard-to-find items.

· Increased readiness to try direct-to-consumer offerings or to shop online at stores that offer home delivery.

Shifts in consumer mindset and attitudes:

· Focus on function (that is, purchase behavior driven by category availability and type of benefit more than by brand preference).

· Growth of interest in brands that combine functional performance with pro-social behavior by their parent companies.

· Loss of interest in status-driven purchases that have strong components of conspicuous consumption (that is, items that are consumed/displayed publicly).

· Interest in how the companies behind the brands are treating their employees.

Looking at the results from our national survey, fully 85% of respondents reported that they have shopped in person at a “physical store that was new to them” since mid-March, while 76% had shopped online at a new store/website. In terms of timing, 80% of respondents reported physical in-store shopping “at a time of day that was new to them.” The timing of online shopping also changed significantly, with almost half (48%) of respondents saying the timing of their online purchases differed from before the crisis.

More than half of our respondents (54%) reported they had made purchases from “brands that were new to them” and that new brands accounted for more than 30% of their shopping carts at checkout. The most frequently cited reasons for purchasing from a new brand included “favorite brand was out of stock” (32%) and “willingness to try new brands” (32%). The product category with the highest trial rate for new brands was packaged goods and beverages (24%), followed by household care products (20%), fresh and organic foods (13%), and personal care products (13%). These categories are home to some of the best-known brands from major consumer goods companies such as Procter & Gamble, Unilever, Kraft Heinz, PepsiCo, and Colgate-Palmolive.

Changes in where and when consumers are shopping, together with changes in product availability, necessitate their heightened attentiveness as they browse stores with unfamiliar layouts, shop for items not normally on their lists, and/or increase the proportion of their purchases made online. Increased demand for specific items during the pandemic has caused consumers to focus more closely on a product’s features (for example, whether vinegar-based cleaners are effective against the coronavirus), while product shortages have caused them to consider alternatives to the brands they would previously have purchased without thinking about it.

Loyalty or Just Habit?

Repeat purchase rate has long been a key metric that brand owners monitor because of the enormous impact that retention plays in determining a customer’s lifetime value. A company with a 5% attrition rate will still have 77% of its original customers after five years, but one with a 15% attrition rate will have lost well over half of them.

The gold standard for measuring customer loyalty is whether consumers would delay a purchase if their preferred brand were not available, or if they would be willing to accept a substitute brand. This question is typically conducted through hypothetical scenarios, given that few companies are prepared or willing to test their customers’ loyalty in practice by deliberately causing real-world out-of-stock conditions for them.

In this regard, COVID-19 has set the stage for the ultimate experiment and has taken marketers into uncharted territory. There is no precedent for this global crisis and its impact on shopping behavior, and brands are now discovering the difference between true loyalty and habitual purchasing.

Jonathan Knowles ( @typetwo ) is the CEO of Type 2 Consulting. Richard Ettenson is a professor and the Kieckhefer Fellow of Global Marketing and Brand Strategy at Arizona State University’s Thunderbird School of Global Management. Patrick Lynch ( @patrickdlynch ) is a clinical assistant professor of analytics and leadership at Thunderbird. Joseph Dollens is president of GIO Global Intelligence