Simon-Kucher Asia study explores consumers’ shift towards sustainably produced goods and growing skepticism around loyalty programs and pricing communications.
Retail brands operating in Asia’s fast-moving consumer goods (FMCG) sector that rely heavily on big promotions and shopping festivals to drive sales must up their game if they are to retain the interest of savvy shoppers who show a growing preference for sustainably produced goods, according to research by consulting firm Simon-Kucher & Partners (Simon-Kucher).
It was a trend that was already underway, but the impact of Covid both accelerated it and cast a spotlight on it. For FMCG retailers, it means a significant recalibration of their marketing strategies is needed if they are to keep up with the needs of consumers. For consumers, buy-less-but-buy-better will be the likely outcome, particularly amid the current inflationary pressures and economic slowdown.
The research is based on two separate reports by Simon-Kucher – its 2022 Big Promo Days Study and its Global Sustainability Study 2022 – which together surveyed more than 35,000 people worldwide with dedicated sections covering Asia. It aimed to identify emerging consumer trends in the retail sector to help businesses adapt their marketing and pricing strategies to stay relevant and keep up with or ahead of their peers.
Big sales seasons fail to truly satisfy consumers
“What we see are sales seasons, such as 11.11, continuing to generate huge sales, but these events and the multitude of other mini-sales seasons increasingly fail to truly satisfy consumers,” said Winnie Ong, Partner at Simon-Kucher. “The discounts don’t really work and trying to satisfy consumers by simply cutting prices just creates a race to the bottom. It’s not a viable growth strategy.”
In fact, the Simon-Kucher research shows that, amid the growing number of discount seasons, consumers in the region are becoming more skeptical of the accompanying promotional communications. More and more they are saying “no” to “spend-and-save” and other loyalty promotions. As well, many consumers do not trust starting shelf prices, as promoted by brands – and fueled by lowest price guarantees offered by some retailers.
In Asia, 25% of respondents said they did not trust the original price against which sales discounts were based by retailers. Singapore (31%) and China (28%) were among the most skeptical in the region, while Thailand (21%) and Philippines (20%) were more confident about getting real discounts. Japan sat in the middle (25%).
Online shopping allows for bespoke discounts and offers
“The challenge for traditional retailers is how to create a differentiated and personalized customer experience to compete against leading players in e-commerce. The growth in online shopping, particularly since the outbreak of Covid, enables online stores and marketplaces to get a very precise idea of individual consumers’ buying patterns and preferences. It means they can be targeted with tailor-made offers; a subtle and far more nuanced approach,” said Ong. “ By comparison, traditional retailer sales and promotions are like cracking a nut with a sledgehammer.”
Online sales have grown exponentially in recent years. It’s a trend that predates Covid and has been largely driven by the Alibaba’s hugely popular 11.11 Shopping Festival. Online shopping is now the preferred purchase channel in Asia (58%), particularly in China (77%).
The Simon-Kucher research shows that whether it is online or offline, promotions still have a part to play. Although starting to wane in influence, they continue to steer volumes and attract consumers. But change is coming.
“Reassurance, surprise and differentiation are tomorrow’s key challenges for brands and retail partners to guarantee financial efficiency. It means a new approach is needed,” added Martin Crepy, Global Head of Consumer Goods. “Of course, managing consumers’ high expectations plays a crucial part, so fully understanding their needs is essential. This is where specialist firms like SIMON-KUCHER, which combines experience, expertise, and a mountain of relevant data to work out effective strategies to grow market share, can help.”
Just as environmental, social and governance (ESG) standards, green finance and sustainability are playing an ever-growing role in the asset management and personal finance sector, so FMCG shoppers are increasingly interested in sustainably produced goods that offer quality at a reasonable price – not necessarily a rock-bottom price.
Sustainably produced goods increasingly important for consumers
This trend is evident globally. Despite inflation and other barriers, the study shows at three quarters of global consumers view sustainability as equal or more important to them than it was last year. Nearly 90% have become ‘greener’ in their purchasing behavior. It’s a global trend, with Asia mirroring other parts of the world.
In China, more than three quarters (79%) of those surveyed said that sustainability is an important or very important factor when they make purchases. That percentage goes up to 82% for millennials only. The percentages are lower in Singapore at 65% overall and 70% for millennials, but still very significant.
It’s an opportunity for brands to showcase their sustainability and green credentials through their supply chains and in other ways to differentiate themselves. This is important given the preferences of millennials, which offer a window onto the future.
Winning with value, not (low) pricing is the key to the future. Consumers will always expect more from brands, yet research and on-the-ground feedback indicate that sales tactics based around pricing and frequent use of discounts will not be enough to draw their attention and build continuous engagement with them.
The research shows a need for brands to build up their points of difference and demonstrate their value. Being genuinely greener and more sustainable creates a clear opportunity as consumers become more socially and environmentally conscious in their purchasing habits.