Navigating the consumer behavior trading down and up

The retail trade volume and turnover are still high but consumers are increasingly reassessing choices every time they shop.

Consumers are trading down and up so therefore the business strategy and marketing plans needs to be adjusted to this new reality in order to succeed.?

European retail trade development

Looking at the European retail trade development from 2005 reveals that the market had several peak periods. In 2008 the trade development peaked followed by several years of decline until first half of 2013 which marked the change to another relatively steady increase. The breaking point came with the COVID-19 crisis and national health prevention measures setting in during spring of 2020. Retail trade saw an unprecedented decline in March and April 2020. In the following month, retail trade recovered almost as quickly as it had fallen and in late summer of 2020, the pre-crisis level had been more or less been regained. In the last quarter of 2020 and the first quarter of 2021, the retail trade volume dropped again. The decreases were quite considerable (e.g. -7 % between October 2020 and January 2021) but by far not as dramatic as during the first wave of the pandemic.

It gives hope to see how fast the retail trade development can recover from serious crisis so we will also get through the current uncertainty. However we need to be smart about it and correct the business strategy and marketing plans but still keep investing into the future key strategic initiatives involving the right technology and people skills training.

Shopping behavior changes according to Kantar research:

Being aware that customers shop more frequently and lower basket size is critical to capture the sales. The current economy with increased cost of living due to energy and inflation hits the customer decision on buying environmentally friendly products which is a clear indication for trading down.

Consumer decision model

Unilever CEO Alan Jope gives context to the decision model reflecting on their consumers trading down and up. Unilever are experiencing that consumers are trading down and up. Their premium and luxury portfolio are doing very well but Unilever are seeing some down trading mostly on packaging sizes. In Europe specifically Unilever is picking up the trend that consumers are moving to private labels within categories such as ice cream, coffee. There’s quite different dynamics playing out across the world. Private label is a European phenomenon at the moment while Unilever is experiencing down and up trading in the rest of the world.

How does inflation impact product choice

When delving deeply into how customer behavior behaves when they trade down, Kantar's study is beneficial. When working with luxury products, it's frequently crucial to emphasize that customers typically move down a tier at a time. i.e., switching from a premium brand to a lesser-known brand rather than going straight to private label. Each consumer's decision is made in milliseconds, taking into account a variety of elements. When there is significant inflation and a high level of uncertainty, all brands are at risk. If a brand is powerful enough, it will maintain the premium first choice.

Consequently, it's crucial to strike a balance between long-term brand growth and immediate sales strategies.