The economic impacts of the pandemic include job losses, lower wages, and the closure of micro, small, and medium-sized businesses. This has brought changes in the buying habits of Mexican consumers that we have previously addressed here. On this occasion we will discuss the impacts this has on the positioning of different products and services.
By their price, the products can be classified into: low price, medium price, premium price and luxury prices. Each of these categories relates to how a product performs in meeting a need or solving a problem. In particular, a cereal can be classified as a premium price if it has attributes that add value to the consumer, such as a cereal of organic or natural origin.
It can also be a car that integrates some artificial intelligence system to perform some of the driving functions. These products typically add more and more features that add value to consumers and allow brands to charge a higher price point.
Premium products are not normally associated with discounts and promotions, because the value-price effect can send a signal to consumers that lowering the price also reduces quality. Similarly, premium product brands maintain strict discipline to keep their prices high, as it is their primary source for maintaining high margins.
In line with the high premium prices, these products typically exhibit relatively higher levels of quality and performance than other products in other categories, as well as offering differentiated and even personalized customer service.
These products are also associated with emotional, symbolic and ethical attributes. For example, some food brands display environmental and social responsibility certifications that target segments concerned with these issues.
Indices have been developed in the financial industry that measure the level at which some exchange-traded funds invest in companies that are socially responsible. After more than ten months of profound economic impacts to the country that are reflected in a lower family income, premium products are already one of the categories to show signs of decline.
Despite having high levels of added value, consumers have been showing signs of caution in spending, reflected in a declining willingness to pay for premium products.
In a series of projects carried out in the last quarter of 2020 by students of the Universidad Anáhuac, we found that, in the category of high turnover consumable products, such as cereals, personal care products, bottled waters and milk, consumers are in all cases willing to pay lower prices than the brands are offering their products. This has impacts on the demand for products and the profits of the companies.
This also influences the characteristics of premium products that are normally associated with elements of exclusivity. Project results indicate that consumers may be migrating to lower-priced products with fewer value-added attributes. Given that the source of the profit margin for these products is in price rather than volume, it is possible that, as we have seen the closure of many companies and restaurants, we will also observe in the short and medium term the increasing disappearance of premium products from supermarkets and department stores.
Perhaps a marketing strategy that helps companies stay is one of “less is more”, that is, focus on promoting products that include only the necessary attributes that help meet consumer needs adequately, by While its price remains at medium levels, why cook with salt from the Laguna de Cuyutlán harvested by hand, when for a fraction of the cost it is possible to cook with a good quality salt that serves the purpose of flavoring food ? In these uncertain times with which we begin 2021, understanding and meeting the new needs of the consumer is the most important source of value and well-being for companies and consumers.
* Professor at the Faculty of Economics and Business of the Universidad Anáhuac México