So many aspects of the retail industry have been impacted by the COVID-19 pandemic. And not just impacted but transformed. We are in the midst of a paradigm shift when it comes to shopper brand loyalty and switching behavior. This will have a direct impact on how retailers and manufacturers analyze and respond in both the short and long terms. For example, in the world of assortment reviews, the traditional metrics used to make decisions (sales rate analysis combined with “switching” metrics) will fall short in a post-COVID-19 world. Here is why.
All products are not created equal – or are they?
There has been a massive wave of unplanned trial of second- and third-tier brands due to lack of product availability. And it’s this dynamic that’s bound to change the assortment game in the immediate future for retailers and CPGs. People have recently been forced to try other brands for the first time because they had no choice. Therefore, logically, there will be people that had very strong brand loyalty to the number one brand in the category trying a second- or third-tier brand that was less expensive or less familiar – and discovering that it’s just as good or better. The manufacturers of these second- and third-tier brands couldn’t have paid enough money in promotions, coupons or advertising to get this many people to try their products for the first time. In effect, the pandemic created a supercharged trial program for second- and third-tier brands with no direct cost to those manufacturers.
Take pasta sauce, for example. It’s an item that generally sees a high level of consumer brand loyalty. Everybody has their favorite and that’s what they always use. Further, only a few brands have leading market shares and the rest carve up what’s left. So, these secondary brands are hard-pressed to grow their share as they are unable to generate meaningful levels of trial. The challenge then becomes, how do retailers make assortment decisions with changing buying behavior?
The above chart shows us:
- Product unavailability has driven consumer trails of second and third-tier brands.
- Many brand exclusive buyers have tried others and now believe they are just as good or better.
- Our analytics of COVID-19 driven changes in buyer preferences injects forward-looking insights into the assortment decision making process.
- In this pasta sauce example, a disproportionate number of Prego exclusive buyers switched to and stayed with Classico and private label brands
- MID’s brand clearly converted more than their fair share of Prego exclusive buyers.
The COVID-19 phenomena of unplanned trial, and the likely subsequent changes in shopper loyalty as a result, means that retailers are going to need to shift their thinking about how they make assortment decisions in the future.
Brand loyalty and switching behavior – and the coming wave of assortment rationalization
In an effort to push out product to meet demand and have streamlined production, manufacturers eliminated pack sizes and reduced product selections. At the same time, supplier allocation of products became the norm. The result was a dramatically lower assortment choice on the shelf which didn’t necessarily correlate with a drop in sales. As we come out of the pandemic, retailers will review their current shelf space and ask, “At the end of the day, we ended up with 40 fewer SKUs because we couldn’t get them. Are we going to add 40 back?” The answer is, probably not. Many retailers are already signaling that they’re going to take a very long and hard look at what to add back to those shelves. What’s going to make that task especially difficult is the fact that historical sales and switching data does not fully take into account the impact of this massive amount of unplanned trial and the inevitable repeat associated with it. That’s where household level loyalty data comes into play.
A new approach to an old question
SKU rationalization is a big topic for retailers and manufacturers. But the old methods of analysis could very likely lead to the wrong decisions. So, how do manufacturers and retailers put in place the analytics needed to look at assortment in the face of this COVID-19-driven phenomena? The key is to include trial and, most importantly, repeat metrics on second- and third-tier brands into the decision-making process. Understanding which of these secondary brands “stuck” with shoppers after they had no choice but to try them is an important part of the future assortment decision model.
The good news is that doing so is really quite straight forward when using retailer loyalty data. Exclusive Brand Buyers of each brand in a category (pre-COVID-19) can easily be isolated and then traditional trial and repeat analysis of all the other brands in the category among those Exclusive Brand Buyers can be conducted. Of these two metrics, the most important one to incorporate into the assortment decision process is “repeat,” as it’s a forward looking view of consumer preference in the future. Items with disproportionately higher repeat rates should be kept in distribution regardless of their overall sales performance before COVID-19.
New winners & losers
I think the outcome will ultimately be share increases among second- and third-tier brands across many categories moving forward. I believe we’ll see several brands that were foundering get back above water and find new momentum. Further, we must assume that this mass trial and subsequent repeat of second- and third-tier brands is going to have some negative share impact on the current leading brands.
The path is clear
If retailers say, “We’re going to rationalize assortment and we’re going to use our pre-COVID data and traditional metrics to make those decisions,” they will almost certainly cut second- and third-tier brands that have become preferred brands by a number of their shoppers. Given what we are seeing around current brand loyalty and switching behavior, doing this would be a mistake. My counsel to retailers and the suppliers who work with them on assortment analysis in the coming weeks – and even months – is not to rely exclusively on the traditional analytics used to make assortment decisions and to leverage the retailer’s loyalty data to incorporate second- and third-tier brand trial and repeat among Exclusive Brand Buyers into the decision making process.
Learn more in our whitepaper about how AI brings precision to grocery assortment optimization.
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