Post on 11-Jan-2016
description
Research launched for:The Coca-Cola Retailing Research Council Latin America by:McKinsey&Company
Inside the minds and pockets of Inside the minds and pockets of Latin American consumersLatin American consumersHow consumers build price perception and its How consumers build price perception and its impact on retailersimpact on retailers
Inside the minds and pockets of Inside the minds and pockets of Latin American consumersLatin American consumersHow consumers build price perception and its How consumers build price perception and its impact on retailersimpact on retailers
2
THE COCA-COLA RETAILING RESEARCH COUNCIL – LATIN AMERICA
The Coca-Cola Retailing Research Council – Latin America (CCRRC - LA) is dedicated to developing a better understanding of the food retailing and allied merchandise distribution business in Latin America. It concentrates in identifying and then studying selected relevant issues, presenting its findings to the manufacturing and retailing communities, in order to assist in the development and enhancement of the food retailing business.
Latin America Council MembersJonathan BergerCIES USA
Howard Butt IIIHEB Mexico
Guillermo D'AndreaCouncil Research Director
Ana Maria DinizGrupo Pao de Acucar Brazil
Paulo GoelzerIGA, Inc. Brazil
Antonio Coto GutierrezDia Internacional Argentina
Tim HammondsFMI USA
Nicolás IbáñezD&S Chile
Gonzalo RestrepoÉxito Colombia
Eduardo Castro WrightWal*Mart Mexico
3
REVIEWING THE STUDY GOALS AND OBJECTIVES
Understand the drivers of consumer price perception in Latin America
Overall goals and focus level Specific objectives
Understand the implications of pricing approaches on retailers and manufacturers
Understand high level implications for retailers in terms of organization, supply chain and vendor relations
Understand high level implications for manufacturers in terms of capabilities and requirements to deliver under different retailer price approaches**
Source: Team analysis
Match consumer price perception with reality to understand which are the most effective levers for retailers
Understand the relative importance of different drivers of consumer price perception, across major consumer segments, product categories, shopping occasions* and selected markets
Understand how price ranks among the key factors in the consumer preferred store selection process*
10% of study focus
90% of study focus
4
THE STUDY LEVERAGED THREE MAIN SOURCES OF INFORMATION
*AC Nielsen conducted the focus groups in São Paulo and the field research in all five marketsSource: Team analysis
•~15 in-depth interviews with executives of key retailers in the region
Methodology •Qualitative survey– Focus groups to test
initial hypothesis•Quantitative survey
– ~3,000, 30-minute interviews
•Correlate consumer research results with AC Nielsen scantrack information
•Understand retailer perspective on consumer price perception
Objective •Capture insights on consumer price perception
•Segment consumers
•Enrich findings with AC Nielsen proprietary databases
•Match price perception with actual prices
In-depth interviews Consumer survey* ACNielsen database
5
CONSUMER SURVEY DETAILS
Source:AC Nielsen, team analysis
Bogotá
• 673 consumer surveys• 6 retailers (90% market share)• 30 categories (~3,500 SKUs)
Santiago
• 600 consumer surveys • 11 retailers (95% market share)• 30 categories (~3,700 SKUs)
Buenos Aires
• 600 consumer surveys• 11 retailers (70% market share)• 33 categories (~2,500 SKUs)
São Paulo
• 600 consumer surveys• 13 retailers (87% of the market)• 30 categories (~2,500 SKUs)
Mexico City
• 612 consumer surveys• 6 retailers (90% market share)• 30 categories (~3,000 SKUs)
6
ONLY CONSUMERS WHO SHOP REGULARLY IN AT LEAST ONE MODERN FORMAT STORE ARE RELEVANT FOR OUR ANALYSIS
*Includes hypermarkets, supermarkets, mini-markets and suburban supermarketsSource:Team analysis
Considered for our analysis
Consumers who only shop in traditional format
Consumers who shop in it least one modern format* store regularly
• Typically low-end consumers
• Useful to gain insights on the low-end market, already studied by CCRRC
• Analysis more useful in a study to increase the penetration of modern format, what is not the scope of this project
• Primary population of interest for the CCRRC
• Only respondents able to provide answers and crossable data for:– Accuracy of price perception– Price perception drivers for modern format– Effectiveness of promotional activity in price
perception building
Our sample is representative
of modern format shoppers
7
21-34 years
35-49 years
50+ years
THE CONSUMER SURVEY IS REPRESENTATIVE OF THE MAIN SOCIO-ECONOMIC CLASSES AND AGE GROUPS
Age
*Based on AC Nielsen socio-economic classification for each marketSource:Consumer survey
%
Middle
Low
High
Socio-economic class*
Results take into account the behavior and attitudes of low income consumers
8Source:AC Nielsen, National Marketing Associations of each country
COUNTRY-LEVEL ACCEPTED STANDARDS GUIDED OUR INCOME LEVEL CLASSIFICATION
We adopted the principles suggested by the National Marketing Associations of each country
High income
Middle income
Low income
São Paulo Buenos Aires Mexico D.F. Santiago Bogotá
• A • AB• C1
• ABC+ • ABC1 • Clase alta • Clase média
alta
• B• C
• C2• C3
• C • C2• C3
• Clase média
• D• E
• D1• D2• E
• D/E • D • Clase baja
67% of modern format shoppers in São Paulo belong to classes B and C, classified as middle income
9
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just in the depth of their pockets
2. The few key levers that matter in building price perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search for value
4. Retailers have an opportunity to get it right more often in their search for a better price proposition
10
CONSUMERS IN LATIN AMERICA CAN BE SPLIT INTO FIVE MAIN SEGMENTS
Source:Consumer survey, team analysis
"Avid bargain hunters"
Invest a lot of time and are willing to visit multiple stores for the best deals
"Quality seekers and time savers"
Willing to pay a slight price premium to save time and have access to high quality products
“Indifferent shoppers on a budget"
Do not care about shopping, hence invest little time in it
"Range-seekers on a budget"
Want to bring home the best quality products, but limited by a tight budget
High income consumers who are willing to visit multiple stores to find the best deals
"High-income bargain hunters"
11
WE RAN A TWO-STAGE CLUSTER ANALYSIS COMBINING ATTITUDINAL AND SOCIO-DEMOGRAPHICS ELEMENTS…
*Note that none of the elements are unique, however, this methodology provides managers with unprecedented control over the process, by allowing maximum managerial input and the testing of early hypothesisSource:Team analysis
Sample of 3,084 consumers in 5 countries
Two main segmentation drivers
Attitudinal elements (most common method)
• Clean and intuitive attitudes across all segments
• Lacks actionability (difficult to find consumers)
• Selected 4 most robust scenarios
• Crossed with shopping behavior– Key buying factors – Average monthly
spend– Format of main
store
Socio-economic/ demographics
• Simple way to segment, facilitate identification
• Lacks insights and does not reflect attitudes
Two-stage cluster analysis
• Combines both methodologies to reach meaningful and actionable segments
• Process* developed and refined by McKinsey experts for segmentations with strategic objectives
Ran 20+ statistically relevant scenarios
Selected 1 scenario with 5 clusters
12
…ALLOWING THE IDENTIFICATION OF SOME CONSUMERS TO WHICH SEGMENT THEY BELONG
Source:Team analysis
• Low income level • Age 21-34 years old• Only one person on
the household
• Middle income level • Large household• Shops primarily on
hypermarkets
84% probability that this person is an Avid
Bargain Hunter
86% probability that this person is a Range seeker on a budget
EXAMPLE
13
INCLUDING A HANDFUL OF ATTITUDINAL STATEMENTS, ONE CAN IDENTIFY MOST CONSUMERS
Source:Team analysis
Would you sacrifice service for lower prices?
Would you spend a lot of time looking for offers?
Probability of 64% to be an “Indifferent shopper on a budget”
Yes
No
21 - 34
35 - 49
50+
Age group
A handful of attitudinal statements allow us to identify over 50% of all
consumers
EXAMPLE
14
AVID BARGAIN HUNTERS
• Rely less on modern formats– When shopping on
modern formats, tend to prefer discounters
How do they behave?
• Lowest average expenditure when compared with other segments (~12% below market average)
• Less likely to do stock-up trips
• Always compare prices at different stores
• Tend to be the least loyal consumers
• Shopping around for the best deals• Purchasing only products they had
planned on• Willing to sacrifice services for lower
prices• Spending a lot of time looking for
promotions• Shopping in larger number of stores
recently
What do they not value?
• Paying more to shop close to home• Paying more to save time• Paying more for higher quality
What do they value?
Source:Consumer survey, team analysis
Shopping behavior
Monthly spend
Format
• Typically low income • Disproportionate number of
males and older consumers (50+ years old)
15
AVID BARGAIN HUNTERS
16
HIGH INCOME BARGAIN HUNTERS • Typically high income consumer
• Average age and household size
• Tend to spend more (~16%) than the average spend on groceries
• Rely more on modern format stores– Tend to prefer
hypermarkets and avoid shopping on discounters
• Tend to have higher loyalty than average (São Paulo is the exception)
How do they behave?
Shopping behavior
Monthly spend
Format
Source:Consumer survey, team analysis
• Shopping around for the best deals• Stocking-up when they find attractive
promotions• Going to a grocery store they hear is
offering good specials• Shopping in more stores recently
What do they not value?
• Paying more for the convenience of shopping closer home
What do they value?
17
HIGH INCOME BARGAIN HUNTERS
18
RANGE SEEKERS ON A BUDGET
• Tend to shop more on hypermarkets
Format
• Highly price sensitive• Tend to make fewer trips
(São Paulo is the exception) and stock up once a month
• Normally below average loyalty
How do they behave?
• Tend to spend less (~6%) than the market average on groceries
Monthly spend
Shopping behavior
Source:Consumer survey, team analysis
• Typically young, low income mothers
• Large household (6 or more people)
• Getting good quality products and a large assortment
• Stocking-up when they find attractive promotions
• Providing the best possible quality for their family, despite their tight budget
What do they not value?
• Sacrificing services for lower prices• Shopping at upscale stores
What do they value?
19
RANGE SEEKERS ON A BUDGET
20
INDIFFERENT SHOPPERS ON A BUDGET
• Typically low/ middle income
• Tend to spend ~10% less than the market average on groceries
• Tend to rely less on modern format stores– When shopping on
modern formats, tend to choose hard discounters
How do they behave?
• Tend to shop less frequently
• Display relatively high loyalty to their main grocer store
Shopping behavior
Monthly spend
Format
Source:Consumer survey, team analysis
• Sacrifice service for lower prices
What do they not value?
• Spending time looking for deals• Stocking-up when they find good
promotions• Reading store pamphlets
What do they value?
21
INDIFFERENT SHOPPERS ON A BUDGET
22
QUALITY SEEKERS AND TIME SAVERS
How do they behave?
• Highest average basket, ~22% higher than market average spending on grocery shopping
• Rely primarily on modern format stores– Willing to shop more on
supermarkets
• Tend to shop less frequently
• Tend to be the most loyal segment in all markets
• Rarely compare prices
Shopping behavior
Monthly spend
Format
Source:Consumer survey, team analysis
• Typically high income consumers
• Small families
• Saving time rather then money• The convenience of shopping closer to
home• Higher quality, even at higher prices
What do they not value?
• Spending time looking for promotions• Shopping in many stores to pay less
What do they value?
23
QUALITY SEEKERS AND TIME SAVERS
24
22%
23%
19%
18%
18%
Avid Bargain Hunters
Indifferent shoppers on a budget
Quality seekers and time savers
High-income bargain hunters
RELATIVE SIZE OF THE SEGMENTS IN THE REGION
100% = 2,818
Number of respondents
Source:Consumer survey
Range-seekers on a budget
25
THE MARKETS SHOW SIGNIFICANT DIFFERENCES IN SEGMENT BREAKDOWN%, number of respondents
Quality seekers and time savers
Range seekers on a budget
Indifferent shoppers on a budget
Avid bargain hunters
S. Paulo B. Aires Mexico Santiago Bogotá
Source:Consumer survey, team analysis
Overall
5835685505515652,818
High income bargain hunters
100%
• São Paulo and Buenos Aires have a disproportional share of “Bargain hunters" segments
• “Quality seekers and time savers” are more relevant in Santiago and Bogotá
26
DETAILED SEGMENT DESCRIPTION – SÃO PAULONumber of respondents, R$ 000, %
Source:Consumer survey, team analysis
Avid bargain hunters
$ spend
Range seekers on a budget
Indifferent shoppers on a budget
Quality and time
High income bargain hunter
Number of consumers
Range seekers on a budget• Average spend: R$ 500• Monthly visits to modern format: 16• Share of wallet of main retailer: 63%• Income level
– High: 0%– Medium: 70%– Low: 30%
Quality seekers and time savers• Average spend: R$ 543• Monthly visits to modern format: 10• Share of wallet of main retailer: 74%• Income level
– High: 20%– Medium: 75%– Low: 5%
Indifferent shoppers on a budget• Average spend: R$ 327• Monthly visits to modern format: 8• Share of wallet of main retailer: 71%• Income level
– High: 6%– Medium: 63%– Low: 32%
High income bargain hunters• Average spend: R$ 516• Monthly visits to modern format: 11• Share of wallet of main retailer: 55%• Income level
– High: 34%– Medium: 66%– Low: 0%
249565
• Store format– Hyper: 47%– Super: 19%– Disc.: 35%
• Store format– Hyper: 57%– Super: 3%– Disc.: 40%
• Store format– Hyper: 77%– Super: 12%– Disc.: 11%
• Store format– Hyper: 79%– Super: 12%– Disc.: 10%
Avid bargain hunters• Average spend: R$ 429• Monthly visits to modern format: 7• Share of wallet of main retailer: 55%• Income level
– High: 0%– Medium: 66%– Low: 33%
• Store format– Hyper: 55%– Super: 14%– Disc.: 32%
Significant deviations from average
Bold =
Market average• Average spend: R$ 441• Monthly visits to modern format: 9• Share of wallet of main retailer: 62%• Income level
– High: 10%– Medium: 67%– Low: 23%
• Store format– Hyper: 60%– Super: 12%– Disc.: 28%
27
ALTHOUGH OTHER FACTORS VARY IN RELEVANCE, LOCATION AND PRICE ARE THE TWO MOST IMPORTANT FACTORS FOR ALL SEGMENTS
Source:Consumer survey
Location
Promotions
Quality of perishable products
Assortment
Overall product quality
Indifferent shoppers on a budget
Range-seekers on a budget
Quality seekers and time savers
Avid bargain hunters
Why did you choose to shop at that particular store?
Price
% of consumers that selected the factor as important
Brand variety
Service level
Private label quality
High income bargain hunters
28
BUT SEGMENTS VARY WIDELY IN THE FREQUENCY OF PRICE COMPARISON%, number of respondents
High income bargain hunters
Indifferent shopper on a budget
Range seeker on a budget
Quality seeker and time saver
100%
Source:Consumer survey, team analysis
Avid Bargain Hunters
493655530 493636
Always
Occasionally
How often do you compare prices between stores?
Never
Very often
29
FROM RETAILERS’ STAND POINT, SOME SEGMENTS APPEAR TO BE MORE ATTRACTIVE THAN OTHERS
-6
-4
0
3
8Quality seekers and time savers
High income bargain hunters
Indifferent shoppers on a budget
Range seekers on a budget
Avid bargain hunters
Source:Consumer survey
Loyalty compared to averageShare of wallet of main store
-14
-6
-7
16
18
Monthly spendCompared to market average
• “Quality seekers and time savers” and “High income bargain hunters” spend more than any other segment and tend to be more loyal customers
• “Avid Bargain hunters” and “Range seekers on a budget” are the least loyal segments and have small basket sizes
%
30
BUENOS AIRES AND BOGOTÁ HAVE THE LOWEST LOYALTY RATIO OF ALL MARKETS
São Paulo Santiago Mexico Bogota Buenos Aires
Average loyalty ratio*
*Share of wallet of main storeSource:Consumer survey
31
SHOPPING BEHAVIOR BY SEGMENT AND MARKET
300
450
600
25 50 75 100
Average basket size (vertical axis) vs. loyalty index* (horizontal axis)
*Share of wallet of main storeSource:Consumer survey
São Paulo (R$)
100
150
200
25 50 75 100
Santiago (CLP)
300
450
600
25 50 75 100
Bogotá (COP)
1.250
1.750
2.250
25 50 75 100
Mexico (MXN)
300
450
600
25 50 75 100
Buenos Aires (ARS)
QualityHIBH
Range
Avid BH
Indifferent
Quality
HIBH
Indifferent
Avid BH
Range
Quality
HIBH
Range
Indifferent
Avid BH
HIBH
Quality
Indifferent
Avid BHRange
Quality
HIBH
Indifferent
Avid BH
Range
• Quality seekers and High income bargain hunters spend more than any other segment across all markets and generally have the highest loyalty ratio
• Avid bargain hunters and range seekers on a budget tend to spend less than all other segments and are also less loyal customers
• On average, São Paulo, Santiago and Mexico have the highest loyalty ratio on all segments
32
WHERE THE DIFFERENT SEGMENTS SHOP
*Indicate store format that capture a disproportional share of the segment compared to the market average. H (Hyper), S (Super) and D (Discounters). Discounters include Bodegas in MexicoSource:Team analysis
Range seekers on a budget
Avid bargain hunters
Frustrated shoppers
Quality seekers and time savers
High income bargain hunters
%, across all metropolitan areas studied
Percentage spent on modern format
Higher income segments spend more on modern
format
Preferred format*
Range seekers on a budget
Avid bargain hunters
Frustrated shoppers
Quality seekers and time savers
High income bargain hunters
Super Hyper Discounter
Higher income segments prefer super & hyper; lower tend towards
discounters & hyper
33
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (1/3)
Overall A B C D
543 74 90 47 93
High income bargain hunters
Range seekers on a budget
Avid bargain hunters
100%
Source:Consumer survey, team analysis
Quality seekers and time savers
Indifferent shoppers on a budget
Percentage of primary shoppers by segment, main retailers
São Paulo Buenos Aires
322 93 71 51
Overall A B C
34
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (2/3)
Overall
410 59 114 51 37
High income bargain hunters
Range seekers on a budget
Avid bargain hunters
Source:Consumer survey, team analysis
Quality seekers and time savers
Indifferent shoppers on a budget
A B C D
Bogotá Santiago
Overall A B
521 114 316
Percentage of primary shoppers by segment, main retailers
35
SOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (3/3)
Average A B C D E
495 66 203 57 68 35
High income bargain hunters
Range seekers on a budget
Avid bargain hunters
100%
Source:Consumer survey, team analysis
Quality seekers and time savers
Indifferent shoppers on a budget
Mexico
Percentage of primary shoppers by segment, main retailers
36
McKINSEY PROPRIETARY RESEARCH IDENTIFIED SEVEN SEGMENTS IN THE U.S. GROCERY RETAIL MARKET
Shop around at many different stores to hunt down the latest special
Want broad selection and national brands for a low price
Use coupons 100% of the time, usually at a store close to home
Pure Price
Willing to pay more and drive farther for quality and service
Want great service and ambience at any cost
Willing to pay more to get in and out quickly at a store close to home
Use every means available to get the lowest price – will not pay more for anything
Bargain Hunters Selection for Less Coupon Clippers
Quality Superior ExperienceConvenience
Source:McKinsey North American Retail Practice
37
LATIN AMERICA SEGMENTS ARE FAIRLY SIMILAR TO THOSE IN THE U.S.
Selection for Less (12%)
Coupon Clippers (10%)
Quality (14%)
Superior Experience (20%)
Convenience (22%)
Source:Team analysis
Range-seekers on a budget (22%)
Quality seekers and time savers (21%)
United States Latin America
( ) Percentage of total spend
Bargain Hunters (10%)
High-income bargain hunters (20%)
Avid bargain hunters (20%)
• In Latin America, “more price oriented segments” are significantly larger than in the U.S., noticeably “Bargain Hunters” even adding the “Coupon Clippers” in the US
• Segments broadly similar in key characteristics
Pure Price (12%)
Indifferent shoppers on a budget (17%)
79%
44%
56%
21%
More price oriented
Less price oriented
• “Less price oriented” segments in the U.S. more defined and significantly larger share of total population than in Latin America
38
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just in the depth of their pockets
2. The few key levers that matter in building price perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search for value
4. Retailers have an opportunity to get it right more often in their search for a better price proposition
39
MAIN MESSAGES
• Reference price, range architecture and promotions are the three most important levers in determining consumer price perception in Latin America
• Reference price is the most important lever:– in all consumer segments, although other levers have disproportionate influence
depending on the segment, such as range architecture for “Quality seekers and time savers” and “Indifferent shoppers on a budget”.
– in all markets except Mexico City, where range architecture is slightly more important
• A limited number of KVIs appear to particularly important in driving consumers’ perception of reference price
• From matching price perception with price reality, it is clear that consumers are able to quite accurately identify retailers with low average prices in markets where promotional activity is relatively low. Promotions do not drive price perception in any market and in fact obscure price reality in Sao Paulo and Buenos Aires.
• There are indications however, both in low and high promotional markets that some retailers are able to get more credit more value than they “deserve”
1
2
3
4
5
40
HOW DO CONSUMERS DEVELOP THEIR PRICE PERCEPTION?
Source:Team analysis
• What are the different elements that can help explain price perception?
• What are the elements that are most relevant to explain price perception?
• Are these different for the various markets?
• Are these different for various segments?
How do consumers perceive prices?
• Do Latin American consumers accurately perceive low price retailers?
• Are there differences in price perception accuracy when we look at the different regional markets and segments?
• What elements might explain regional differences in price perception?
How does price perception match with price reality?
41
THERE ARE SEVERAL POTENTIAL DRIVERS OF PRICE PERCEPTION
Source:Team analysis
Referenceprice
Promotions
Rangearchitecture
Communications
In-storeenvironment
Drivers
• Low prices on items bought most often• Low prices on well-known items• Prices are usually low
• Frequent discounts • Frequent interesting promotions (e.g., 2x1, wow deals)
• Low priced alternatives for everyday basics (i.e., OPP)• Broad range of price and quality levels• Private label with good price/quality ratio
• Believable low price ads• Frequent promotion pamphlets• In-store signs that clearly point to sales
• Overall store environment• A lot of people shopping
42
PRICE PERCEPTION IN LATIN AMERICA IS DRIVEN MAINLY BY TWO ELEMENTS% total weight
Source:Team analysis
• Reference price is the key lever of price perception, with KVIs as a very relevant component
• Range architecture – namely cheap alternative brands (OPPs) – are also very important
• Together they make up for 75% of the way a consumers builds price perception
Prices are usually low
Cheap alternative brands
Upscale store environment
Frequent discounts
Believable price ads
Prices on well-known items/bought most often
Broad range of quality & price levels
Reference price
Range architecture
Environment
Promotions
Communi-cations
43
DRIVERS OF PRICE PERCEPTION BY METROPOLITAN REGION% total weight
*Causes poorer price perceptionSource:Team analysis
São Paulo Buenos Aires Santiago Mexico D.F. Bogotá
Reference price
• Prices are usually low
• Low prices on items bought most often/well known
Promotions
• Good promotions
• Frequent discounts
Range architecture
• Cheap alternative brands
• Broad range
Environment• Upscale store
environment*
Communications• Believable
price ads
44
DRIVERS OF PRICE PERCEPTION BY SEGMENT% total weight
*Causes poorer price perceptionSource:Team analysis
Avid bargain hunters
High income bargain hunters
Range seekers on a budget
Frustrated shoppers on a budget
Quality seekers and time savers
Reference price
• Prices are usually low
• Low prices on items bought most often/well-known
Promotions
• Good promotions
• Frequent discounts
Range architecture
• Cheap alternative brands
• Broad range
Environment• Upscale store
environment*
Communications
• Pamphlets
• Believable price ads
47
A LIMITED NUMBER OF KVIs APPEAR TO BE ESPECIALLY IMPORTANT FOR BUILDING PRICE PERCEPTION
*Based on McKinsey previous experience Source:Consumer survey
Do you base your assessment of store prices on a few key products?
How many items do you normally memorize the price of to assess the price level of a store?
No
Yes
Overall Bogotá Buenos Aires
Mexico San-tiago
São Paulo
Average number of items consumers claim to memorize the price on to assess retailer prices
Different consumers have different KVIs, as a result
an individual store can have up to 100 KVIs*
49
OUR SURVEY HAS IDENTIFIED ABOUT 500 KVIs IN EACH METROPOLITAN REGION – ONLY ABOUT 150 ARE COMMON TO MULTIPLE SEGMENTS…Number of different KVIs mentioned – spontaneous responses
638
545
474474 461
Buenos Aires
Bogotá Santiago São Paulo Mexico D. F.
Source:Consumer survey, team analysis
Mentioned by only 1 segment
Mentioned by at least 2 segments
50
… AND, OUT OF THESE, ONLY A DOZEN ARE ULTRA-KVIsNumber of different KVIs mentioned – spontaneous responses
154 150139
147
130
Buenos Aires
Bogotá Santiago São Paulo Mexico D. F.
Source:Consumer survey, team analysis
Ultra KVIs
Only 2 segments
3 or 4 segments
All Segments
Mentioned by:
51
TOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responses
Source:Consumer survey
São Paulo
Sugar União 1 kg
Rice Camil 5 kg
Coffee Pilão 500 g
Rice Camil 1 kg
Rice Tio João 5 kg
Detergent Omo 1 kg
Rice Camil type 1 5 kg
Beans Camil 1 kg
Oil Lisa 900 ml
Detergent Omo Multiação 1kg
Buenos Aires
Sugar Ledesma 1 kg
Milk Sachet La Serenísima 1 liter
Sugar Domino 1 kg
Detergent Ala 800 g
Sugar – no brand 1 kg
Sugar Chango 1 kg
Milk Fortuna 1 liter
Oil Cocinero 1.5 liter
Oil Natura 1.5 liter
Coca-Cola 2.25 liter
Ultra-KVIs (mentioned by all segments)
52
TOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responses
Source:Consumer survey
Santiago
Sugar Iansa 1 kg
Rice Tucapel 1Kg
Beef 1 kg
Aceite A cuenta 1 l
Aceite Belmont 1 l
Azucar Iansa 5 kg
Aceite Miraflores 1 l
Azucar Dama Blanca 1 kg
Oil Chef 1 liter
Leche Soprole 1 l
Mexico D.F.
Aceite 1 2 3 1 l
Detergente Ariel 1 kg
Suavisante de telas Suavitel
Arroz Morellos 1 kg
Aceite Capullo 1 l
Café Nescafé 200 gr
Papel Higiênico Petalo 4 rollos
Detergente Salvo 1 kg
Detergente ACE 1 kg
Shampoo Caprice 1 l
Ultra-KVIs (mentioned by all segments)
53
TOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responses
Source:Consumer survey
Bogotá
Panela
Aceite Óleo Soya
Aceite (no recuerda marca)
Chocolate/Sol
Crema dental Colgate
Arroz Diana
Detergente en polvo Ariel
Arroz Flor Huila
Arroz Roa
Detergente en polvo FAB
54
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just in the depth of their pockets
2. The few key levers that matter in building price perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search for value
4. Retailers have an opportunity to get it right more often in their search for a better price proposition
55
DO CONSUMERS GET IT RIGHT? PRICE PERCEPTION ACCURACY BY METROPOLITAN AREA
Source:Team analysis
Market average
Santiago Mexico D.F.
Bogotá Buenos Aires
São Paulo
Accuracy of price perception+ -
Universe of primary shoppers and respondents
that correctly identified retailers
with low prices (retailers that had the price reality
index at the bottom quartile of the
market)
56
RELATIONSHIP BETWEEN PRICE PERCEPTION AND PRICE REALITY
*T-Stat lower than 2,0**The assessment of the São Paulo market was made without a clear high price playerSource:Consumer survey, team analysis
90
95
100
105
110
0 20 40 60 80 100
90
95
100
105
110
0 20 40 60 80 100
90
95
100
105
110
0 20 40 60 80 100
Mexico D. F.Santiago Bogotá
0,75 0,82 0,72
‘‘
‘
90
95
100
105
110
0 20 40 60 80 100
90
95
100
105
110
0 20 40 60 80 100
São Paulo** Buenos Aires
0,23 0,21• Unlike the other markets,
price perception in São Paulo and Buenos Aires, cannot be explained using actual prices
• These results are in line the lower accuracy of price perception of these cities
Price reality (vertical axis) vs. Price perception index (horizontal axis)
Relevant Relevant Relevant
Not Relevant*Not Relevant*
R2
57
0
3
5
8
10
0 20 40 60 80 100
0
3
5
8
10
0 20 40 60 80 100
0
3
5
8
10
0 20 40 60 80 100
RELATIONSHIP BETWEEN PRICE PERCEPTION AND PROMOTIONAL ACTIVITY
0,06 0,19
‘
‘‘
Proact index (vertical axis) vs. Price perception index (horizontal axis)
0
3
5
8
10
0 20 40 60 80 100
0,16
• Promotional activity does not explain price perception in any of the Latin American cities analyzed
0
3
5
8
10
0 20 40 60 80 100
Not Relevant*
0,01
Not Relevant*
Not Relevant* Not Relevant* Not Relevant*
*T-Stat lower than 2,0**The assessment of the São Paulo market was made without a clear high price playerSource:Consumer survey, team analysis
R2
Mexico D. F.Santiago Bogotá
São Paulo** Buenos Aires
0,03
58
REGIONAL DIFFERENCES OF LATIN AMERICA RETAIL MARKET DYNAMICS
Santiago
*Does not consider high price playerSource:AC Nielsen, market research, team analysis
Mexico
Bogota
Buenos Aires
São Paulo
Promotional intensity Proact index
Price reality indexR2 of real vs. perceived prices
• Actual promotional activity does not drive price perception
• However, promotional activity seems to relate to a less accurate assessment of prices from consumers – promotion creates price opacity
*
Consumers’ perception is less
influenced by price reality
Consumers’ perception is influenced by price reality
59
IN MOST MARKETS, PRICE LEADERSHIP IS CONSISTENT OVER TIME
95
100
105
110
1 2 3 4 5 6 7 8
Price reality index over eight four-week periods
Source:AC Nielsen, team analysis
95
100
105
110
1 2 3 4 5 6 7 895
100
105
110
1 2 3 4 5 6 7 8
95
100
105
110
1 2 3 4 5 6 7 8
Bogotá
São Paulo Buenos Aires
Santiago
Number of periods of same leadership
8
7 8
8
60
HOWEVER, IN MEXICO, OTHER PLAYERS ASSUME THE PRICE LEADERSHIP POSITION FOR A SHORT PERIOD OF TIME Price reality index over eight four-week periods
Source:AC Nielsen, team analysis
95
100
105
110
1 2 3 4 5 6 7 8
Mexico D.F.
Number of periods of same leadership
5• Even though price
leadership is lost for three periods, consumers’ perception is not influenced by short-term price investments
• Rather a consistent long-term strategy seems to be more effective to build a sustainable price perception with consumers
61
DIFFERENT SEGMENTS CAN HAVE DIFFERENT PRICE RATINGS FOR THE SAME RETAILER
Price ratings can be uneven across segments
Retailer in Buenos Aires Retailer in São Paulo Retailer in Santiago
Quality seekers and time savers
High income bargain hunters
High income bargain hunters
Quality seekers and time savers
Frustrated shoppers on a budget
Quality seekers and time savers
Source:Consumer survey, team analysis
% of consumers who rated retailer as inexpensive or very inexpensive
62
KEY TAKEAWAYS FROM STUDY
1. Latin America: diversity of consumers, and not just in the depth of their pockets
2. The few key levers that matter in building price perception – and the one that doesn’t
3. Consumers (mostly) getting it right in their search for value
4. Retailers have an opportunity to get it right more often in their search for a better price proposition
63
MAPPING OUT THE COMPETITIVE CHARACTERISTICS OF EACH PLAYER
PromotionalactivityProact index
Pricereality
Source:Team analysis
100
More expensive retailers
Less expensive retailers
Less promotional retailers (stable prices)
Highly promotional retailers (variable prices)
Marketaverage
Every daylowest price
EDLP (Every day low prices) working definition• EDLP retailers
are those that consistently have lower and more stable prices
69
THE MARKETS ARE AT DIFFERENT POSITIONS ALONG THE PROMOTIONAL ACTIVITY CONTINUUMPromotional activity index
Mexico BuenosAires
BogotáSantiago São Paulo
3.5x
Source:AC Nielsen, McKinsey analysis
70
Santiago
SÃO PAULO AND BUENOS AIRES HAVE HIGH LEVELS OF PROMOTIONAL ACTIVITY IN ALL PRODUCT CATEGORIESAverage promotional activity index by category quartile
TopAverage of ~8 categories with the highest promotional activity in each country
Second
Third
BottomAverage of ~8 categories with the lowest promotional activity in each country
Overall promotional activity index +
Bogotá B.Aires Mexico D.F. São Paulo Quartiles
–
Source:AC Nielsen, McKinsey analysis
71
90
95
100
105
110
0 1 2 3 4 5 6 7 8 9 10
THERE IS NO PURE EDLP PLAYER IN THE REGION, AND THE CONCEPT IS BEST THOUGHT OF A AS CONTINUUM
Source:AC Nielsen, team analysis
Buenos Aires
São Paulo
Santiago
Bogotá
Mexico D.F. Highest prices
Lowest prices
Rea
lity
pri
ce (
act
ua
l p
rice
in
dex
)
Promotional activity indexLow
promotional activity
High promotional
activity
72
90
95
100
105
110
0 2 4 6 8 10
THERE ARE MANY DIFFERENT PRICING STRATEGIES EVEN WITHIN THE SAME MARKET
Source:AC Nielsen, team analysis
Buenos Aires
90
95
100
105
110
0 2 4 6 8 10
90
95
100
105
110
0 2 4 6 8 1090
95
100
105
110
0 2 4 6 8 10
90
95
100
105
110
0 2 4 6 8 10
Price index vs. promotional activity index
São Paulo
Santiago Bogotá
Mexico D.F.
• In Mexico, promotional activity range from very low to very high
• Most retailers in São Paulo and Buenos Aires have high promotional activity
• Retailers in Santiago and Bogotá have low promotional activity
73
THE COMPETITIVE GAME AMONG RETAILERS VARIES ACROSS MARKETS
Source:Team analysis
São Paulo
Bogotá
Mexico D.F.
Santiago
Buenos Aires
Correlation between promotional levels of each category
Mutual followershipPlayers have the same promotional intensity for the same categories
Independent behaviorPlayers have different levels of promotions for same categories
74
IN BOGOTÁ, A “MUTUAL FOLLOWERSHIP” PREVAILS, AS PROMOTIONAL INTENSITY IS SIMILAR FOR ALL PAYERS IN ANY GIVEN CATEGORY
Retailer A
Retailer B
Retailer D
Retailer C
Source:AC Nielsen, team analysis
Face cream
Cosmetics
Chocolate (candies)
Hair dyers
Beer
Dairy beverages
Cereals
Coffee
Edible oils
Margarine
Milk
Processed meat
Toilet paper
Cleaners
Toilet soap
Laundry detergent
Deodorants
Shampoo
Detergent
Tooth paste
Promotional activity index, ranked from highest to lowest market average
Categories
75
Cheese
Crackers
Pasta
Wine
Juices
Beer
Soft drinks
RTE desserts
Yoghurt
Breads
Edible oils
Fresh milk
Sugar
Toilet paper
Tooth paste
Personal hygiene
Toilet soap
Shampoo
Body deodorants
Laundry detergent
IN ALL OTHER MARKETS, LIKE BUENOS AIRES, RETAILERS HAVE DIFFERENT LEVELS OF PROMOTIONS FOR THE SAME CATEGORIES
Retailer A
Retailer B
Retailer C
Retailer E
Retailer D
Source:AC Nielsen, team analysis
Categories
Promotional activity index, ordered from highest to lowest market average
76Source:AC Nielsen, team analysis
Category promotional activity index
FEW CATEGORIES HAVE SIMILAR PROMOTIONAL ACTIVITYACROSS MARKETS
Soft drinks
Toilet paper
Diapers
Cookies
Coffee
Cereals
Beer
Toilet soap
Sugar
Snacks
Shampoo
Yoghurt
Deodorant
Edible oils
Industrialized Breads
RTD Juices
Laundry detergent
+
Av
era
ge
pro
mo
tio
na
l in
ten
sit
y a
cro
ss
ma
rke
tsBuenos Aires
São Paulo
Santiago
Bogotá
Mexico D.F.
77
Cheese
Crackers
Pasta
Wine
Juices
Beer
Soft drinks
RTE desserts
Yoghurt
Packaged bread
Edible oils
Fresh milk
Sugar
Toilet paper
Toothpaste
Sanitary protection
Toilet soap
Shampoo
Deodorants
Laundry detergent
Leve
l of e
xpan
dabi
lity*
+
Retailer A
Retailer B
Retailer C
Retailer E
Retailer D
*Expandable categories are those in which overall consumption increases when income increases (i.e., it is possible to increase per capita consumption)Source:AC Nielsen, team analysis
Promotional activity indexCategories
THERE IS NO CONSISTENT PATTERN AS TO WHICH CATEGORIES WILL BE SELECTED FOR PROMOTIONS ARGENTINA EXAMPLE
-
78
UNDERSTANDING DIFFERENCES IN PRICE PERCEPTION AT THE SAME LEVEL OF ACTUAL PRICES
Source:Team analysis
Price reality (index of actual prices) vs. Price perception index
Significant differences in price perception in situations with very similar real prices index
Price perception
90
95
100
105
110
0 20 40 60 80 100
Price reality
B A
São Paulo
79Source:Team analysis
SOME RETAILERS GET MORE CREDIT THAN THEY DESERVEAverage % of consumers that selected top 2 box (agree/strongly agree)
ILLUSTRATIVE
Price perception
•Out of the three main drivers of price perception for São Paulo, retailer A has higher performance on Reference Price and Promotions, and similar performance on Range Architecture
•One possible explanation for a better perception on reference price despite similar price reality might be execution (i.e. better choice of KVIs and categories, etc)
Reference price
Range architecture
In-store environment
Promotions
Communications
Retailer with worse price perceptionRetailer B
Retailer with better price perceptionRetailer A
GAP
17
-12
10
-6
-2
72 48
80
AND THIS DIFFERENCE IS EVEN STRONGER WHEN ONLY THE MAIN CONSUMER SEGMENTS ARE CONSIDERED
Source:Team analysis
ILLUSTRATIVE
Breakdown of main store shoppers by segment
%
Performance on key levers according to "bargain hunters"
% top 2 box (agree/strongly agree)
100%
High income bargain hunters
Retailer with better price perception
Range seekers
Quality and time
Indifferent shoppers
Retailer with worse price perception)
Avid bargain hunters
Reference price
Commu-nications
Range architecture
In-store environment
Promotions
Retailer A Retailer B
80 36
Price perception
Retailer A delivers superior performance on Reference price and Promotions, which account for 60% of the drivers of price perception for "bargain hunters"
Gap
24
-11
-5
-10
16
Bargain hunters’price perception
100%
81
DIFFERENT SEGMENTS ARE ATTRACTED BY DIFFERENT PRICING STRATEGIES
Source:AC Nielsen, team analysis
Highest prices
Lowest prices
Rea
lity
pri
ce (
act
ua
l p
rice
in
dex
)
Promotional activity indexLow
promotional activity
High promotional
activity
Range seekers on a budget
High Income Bargain hunters
Quality seekers and time savers
Indifferent shoppers on a budget
Avid Bargain Hunters
82
MARKETS WITH HIGH PROMOTIONAL ACTIVITY TEND TO HAVE A DISPROPORTIONAL SHARE OF THE BARGAIN HUNTERS SEGMENTS
2,2
2,2
3,0
7,0
7,6São Paulo
Buenos Aires
Bogotá
Santiago
Mexico D.F.
*Includes both “Avid bargain hunters” and “High-income bargain hunters”Source:Consumer survey, AC Nielsen, team analysis
39
31
30
44
58
Promotional activityProact index
Size of “Bargain hunters” segments*%
• Significant impact on retailers’ strategy as:– Avid Bargain
hunters tend to have the lowest basket size and the least loyalty among all consumers
– High-income bargain hunters tend to visit more stores and have low loyalty in some markets (e.g., São Paulo)
83
ISSUES TO CONSIDER FOR INDIVIDUAL RETAILERS
• Which segments of consumers are most attracted to you? Which do you want to be? Which format is most appropriate to each segment?
• What is driving your promotional activity? Your suppliers, your category managers or the consumer?
• Where are you at the EDLP-HiLo continuum versus your competitors? Where should you be?
• Are you getting credit for value? What are the drivers of price perception for your consumers?
• What would it take to change your pricing approach? What are the implications for you, your suppliers and your consumers?
84
KEY TAKEAWAYS FROM STUDY
1. Consumers are different - 5 distinct consumer segments in Latin America with different characteristics, attitudes, behaviors and preferences for retailers
2. Forget pure EDLP - No pure EDLP player exists and the concept is best thought of as a continuum, with retailers employing different price and promotional strategies
3. You get the consumer you deserve – Hi-lo retailers in São Paulo and Buenos Aires have significantly more promotional activity and attract disproportionately more bargain hunters
4. Reality equals perception – almost - Reference price is the key driver of consumer price perception, but with important variations by segment. Consumers generally figure out the low price players, but not in a highly promotional environment
5. Some of you get more credit for value than others – Some retailers have better price perception than reality through working different levers on different segments