NCI: Attitudes to Price Across Europe

TABLE OF CONTENTS

CHAPTER 1 EXECUTIVE SUMMARY 4

This report identifies four key trends in consumers� attitude to price and develops recommendations for how utilities should respond 4

Cost is the key dynamic for consumers but attitudes to price are diverse and complex 4

Across Europe, price is crucial to energy supply, but utilities also need a strong brand and a diverse portfolio of products 5

Time is money and consumers are willing to pay for convenience, quality and specificity 5

�Convenience consumers� is a large segment � do not take them for granted and do not confuse them with other types of high-value customers 6

Masstige is a phenomenon associated with brand and indulgence at low prices � affordable luxuries 6

Develop energy brands with masstige in mind: be cheap, but do not identify with cheap brands 6

�Rich� does not always mean �high-spender�: there are many affluent people who will shop around for bargains 6

Utilities that only segment customers by age, income and region need to go a step further: not all affluent people are the same 7

Recommendations 7

CHAPTER 2 INTRODUCTION 18

The report is aimed both at marketing and operational executives, and is based on research conducted in eight European countries 18

What is this report about? 18

Who is the target reader? 18

This report examines the role of price in consumer behaviour and leverages the expertise of four Datamonitor business units 18

CHAPTER 3 MARKET CONTEXT 20

The attitudes of European consumers to a variety of products and services can be analysed in terms of share of wallet, and attitudes to financial management and payment 20

Housing, food and transport take the biggest bite out of the budget; whilst �one Europe� concepts need to be avoided 21

Utilities should be aware of the masstige phenomenon and recognise the potential in affinity partners 22

Share of wallet is not a simple predictor of attitude to price and payment 23

Payment methods and chase-up tactics must be rethought in order to alter the bad habit of consumers regarding bills 24

Whilst energy is a necessity, it only takes a small bite out of the household budget and is not a priority 25

Younger consumers are more likely than older consumers to delay the payment of utility bills 27

Direct Debit is just one method by which utilities can facilitate the bill paying process 28

CHAPTER 4 COST IS THE KEY DYNAMIC 30

Cost is the key dynamic for consumers but attitudes to price are diverse and complex 30

Money talks: price is the priority in four key industries 31

Datamonitor classifies respondents as high, low or moderately price conscious 32

The importance of market specific knowledge: Swedish and Dutch consumers are more price sensitive than Italians 33

Age indicates price sensitivity better than gender; male and female 24-35 year olds are the most price conscious 35

Whilst the choice of electricity or gas supplier depends on price, banks are chosen foremost on the basis of service 36

By understanding consumers who do not prioritise price, utilities can alter their image as mere commodity suppliers 37

Service oriented utility customers profile 37

Service oriented customers � attitudes 38

Utility consumers who prioritise choice are more likely to switch or pay extra to obtain tailored and varied products or services 38

Choice oriented utility customer profile 38

Brand sensitive customers are predominantly male, less likely to switch and more inclined to listen to recommendations 40

Brand oriented utility customers � profile 40

Brand oriented utility customers � attitudes 40

Price drives switching, but only when the utility has a recognised brand 41

CHAPTER 5 TIME IS MONEY 43

Time is money and consumers are willing to pay for convenience, quality and specificity 43

Values versus commitments: family time is a priority but as lifestyles get busier values are increasingly compromised 43

Time-saving products are often high quality and expensive yet serve as welcome antidotes to hectic lifestyles 45

There are high proportions of convenience consumers in Sweden and the UK, but not in France, Spain or Holland 47

Convenience consumers want less stress and more time but are willing to experiment to find the right tailored product 49

Convenience customers expect to be rewarded for their loyalty to utilities and prefer to avoid the hassle of switching 51

Although convenience consumers switch less, their loyalty depends on getting good service and competitive prices 52

So in an effort to keep life simple, convenience consumers may take more than one product from their utilities 53

Not all high value, low switching customers are convenience customers, so utilities should not group them together 54

CHAPTER 6 MASSTIGE 56

Masstige is a phenomenon associated with brand and indulgence at low prices � affordable luxuries 56

�Masstige�: a retail phenomenon where prestigious, luxury items are being made available for mass consumption 57

Low earners enjoy luxurious or prestigious indulgences yet stay within budget 58

Attitudes to brand provides further evidence of the masstige phenomenon 59

In percentage terms, masstige populations are largest in Holland, Sweden, France and the USA, and smallest in Spain and the UK 61

Despite being brand sensitive, masstigers seek customisation and welcome extensive product offerings 62

Masstige consumers choose to save in come areas to fund spending in others 64

Young masstige consumers are more likely to switch utilities than older consumers, particularly when savings are involved 66

Whilst younger consumers are prone to switching, older masstigers would like to be rewarded for their loyalty 67

Utilities should develop energy brands with masstige in mind: be cheap, but do not identify with cheap brands 68

CHAPTER 7 BARGAIN-HUNTING 69

�Rich� does not always mean �high-spender�: there are many affluent people who will shop around for bargains 69

Target hits the bull�s eye; its success is evidence that consumers cannot resist a bargain 70

Bargain bin or treasure hunt; low and high earners alike seek value for money across all industries 71

There are enough bargain-hunters to warrant attention from retailers, but not industries where marketing is less precise 72

Despite being high earners, these affluent consumers are hungry for bargains, not indulgences 73

Bargain-hunters are also less concerned with brand 75

Bargain-hunters are more likely to switch than the rest of the population 76

Bargain-hunters seek utilities with a competitive price rather than a strong brand 77

Whilst they do not expect loyalty rewards, they are more likely to consider taking other products from their utilities 78

CHAPTER 8 RECOMMENDATIONS 80

Introduction 80

All four of the market trends examined are pertinent to utilities, either for retail or marketing strategy, or both 80

Across Europe, price is crucial to energy supply, but utilities also need a strong brand and a diverse portfolio of products 80

�Convenience consumers� is a large segment � do not take them for granted and do not confuse them with other types of high-value customers (like multi-service customers) even though they often have much in common 80

Develop energy brands with masstige in mind: be cheap, but do not identify with cheap brands 80

Utilities that only segment customers by age, income and region need to go a step further: not all affluent people are the same 80

CHAPTER 9 APPENDIX 81

Definitions 81

Research methodology 82

Future readings 82

SPP writing team 82

How to contact experts in your industry 83

LIST OF TABLES

Table 1: Average European household expenditure and estimated propensity to pay for different elements of the budget, 2001 23

Table 2: The number of adults in each price consciousness band in each of the eight countries surveyed, 2004 33

Table 3: The number of adult convenience consumers in each of the eight countries surveyed, 2004 48

Table 4: The number of adult masstige consumers in each of the eight countries surveyed, 2004 61

Table 5: The number of adult convenience consumers in each of the eight countries surveyed, 2004 72

LIST OF FIGURES

Figure 1: European consumers spent the most on housing, food and transport in 2001 21

Figure 2: Whilst both nations are price conscious (see Market Trend 1), Swedish consumers are financially prudent whilst Dutch consumers are much less cautious 22

Figure 3: Whist the use of automated and on-line payment is growing in popularity, around half of US consumers in 2004 had not tried either 25

Figure 4: Utilities may be essential but the payment of electricity and gas bills are the most likely to be postponed 26

Figure 5: The older the consumer, the more sensible their approach to managing finances 27

Figure 6: Utilities need to offer customers incentives for automated payment 28

Figure 7: For Europeans and Americans price is predominantly the most important factor when choosing a service provider 31

Figure 8: 53% of respondents (2,654) were rated moderately price conscious 32

Figure 9: Dutch and Swedish consumers are the most price conscious in Europe and the USA 34

Figure 10: On average, 25-34 year olds are the most price conscious with sensitivity reducing with age 35

Figure 11: Banks are chosen on the basis of service, but price matters most when choosing a utility 37

Figure 12: Choice-driven American consumers and brand-sensitive Dutch consumers place the most importance on trying new products or experiences 39

Figure 13: Both price and brand influence switching behaviour, as does the nature of the national energy market 41

Figure 14: People see simpler lifestyles as the key to having more family time, but find this hard to achieve 43

Figure 15: If people pay extra for time-saving products, they are also more likely to indulge to escape daily pressures 45

Figure 16: Italian, Swedish and American consumers are more willing to pay extra for time-saving products 47

Figure 17: The convenience consumer is keen to experiment, de-stress and differentiate 49

Figure 18: As part of their strategy to obtain effective service and tailored products, convenience-driven consumers value the recommendations of family and friends 50

Figure 19: Convenience-driven consumers expect to be rewarded for loyalty to utilities and see switching as troublesome 51

Figure 20: Across Europe, convenience consumers are more likely to complain than switch, although their switching rates are still significant 52

Figure 21: Convenience consumers are more likely to take other products from their utilities, particularly those residing in Sweden, the UK and the Netherlands 53

Figure 22: Whilst American and Swedish markets are most ripe for premium offerings, the premium potential is seen across nations 54

Figure 23: German consumers grapple for a piece of haute couture whilst Habitat commissions Manolo Blahnik 57

Figure 24: Indulgence: there is very little variation between high and low income groups 58

Figure 25: With the exception of the 65+, income has little influence on brand sensitivity 60

Figure 26: Despite being highly brand sensitive, masstigers also value tailored products and service 62

Figure 27: Just the look - Jasper Conran range at Debenhams 63

Figure 28: Not the thrifty type: masstigers will spend excessively in some areas and modestly in others 64

Figure 29: Younger masstige consumers are more likely to switch than older and are incentivised further by saving money 66

Figure 30: A premium utilities offering may encourage the older masstige customer to stay 67

Figure 31: Target Corporation in the US achieves revenues well above the industry average this year 70

Figure 32: Across nations income does not dictate price sensitivity and in France, Italy, Sweden and Britain high earners are more price conscious than low earners 71

Figure 33: The well-heeled bargain hunter is less likely to indulge; one of the manifestations of the highly price conscious nature 74

Figure 34: Despite having the money to invest in brands, this segment is unconcerned with the cachet behind the name 75

Figure 35: Young, wealthy bargain hunters are most likely to switch whilst middle-aged masstigershave a switching rate similar to the overall average 76

Figure 36: Impervious to the influence of brands, the well-heeled bargain hunter is enticed by savings rather than reputation 77

Figure 37: Compared with low earning, low price conscious consumers, bargain-hunters expect to be rewarded less 79