4. Transformation of Retail Products
The economic climate and changing consumer attitudes have had a palpable influence on businesses' operations, and hence on consumer purchasing behaviours. Voinea and Filip (2011) reveal that the global economic downturn has changed consumers' attitudes and buying habits towards being "more economical, more responsible and more demanding" towards retailers. More so, the shift in consumer purchasing behaviour is further supported by a research report by LoyaltyOne and the Retail Council of Canada. The survey results revealed that following the recession, in 2011, 80 percent of consumers in Canada stock up on sale items, 77 percent pay closer attention to prices, and 68 percent have cut back on impulse purchases all together (Cameron, 2011). As such, retailers have had to adapt and evolve to Canadian consumers' shifting behaviour and purchasing habits in order to remain competitive within the retail marketplace.
i) Product and Pricing Strategies:
Retailers have undertaken a variety of strategies to maintain attractive prices for day-to-day consumer goods. One such strategy employed by food retailers, in collaboration with manufacturers, is reducing the food quantities provided and, consequently, adjusting the size of packaging accordingly (Schmidt, 2011; Clifford, 2010). Companies are flattening containers, thinning boxes, and heightening and thinning jars to maintain consistent prices of their consumer goods. Companies have been noted to employ package reduction practices as "consumers generally prefer a slight adjustment to packaging size over a price increase" (Schmidt, 2011).
The modification and reduction of product sizes is not a new practice, and has been a common occurrence since the late 1980s "when coffee companies began reducing tins from 1 pound to 13 ounces" (Rampell, 2011).Footnote 14 Generally, retailers have the ability to determine the package sizes and costs of their products. However, some consumer product containers in Canada are regulated to be a certain size, including frozen and canned fruits and vegetables, baby food, pre-packaged bacon and sandwich meats.
Some stores have been proactive in responding to consumers' shifting behaviour and cash-flow concerns during the recession and beyond. Dollar stores, for example, have "capitalized on the downmarket trend" by expanding their merchandise into household necessities and maintaining lower costs for day-to-day consumer products (Clifford, 2010). As some shoppers are unable to afford regular-sized products, such as detergent, dollar stores have "worked with manufacturers to create smaller packages that cost less" (Clifford, 2010). Although the price per unit may be higher with these consumer products, they are a more attractive option for consumers living on lower incomes and managing pay cheque to pay cheque. Well-known manufacturers of brands, such as Hanes, Quaker Oats and Nabisco, as well as major retailers, such as Wal-Mart, have taken note and are changing their pricing and product strategies to include more attractive, smaller-packaged products (Clifford, 2010).
Some fashion retailers have also flourished on the premise of offering current, high-end fashion styles at cheaper and more attractive prices. Also known as cheap chic fashion, retailers such as Joe Fresh, H&M and Zara have established a successful retail formula that "hinges on the quick conversion of styles from the fashion runway to the store front" (Shaw, 2012). With this, high-end fashion items that would normally cost hundreds–if not thousands—of dollars can be purchased at dramatically reduced prices. Moreover, cheap chic retailers are prospering from this formula as they are experiencing higher growth rates than their high-end counterparts.
ii) Private Label Products versus Branded Label Products
Globally, consumers are increasingly opting for private label products or store label productsFootnote 15 over branded label productsFootnote 16 to cut costs (KPMG, 2009). A global study by Ipsos Marketing found that 80 percent of global consumers consider private label brands comparable to national brands available in terms of quality (Powell, 2011). The initial perception of private label brands being a low-cost alternative has evolved towards these labels being perceived as products of lower cost, but of comparable quality to national brands.
"Consumers are turning their back on brand names in the food, drinking and consumer goods sector, creating a quandary for manufacturers and a tricky position for mainstream retailers, whose relationships with suppliers are rapidly being rewritten" (KPMG, 2011).
Canadian grocers have noted a similar trend in their stores as customers are "trading down" and "opting for cheaper alternatives" (Strauss, 2011c). With this, consumers are "defending value in terms of price" as they make more "deliberate choices over where to shop and what to buy, trading down to outlets that offer higher value for money and [favouring] private and store labels over many national brands" (KPMG, 2009). Popular private label brands in Canada include: President's Choice by Loblaws, Great Value by Wal-Mart, Kirklands Signature by Costco, Master Choice by Metro, as well as MasterCraft and Blue Planet by Canadian Tire.
Consumers' cost-cutting switch to private-label brands has reportedly encouraged major consumer product manufacturers in the U.S. to adopt more aggressive market-share strategies by "cutting prices, accelerating product launches and spending more on advertising" (Byron, 2010). From a business management perspective, these pricing strategies are said to present the risk for the manufacturer of getting trapped by across-the-board discounts: "deep discounts devalue a product or service, limiting companies' ability to raise prices as the economy improves" (Mohammed, 2011). A business' ability to recover from the recession is thus seen as linked to the use of a creative and constantly evolving array of pricing strategies (see textbox).
Adaptive pricing strategies
Some businesses have been recognized for their ability to adapt their marketing strategies in ways that allowed them to weather the recession, without permanent profit-cutting effects. For example, financing packages linked to job loss guarantee programs were launched by some car manufacturers, to try to alleviate consumers' hesitation in making a big purchase (Roseman, 2009). These programs were designed to protect consumers in the event of a job loss when making a major purchase, such as those offered by car manufacturers. In the case of involuntary unemployment in the first year of ownership, vehicles could be returned without penalty.
iii) Price Discrepancy between Canada and the U.S.:
The Canadian dollar experienced a significant appreciation in recent years, rising more than 30 percent since 2009 (Porter, 2011). Although consumers and retailers would expect to benefit from a strengthened Canadian dollar in terms of purchasing power (Blackwell, 2011; Tencer, 2011), Organisation for Economic Co-operation and Development (OECD) data reveals the 2011 Canadian dollar (equivalent to approximately US$1) is on par with the 2002 Canadian dollar (equivalent to US$0.62) at approximately $1.23 per U.S. dollar (Tencer, 2011; OECD, 2012). In other words, the strong Canadian dollar has not translated into the lower pricing of goods and services in Canada as Canadians still pay approximately 20 percent more than their American counterparts for similar goods and servicesFootnote 17 (Porter, 2011).
|Item||Canadian Price |
|U.S. Price |
|U.S. PriceFootnote * |
(Canadian dollar terms)
Source: Porter (2011)
Notes de bas de page
|Book "Moonwalking with Einstein"||16.75||14.82||14.52||15|
|Blu-ray Movie "The King's Speech"||24.99||19.99||19.59||28|
|W-S Double Mezzaluna Chopper||50.00||38.00||37.24||34|
|Crate & Barrel Appetizer Plates (12)||24.95||22.95||22.49||11|
|Gap Cargo Shorts||44.50||39.50||38.71||15|
|Titleist ProV1 Golf Balls||49.99||45.99||45.07||11|
|Canon Rebel T1i Camera||749.99||749.99||734.99||2|
|iPod Touch 8GB||249.99||204.99||200.89||24|
|Cars (sample 5)||37,349||32,988||32,328||16|
The price gap between Canada and the United States is most evident in the pricing schemes for books and magazines, as those products list the prices of both currencies. It also tends to be visible on big ticket items, such as high-end automobiles (e.g. Cadillac, BMW, Lincoln, Lexus), where the percent difference translates into large absolute sums of money. Yet some retailers are taking notice of these gaps and are adjusting their price accordingly to best represent market conditions. For example, in July 2011, Apple introduced their new MacBook Air laptop with both their Canadian and American stores posting the same introductory price (Deveau, 2011). However, this practice is still relatively rare.
Standing Senate Committee on National Finance Study on Price Discrepancy between Canada and the United States
In October 2011, the Standing Senate Committee on National Finance launched a study into the contributing factors for price discrepancies on certain products between Canada and the United States. Witness testimony of relevant stakeholders (e.g. retailers, manufacturers, consumer organizations) from across the industry revealed that price discrepancy of retail products between Canada and the United States is a sensitive matter with "many variables that contribute to the price of a product". Although the currencies have levelled out between both countries, factors such as market competition, regulations and costs arguably impact the higher prices in Canada.
In February 2013, the Committee released its study on price discrepancy between Canada and the Unites States. For more information on the Committee's report and recommendations, please see The Canada-USA Price Gap.
iv) What does it mean for consumers?
Retailers, along with consumer goods manufacturers, are modifying and adapting their corporate strategies to enhance their customer base and maintain a competitive advantage within the Canadian retail marketplace. For example, retailers expanding their operations into the private label market provide consumers with a product comparable to national brands at a lower price point. This not only provides savings for the consumer, but also allows the retailer to retain control of pricing, production, marketing, distribution and, most importantly, profits. However, transparency issues remain (e.g. retailers selling smaller quantities in packages that appear to be the same size as previously packaged goods) as companies do not advertise the modifications or reductions that are made to their product lines. Quality issues also arise as products, such as clothing offered by cheap chic retailers, may not offer the same quality and durability of a higher-end product and, therefore, may have a shorter life cycle.
It's important to note that corporate social responsibility challenges arise when retail organizations locate their operations abroad to cut their operating costs, including poor labour standards in terms of living wage, working conditions and healthy and safety standards. This was made evident with the tragedy in Bangladesh in April 2013, where a garment factory that included the cheap chic retailer Joe Fresh collapsed killing over 1100 workers (O'Connor, 2013). Retailers' failure to address corporate social responsibility-related risks can negatively affect firm reputation, brand and competitiveness amongst consumers.
The entrance of new U.S. retail chains into Canada such as Target, the United States' second largest retail discounter, is expected to have a significant impact on the Canadian retail marketplace. For example, in 2011, Target acquired the leases of 220 Zellers stores from Canada's Hudson's Bay CompanyFootnote 18, with plans to open 124 locations across Canada from 2013 onwards (Postmedia News, 2012; Magazine, 2013). Target's unprecedented expansion into Canada is the largest to ever take place, outpacing Wal-Mart's initial expansion of 122 stores in 1994 when it entered the Canadian marketplace (Magazine, 2013). Consumers are expected to benefit from Target's competitive pricing strategies as it spurs retail competition and applies pressure on other major retailers operating in Canada, such as Sears, the Hudson's Bay Company, Canadian Tire and Wal-Mart, to lower their prices to remain competitive with Target (CTV News, 2013). More so, due to cross-border shopping, Target is well known amongst Canadian consumers; it is estimated that already 30,000 Canadians hold Red Cards and over three million Canadians had shopped at a Target in the US within the past year, providing Target with a strong awareness amongst a large portion of the Canadian population (Magazine, 2013).
- Footnote 14
In Canada, notable examples of package size reductions of consumer products include: i) Scott's toilet paper reducing the sheet size from 4.1 inches by 3.7 inches, instead of 4.5 inches by 3.7 inches; ii) Classico and President's Choice repackaging their pasta sauces in taller, thinner glass jars and reducing the quantity of sauce from 700 millilitres to 650 millilitres; and iii) SunChips reducing the bag sizes of their products from 240 grams to 225 grams (Schmidt, 2011).
- Footnote 15
Private label describes products manufactured/produced for sale under a specific retailer's brand.
- Footnote 16
Branded label describes products manufactured/produced by one company for sale by other companies.
- Footnote 17
The Consumers' Association of Canada notes that the price gap between the United States and Canada is actually higher than revealed by Porter, reaching levels of nearly 30 percent (Strauss and Tavia, 2011).
- Footnote 18
In July 2008, Hudson Bay Company, a Canadian commercial corporation at the time, was acquired by an American private equity firm, NRDC Equity Partners, and, now, is currently foreign-controlled.