A woman goes for a walk in the shopping district near her downtown high-rise apartment. She stops in front of her favorite boutique to “window shop”. It’s a coping strategy she adopted after the loss of her job and part of her behavorial change during COVID-19. She stares at the same 7 mannequins she has stared at for the past 8 weeks; they stare back at her. She imagines if the brunette one wearing the blue skater dress could speak, she would say, “Welcome to my reality. I’m required to stay in place too…ALL of the time.
By the looks of you, you aren’t changing your clothes either. It looks like you are on, AT LEAST, day four of wearing those yoga pants.” The woman caught a glimpse of her own reflection in the store window; she couldn’t argue. She’d love to exchange the dirty yoga pants for the beautiful blue dress, but since losing her job, her budget has changed. She can buy one new handbag from the online store, but last year’s dresses will have to stretch until next year.
It’s no secret that consumer spending across the U.S. is down, way down, since the coronavirus pandemic hit the nation and the government enacted Shelter in Place orders and the temporary closing of “nonessential” businesses mid-March. Economists have been watching the undeniable effects on our economy and they’ve reported record lows as they continually measure the effects of COVID-19 on U.S. consumer spending. Equally important, data scientists and research organizations such as OSG Analytics, which look at real-time data using behavioral analytics and artificial intelligence, to understand behavioral change closely examine the motivators behind consumer behavior, including spending behavior change and how that affects industries in the U.S. and beyond.
Many people have adjusted their budgets since the COVID-19 pandemic, and they have done so for good reasons:
- the loss of their job,
- two-income families became one-income,
- employed, but feeling insecure about job stability, and
- fear of a second wave of COVID-19 and what that may mean for the economy.
Even though many have shifted their budgets that doesn’t mean they aren’t willing to pay. Budget shift is simply a shift in how a consumer apportions their desires and how that takes shape. The woman looking at the dress in the store window wants both the handbag and the dress. She has assigned value to both products. But because of her job loss, she shifted her budget. Before her job loss, she would have purchased both products. Now, she has to apportion her desires differently, however, her willingness to pay (WTP) has not changed.
Willingness to Pay (WTP)
A shift in budget is not the same as Willingness to Pay (WTP) and should not be confused with it. WTP is dependent on value. If a business can deliver the right kind of value, whether hedonic value (associated with senses, pleasure, feelings and emotions) or functional value (offers solutions, practical and necessary), consumers will still be willing to pay what they were willing to pay pre-COVID-19.
Some believe that the marketer price, the price that is set, is the reason why consumers are not buying products. But price is not why consumers buy the product. The value of the product is the reason why consumers buy the product. Therefore, improve the value of the product and continue to improve the value of the product, and then, the price a marketer can command and the margins that they can command may improve over time.
Whether a brand produces discretionary purchase products, luxury goods or more practical solution products, now is the time to focus on value in messaging rather than eroding pricing.
What motivates customers to buy is not the same as what motivates them not to buy. Price is a reason not to buy. As marketers, we need to assess both value and price to ensure that even in tough times, value is being delivered at the price that customers are willing to pay.
Deliver the right kind of value and at the price consumers are willing to pay and customers will be willing to buy, even during COVID-19.
Get in touch with OSG for analytics on understanding behavioral change and what customers are willing to pay