12 November 2013 531 words, 3 min. read

Have customers become unsatisfied about low-cost services and products?

By Pierre-Nicolas Schwab PhD in marketing, director of IntoTheMinds
There is something strange happening on the low-cost market. There is a rising wave coming in our direction and we begin perceiving the first signals of it. Camping sites, Ryanair, Supermarkets are all experiencing the same problems on the market […]

There is something strange happening on the low-cost market. There is a rising wave coming in our direction and we begin perceiving the first signals of it.

Camping sites, Ryanair, Supermarkets are all experiencing the same problems on the market

It all started with camping sites a few months ago. While digging into the sales data of private camping sites, I found out that 5-star sites were booming while 1-star site were declining in terms of sales. Not surprisingly the sites “stuck in the middle” were also plummeting, as many mid-tier companies in various sectors experience. Yet one may have expected that the low-cost offerings would be attractive in those times of crisis. Actually they are not anymore.

The same apply to “hard discount” supermarkets (Lidl, Aldi and the like). In 2009 it was expected that hard discount supermarkets would eventually represent 25% market share (they were representing 15% in 2009. Despite a law that was passed in France which abolished the need to ask permissions to open store of less than 1000m², low cost supermarkets have continuously lost market share since 2009. They went from 15% to 12.4% and apparently the decline is now accelerating. On Q2/2013 alone they lost 1.4%.

Stores openings are also becoming rarer (Lidl has cut its openings by a factor 4) and all in all hard discounters have lost 700000 customers in France.

Last but not least Ryanair, the emblem of the low-cost business, has issued a warning on profits for the first time in its history. The Irish company is losing customers and shareholders are so worried that changes have been announced: reduction of the penalties for last-minute printing of the boarding card, authorization to have a second little bag (a purse basically) onboard without additional costs, the end of the seat-where-you-can rule.

What are we witnessing here?

First of all we are witnessing a further polarization of the market. However it is of slightly different nature than a few months/years ago. While middle-tier offers were “stuck in the middle” and were having a hard time fighting against upper and lower tier competition, low-cost competition was growing. We had a market divided in 3 parts : low-cost (positive growth), middle-tier (in bad shape), and upper-tier (in great shape).

It seems now that low-tier and middle-tier market have merged in terms of growth perspectives and that the market is getting divided into two “segments” : one which grows, the other which doesn’t.

What can explain this new market configuration ?

I don’t have a glass bowl and the explanation I’m about to give is purely personal.

In crisis time consumers find a lot of good reasons to restrain themselves and choose cheaper solutions which don’t give them as much pleasure as more expensive ones. Yet, the act of consuming is inherently linked to pleasure and neglecting one’s pleasure can’t hold lifelong. At a certain moment human beings need to enjoy their existence and if they feel the situation is getting better, they will use that as a justification.

In the end, maybe this rise in premium consumption and the matching drop on the low-cost segment corresponds to a perception that the financial crisis has come to an end.



Posted in Strategy.

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