The Cheating Consumer How crisis events can trigger consumer brand switching at a massive scale and what you can do about it 2ND EDITION JUNE 2020 (includes addendum with May 2020 data updates) 2THE CHEATING CONSUMER Executive Summary When the products a consumer loves become unavailable, they dont sit around and do nothing or go without. They look elsewhere, seeking any product they can find that will get the job done. This kind of switching by March it had jumped to 51%. Competition may be bigger than you think: Brands must reassess the competition; youre no longer just competing with products in your categories, but products in any category that can solve a problem or perform a job for consumers. Consumers searching for “disinfectant wipes,” for example, traded out to a totally different category 2.5X more in April than they did in January. Products are the new services: The closure of restaurants, barber shops, gyms, etc., is driving consumers to seek “products” as a replacement for “services,” creating new growth opportunities for brands. Consumer searches for “hair clippers” on Amazon, for example, were up 90X in late April compared with January. Go digital or be gone: Switching from offline to online and digitally enabled shopping is happening fast, exposing digitally unprepared brands to rapid losses in market share. The percentage of grocery sales happening online has increased 150% year-over-year since the pandemic began. Here are 5 key findings from our research at Profitero: 14 5 2 3 “Its time for brands to challenge all prior assumptions to meet the new shopping behaviors because the genie isnt going back in the bottle.” Sarah Hofstetter President, Profitero Manufacturer switch index % of times consumers switched from buying the originally searched manufacturers product to buying a different manufacturers product 1. Brand loyalty is up for grabs You want loyalty, get a dog because brand loyalty is at risk of going out the window. Consumers arent hesitating switching to other products when their regular favorites are out of stock. Source: Profitero, Amazon; Retailer: A, men shavings data corresponds to Amazon U.K.; Substitution rates consider the top 5 products substituting the original ASIN Disinfecting wipes JanJanFebFebMarMarAprApr Male shaving (disposable razors, double edge razors and blades) 18% 31% 13% 35% 26% 46% 41% 36% JanFebMarApr Dry pasta 30% 40%40% 53% 3 Profiteros data shows some wild substitution and switching between brands taking place during the pandemic, with some categories experiencing a “switching rate” of up to 53% i.e., more than half of consumers bought a brand other than the one they originally intended to buy. This level of substitution is primarily because the preferred brand was not in stock when a shopper was ready to buy. The proof point THE CHEATING CONSUMER 4THE CHEATING CONSUMER So what? What does it mean?Now what? What next? Brands spend billions to build equity with consumers. That equity gets wasted and goes unrealized when consumers seek that brand and dont find it. The unprecedented OOS levels we saw online during COVID-19 underscores the huge brand equity risks involved with not having products readily available for purchase. According to a March 2020 Shopkick survey, a whopping 85% of consumers say brand names dont matter during times of crisis. Nearly a third or more of consumers who tried a new brand will stick with them, according to Alix Partners. Thats a lot of lost customers, and sales. BUILD FLEXIBILITY INTO YOUR SUPPLY CHAIN. We recognize every company is hustling to accelerate supply. In the meantime, here are some other things to consider: Ruggedize the supply chain, i.e., take pre-orders if you have reasonable confidence you can deliver; put a restock notification on your product detail page and let consumers know when product will be available; and encourage consumers to set up a subscription, which helps smooth out supply and demand. Limit the product in your supply chain to items that are most in demand, like Mondelez and Coca-Cola have done. Diversify your supply chain network: Tap third-party logistics, drop-ship capabilities and Seller-Fulfilled Prime (SFP) on Amazon, as needed. And develop or strengthen direct-to-consumer (DTC) capabilities to minimize future distribution disruptions like what happened during the pandemic. This is a key reason why Pepsico launched two D2C sites, pantryshop. com and , in early May. Dont just hunker down until you have more product available; instead continue to communicate with customers let them know youre hustling, and if you know, when youll be back in-stock. “Having a DTC offering has really helped our business float to the top during COVID-19. We have full control of listings and supply chain, and this has helped us to be seen as a reliable brand, and build loyal customers for years to come.” Halee Patel Director of eCommerce in