Research launched for:The Coca-Cola Retailing Research Council Latin America by:McKinsey&CompanyInside the minds and pockets of Inside the minds and pockets of Inside the minds and pockets of Latin American consumersLatin American consumersLatin American consumersHow consumers build price perception and its How consumers build price perception and its How consumers build price perception and its impact on retailersimpact on retailersimpact on retailers可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHE COCA-COLA RETAILING RESEARCH COUNCIL LATIN AMERICAThe Coca-Cola Retailing Research Council Latin America (CCRRC - LA) is dedicated to developing a better understanding of the food retailing and allied merchandise distribution business in Latin America. It concentrates in identifying and then studying selected relevant issues, presenting its findings to the manufacturing and retailing communities, in order to assist in the development and enhancement of the food retailing business.Latin America Council MembersJonathan BergerCIES USAHoward Butt IIIHEB MexicoGuillermo DAndreaCouncil Research DirectorAna Maria DinizGrupo Pao de Acucar BrazilPaulo GoelzerIGA, Inc. BrazilAntonio Coto GutierrezDia Internacional ArgentinaTim HammondsFMI USANicols IbezD&S ChileGonzalo Restrepoxito ColombiaEduardo Castro WrightWal*Mart Mexico1可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumREVIEWING THE STUDY GOALS AND OBJECTIVESUnderstand the drivers of consumer price perception in Latin AmericaOverall goals and focus levelSpecific objectivesUnderstand the implications of pricing approaches on retailers and manufacturersUnderstand high level implications for retailers in terms of organization, supply chain and vendor relationsUnderstand high level implications for manufacturers in terms of capabilities and requirements to deliver under different retailer price approaches*Source:Team analysisMatch consumer price perception with reality to understand which are the most effective levers for retailersUnderstand the relative importance of different drivers of consumer price perception, across major consumer segments, product categories, shopping occasions* and selected marketsUnderstand how price ranks among the key factors in the consumer preferred store selection process*10% of study focus90% of study focus2可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHE STUDY LEVERAGED THREE MAIN SOURCES OF INFORMATION* AC Nielsen conducted the focus groups in So Paulo and the field research in all five marketsSource: Team analysis15 in-depth interviews with executives of key retailers in the regionMethodologyQualitative surveyFocus groups to test initial hypothesisQuantitative survey3,000, 30-minute interviewsCorrelate consumer research results with AC Nielsen scantrack informationUnderstand retailer perspective on consumer price perceptionObjectiveCapture insights on consumer price perceptionSegment consumersEnrich findings with AC Nielsen proprietary databasesMatch price perception with actual pricesIn-depth interviewsConsumer survey*ACNielsen database3可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumCONSUMER SURVEY DETAILS Source: AC Nielsen, team analysisBogot673 consumer surveys6 retailers (90% market share)30 categories (3,500 SKUs)Santiago600 consumer surveys 11 retailers (95% market share)30 categories (3,700 SKUs)Buenos Aires600 consumer surveys11 retailers (70% market share)33 categories (2,500 SKUs)So Paulo600 consumer surveys13 retailers (87% of the market)30 categories (2,500 SKUs)Mexico City612 consumer surveys6 retailers (90% market share)30 categories (3,000 SKUs)4可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumONLY CONSUMERS WHO SHOP REGULARLY IN AT LEAST ONE MODERN FORMAT STORE ARE RELEVANT FOR OUR ANALYSIS* Includes hypermarkets, supermarkets, mini-markets and suburban supermarketsSource: Team analysisConsidered for our analysisConsumers who only shop in traditional formatConsumers who shop in it least one modern format* store regularly Typically low-end consumersUseful to gain insights on the low-end market, already studied by CCRRCAnalysis more useful in a study to increase the penetration of modern format, what is not the scope of this projectPrimary population of interest for the CCRRCOnly respondents able to provide answers and crossable data for:Accuracy of price perceptionPrice perception drivers for modern formatEffectiveness of promotional activity in price perception buildingOur sample is representative of modern format shoppers5可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum21-34 years35-49 years50+ yearsTHE CONSUMER SURVEY IS REPRESENTATIVE OF THE MAIN SOCIO-ECONOMIC CLASSES AND AGE GROUPSAge* Based on AC Nielsen socio-economic classification for each marketSource: Consumer survey%MiddleLowHighSocio-economic class*Results take into account the behavior and attitudes of low income consumers6可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum Source: AC Nielsen, National Marketing Associations of each countryCOUNTRY-LEVEL ACCEPTED STANDARDS GUIDED OUR INCOME LEVEL CLASSIFICATIONWe adopted the principles suggested by the National Marketing Associations of each countryHigh incomeMiddle incomeLow incomeSo PauloBuenos AiresMexico D.F.Santiago Bogot AABC1ABC+ABC1Clase alta Clase mdia altaBCC2C3CC2C3Clase mdiaDED1D2ED/EDClase baja67% of modern format shoppers in So Paulo belong to classes B and C, classified as middle income7可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumKEY TAKEAWAYS FROM STUDY1.Latin America: diversity of consumers, and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers (mostly) getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition8可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumCONSUMERS IN LATIN AMERICA CAN BE SPLIT INTO FIVE MAIN SEGMENTSSource: Consumer survey, team analysisAvid bargain hunters Invest a lot of time and are willing to visit multiple stores for the best dealsQuality seekers and time saversWilling to pay a slight price premium to save time and have access to high quality products“Indifferent shoppers on a budgetDo not care about shopping, hence invest little time in itRange-seekers on a budgetWant to bring home the best quality products, but limited by a tight budgetHigh income consumers who are willing to visit multiple stores to find the best dealsHigh-income bargain hunters 9可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumWE RAN A TWO-STAGE CLUSTER ANALYSIS COMBINING ATTITUDINAL AND SOCIO-DEMOGRAPHICS ELEMENTS* Note that none of the elements are unique, however, this methodology provides managers with unprecedented control over the process, by allowing maximum managerial input and the testing of early hypothesisSource: Team analysisSample of 3,084 consumers in 5 countriesTwo main segmentation driversAttitudinal elements (most common method) Clean and intuitive attitudes across all segmentsLacks actionability (difficult to find consumers)Selected 4 most robust scenariosCrossed with shopping behaviorKey buying factors Average monthly spendFormat of main store Socio-economic/ demographicsSimple way to segment, facilitate identificationLacks insights and does not reflect attitudes Two-stage cluster analysis Combines both methodologies to reach meaningful and actionable segments Process* developed and refined by McKinsey experts for segmentations with strategic objectivesRan 20+ statistically relevant scenariosSelected 1 scenario with 5 clusters10可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumALLOWING THE IDENTIFICATION OF SOME CONSUMERS TO WHICH SEGMENT THEY BELONGSource: Team analysisLow income level Age 21-34 years oldOnly one person on the householdMiddle income level Large householdShops primarily on hypermarkets84% probability that this person is an Avid Bargain Hunter86% probability that this person is a Range seeker on a budgetEXAMPLE11可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumINCLUDING A HANDFUL OF ATTITUDINAL STATEMENTS, ONE CAN IDENTIFY MOST CONSUMERSSource: Team analysisWould you sacrifice service for lower prices?Would you spend a lot of time looking for offers?Probability of 64% to be an “Indifferent shopper on a budget”YesNo21 - 3435 - 4950+Age groupA handful of attitudinal statements allow us to identify over 50% of all consumersEXAMPLE12可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumAVID BARGAIN HUNTERSRely less on modern formatsWhen shopping on modern formats, tend to prefer discountersHow do they behave?Lowest average expenditure when compared with other segments (12% below market average)Less likely to do stock-up tripsAlways compare prices at different storesTend to be the least loyal consumersShopping around for the best dealsPurchasing only products they had planned onWilling to sacrifice services for lower pricesSpending a lot of time looking for promotionsShopping in larger number of stores recently What do they not value?Paying more to shop close to homePaying more to save timePaying more for higher quality What do they value? Source: Consumer survey, team analysisShopping behaviorMonthly spendFormatTypically low income Disproportionate number of males and older consumers (50+ years old)13可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumAVID BARGAIN HUNTERS14可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumHIGH INCOME BARGAIN HUNTERSTypically high income consumerAverage age and household sizeTend to spend more (16%) than the average spend on groceriesRely more on modern format storesTend to prefer hypermarkets and avoid shopping on discountersTend to have higher loyalty than average (So Paulo is the exception)How do they behave?Shopping behaviorMonthly spendFormat Source: Consumer survey, team analysisShopping around for the best dealsStocking-up when they find attractive promotionsGoing to a grocery store they hear is offering good specialsShopping in more stores recentlyWhat do they not value?Paying more for the convenience of shopping closer homeWhat do they value?15可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumHIGH INCOME BARGAIN HUNTERS16可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumRANGE SEEKERS ON A BUDGETTend to shop more on hypermarketsFormatHighly price sensitiveTend to make fewer trips (So Paulo is the exception) and stock up once a monthNormally below average loyaltyHow do they behave?Tend to spend less (6%) than the market average on groceriesMonthly spendShopping behavior Source: Consumer survey, team analysisTypically young, low income mothersLarge household (6 or more people)Getting good quality products and a large assortmentStocking-up when they find attractive promotionsProviding the best possible quality for their family, despite their tight budgetWhat do they not value?Sacrificing services for lower pricesShopping at upscale storesWhat do they value?17可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumRANGE SEEKERS ON A BUDGET18可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumINDIFFERENT SHOPPERS ON A BUDGETTypically low/ middle incomeTend to spend 10% less than the market average on groceriesTend to rely less on modern format storesWhen shopping on modern formats, tend to choose hard discounters How do they behave?Tend to shop less frequentlyDisplay relatively high loyalty to their main grocer storeShopping behaviorMonthly spendFormat Source: Consumer survey, team analysisSacrifice service for lower prices What do they not value?Spending time looking for dealsStocking-up when they find good promotionsReading store pamphletsWhat do they value?19可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumINDIFFERENT SHOPPERS ON A BUDGET20可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumQUALITY SEEKERS AND TIME SAVERSHow do they behave?Highest average basket, 22% higher than market average spending on grocery shoppingRely primarily on modern format storesWilling to shop more on supermarketsTend to shop less frequentlyTend to be the most loyal segment in all marketsRarely compare pricesShopping behaviorMonthly spendFormat Source: Consumer survey, team analysisTypically high income consumersSmall familiesSaving time rather then moneyThe convenience of shopping closer to homeHigher quality, even at higher pricesWhat do they not value?Spending time looking for promotionsShopping in many stores to pay less What do they value?21可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumQUALITY SEEKERS AND TIME SAVERS22可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumAvid Bargain HuntersIndifferent shoppers on a budgetQuality seekers and time saversHigh-income bargain huntersRELATIVE SIZE OF THE SEGMENTS IN THE REGION100% = 2,818Number of respondentsSource: Consumer surveyRange-seekers on a budget23可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHE MARKETS SHOW SIGNIFICANT DIFFERENCES IN SEGMENT BREAKDOWN%, number of respondentsQuality seekers and time saversRange seekers on a budgetIndifferent shoppers on a budgetAvid bargain huntersS. Paulo B. AiresMexico Santiago Bogot Source: Consumer survey, team analysisOverall5835685505515652,818High income bargain hunters100%So Paulo and Buenos Aires have a disproportional share of “Bargain hunters segments“Quality seekers and time savers” are more relevant in Santiago and Bogot24可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDETAILED SEGMENT DESCRIPTION SO PAULONumber of respondents, R$ 000, % Source: Consumer survey, team analysisAvid bargain hunters$ spendRange seekers on a budgetIndifferent shoppers on a budgetQuality and timeHigh income bargain hunterNumber of consumersRange seekers on a budgetAverage spend: R$ 500Monthly visits to modern format: 16Share of wallet of main retailer: 63%Income levelHigh: 0%Medium: 70%Low: 30%Quality seekers and time saversAverage spend: R$ 543Monthly visits to modern format: 10Share of wallet of main retailer: 74%Income levelHigh: 20%Medium: 75%Low: 5%Indifferent shoppers on a budgetAverage spend: R$ 327Monthly visits to modern format: 8Share of wallet of main retailer: 71%Income levelHigh: 6%Medium: 63%Low: 32%High income bargain huntersAverage spend: R$ 516Monthly visits to modern format: 11Share of wallet of main retailer: 55%Income levelHigh: 34%Medium: 66%Low: 0%249565Store formatHyper: 47%Super: 19%Disc.: 35%Store formatHyper: 57%Super: 3%Disc.: 40%Store formatHyper: 77%Super: 12%Disc.: 11%Store formatHyper: 79%Super: 12%Disc.: 10%Avid bargain huntersAverage spend: R$ 429Monthly visits to modern format: 7Share of wallet of main retailer: 55%Income levelHigh: 0%Medium: 66%Low: 33%Store formatHyper: 55%Super: 14%Disc.: 32%Significant deviations from averageBold =Market averageAverage spend: R$ 441Monthly visits to modern format: 9Share of wallet of main retailer: 62%Income levelHigh: 10%Medium: 67%Low: 23%Store formatHyper: 60%Super: 12%Disc.: 28%25可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumALTHOUGH OTHER FACTORS VARY IN RELEVANCE, LOCATION AND PRICE ARE THE TWO MOST IMPORTANT FACTORS FOR ALL SEGMENTS Source: Consumer surveyLocation PromotionsQuality of perishable products AssortmentOverall product quality Indifferent shoppers on a budget Range-seekers on a budgetQuality seekers and time saversAvid bargain huntersWhy did you choose to shop at that particular store?Price % of consumers that selected the factor as importantBrand varietyService levelPrivate label qualityHigh income bargain hunters26可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumBUT SEGMENTS VARY WIDELY IN THE FREQUENCY OF PRICE COMPARISON%, number of respondentsHigh income bargain huntersIndifferent shopper on a budgetRange seeker on a budgetQuality seeker and time saver100% Source: Consumer survey, team analysisAvid Bargain Hunters493655530493636AlwaysOccasionallyHow often do you compare prices between stores?NeverVery often27可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumFROM RETAILERS STAND POINT, SOME SEGMENTS APPEAR TO BE MORE ATTRACTIVE THAN OTHERSQuality seekers and time saversHigh income bargain huntersIndifferent shoppers on a budgetRange seekers on a budgetAvid bargain huntersSource: Consumer surveyLoyalty compared to averageShare of wallet of main storeMonthly spendCompared to market average“Quality seekers and time savers” and “High income bargain hunters” spend more than any other segment and tend to be more loyal customers“Avid Bargain hunters” and “Range seekers on a budget” are the least loyal segments and have small basket sizes%28可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumBUENOS AIRES AND BOGOT HAVE THE LOWEST LOYALTY RATIO OF ALL MARKETSSo Paulo Santiago Mexico Bogota Buenos AiresAverage loyalty ratio* Share of wallet of main storeSource: Consumer survey29可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumSHOPPING BEHAVIOR BY SEGMENT AND MARKETAverage basket size (vertical axis) vs. loyalty index* (horizontal axis)* Share of wallet of main storeSource: Consumer surveySo Paulo (R$)Santiago (CLP)Bogot (COP)Mexico (MXN)Buenos Aires (ARS)QualityHIBHRangeAvid BHIndifferentQualityHIBHIndifferentAvid BHRangeQualityHIBHRangeIndifferentAvid BHHIBHQualityIndifferentAvid BHRangeQualityHIBHIndifferentAvid BHRangeQuality seekers and High income bargain hunters spend more than any other segment across all markets and generally have the highest loyalty ratioAvid bargain hunters and range seekers on a budget tend to spend less than all other segments and are also less loyal customersOn average, So Paulo, Santiago and Mexico have the highest loyalty ratio on all segments30可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumWHERE THE DIFFERENT SEGMENTS SHOP* Indicate store format that capture a disproportional share of the segment compared to the market average. H (Hyper), S (Super) and D (Discounters). Discounters include Bodegas in MexicoSource: Team analysisRange seekers on a budgetAvid bargain huntersFrustrated shoppersQuality seekers and time saversHigh income bargain hunters%, across all metropolitan areas studiedPercentage spent on modern formatHigher income segments spend more on modern formatPreferred format*Range seekers on a budgetAvid bargain huntersFrustrated shoppersQuality seekers and time saversHigh income bargain huntersSuperHyperDiscounterHigher income segments prefer super & hyper; lower tend towards discounters & hyper31可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumSOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (1/3)OverallABCD54374904793High income bargain huntersRange seekers on a budgetAvid bargain hunters100%Source: Consumer survey, team analysisQuality seekers and time saversIndifferent shoppers on a budgetPercentage of primary shoppers by segment, main retailersSo PauloBuenos Aires322937151OverallABC32可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumSOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (2/3)Overall410591145137High income bargain huntersRange seekers on a budgetAvid bargain huntersSource: Consumer survey, team analysisQuality seekers and time saversIndifferent shoppers on a budgetABCDBogotSantiagoOverallAB521114316Percentage of primary shoppers by segment, main retailers33可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumSOME RETAILERS “ATTRACT” DISPROPORTIONATE SHARE OF CERTAIN SEGMENTS (3/3)AverageABCDE49566203576835High income bargain huntersRange seekers on a budgetAvid bargain hunters100%Source: Consumer survey, team analysisQuality seekers and time saversIndifferent shoppers on a budgetMexicoPercentage of primary shoppers by segment, main retailers34可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumMcKINSEY PROPRIETARY RESEARCH IDENTIFIED SEVEN SEGMENTS IN THE U.S. GROCERY RETAIL MARKETShop around at many different stores to hunt down the latest specialWant broad selection and national brands for a low priceUse coupons 100% of the time, usually at a store close to homePure PriceWilling to pay more and drive farther for quality and serviceWant great service and ambience at any costWilling to pay more to get in and out quickly at a store close to homeUse every means available to get the lowest price will not pay more for anythingBargain HuntersSelection for LessCoupon ClippersQualitySuperior ExperienceConvenienceSource: McKinsey North American Retail Practice35可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumLATIN AMERICA SEGMENTS ARE FAIRLY SIMILAR TO THOSE IN THE U.S.Selection for Less (12%)Coupon Clippers (10%)Quality (14%)Superior Experience (20%)Convenience (22%)Source: Team analysisRange-seekers on a budget (22%)Quality seekers and time savers (21%)United StatesLatin America( ) Percentage of total spendBargain Hunters (10%)High-income bargain hunters (20%)Avid bargain hunters (20%)In Latin America, “more price oriented segments” are significantly larger than in the U.S., noticeably “Bargain Hunters” even adding the “Coupon Clippers” in the USSegments broadly similar in key characteristicsPure Price (12%)Indifferent shoppers on a budget (17%)79%44%56%21%More price orientedLess price oriented“Less price oriented” segments in the U.S. more defined and significantly larger share of total population than in Latin AmericaS S36可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumKEY TAKEAWAYS FROM STUDY1.Latin America: diversity of consumers, and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers (mostly) getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition37可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumMAIN MESSAGESReference price, range architecture and promotions are the three most important levers in determining consumer price perception in Latin AmericaReference price is the most important lever:in all consumer segments, although other levers have disproportionate influence depending on the segment, such as range architecture for “Quality seekers and time savers” and “Indifferent shoppers on a budget”. in all markets except Mexico City, where range architecture is slightly more importantA limited number of KVIs appear to particularly important in driving consumers perception of reference priceFrom matching price perception with price reality, it is clear that consumers are able to quite accurately identify retailers with low average prices in markets where promotional activity is relatively low. Promotions do not drive price perception in any market and in fact obscure price reality in Sao Paulo and Buenos Aires.There are indications however, both in low and high promotional markets that some retailers are able to get more credit more value than they “deserve”1234538可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumHOW DO CONSUMERS DEVELOP THEIR PRICE PERCEPTION? Source: Team analysis What are the different elements that can help explain price perception?What are the elements that are most relevant to explain price perception?Are these different for the various markets?Are these different for various segments?How do consumers perceive prices? Do Latin American consumers accurately perceive low price retailers?Are there differences in price perception accuracy when we look at the different regional markets and segments?What elements might explain regional differences in price perception?How does price perception match with price reality?39可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHERE ARE SEVERAL POTENTIAL DRIVERS OF PRICE PERCEPTION Source: Team analysisReferencepricePromotionsRangearchitectureCommunicationsIn-storeenvironmentDrivers Low prices on items bought most often Low prices on well-known items Prices are usually lowFrequent discounts Frequent interesting promotions (e.g., 2x1, wow deals) Low priced alternatives for everyday basics (i.e., OPP) Broad range of price and quality levels Private label with good price/quality ratio Believable low price ads Frequent promotion pamphlets In-store signs that clearly point to sales Overall store environment A lot of people shopping40可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumPRICE PERCEPTION IN LATIN AMERICA IS DRIVEN MAINLY BY TWO ELEMENTS% total weightSource: Team analysisReference price is the key lever of price perception, with KVIs as a very relevant componentRange architecture namely cheap alternative brands (OPPs) are also very importantTogether they make up for 75% of the way a consumers builds price perceptionPrices are usually lowCheap alternative brandsUpscale store environmentFrequent discountsBelievable price adsPrices on well-known items/bought most oftenBroad range of quality & price levelsReference priceRange architectureEnvironmentPromotionsCommuni-cations41可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDRIVERS OF PRICE PERCEPTION BY METROPOLITAN REGION% total weight* Causes poorer price perceptionSource: Team analysisSo PauloBuenos AiresSantiagoMexico D.F.BogotReference pricePrices are usually lowLow prices on items bought most often/well knownPromotionsGood promotionsFrequent discountsRange architectureCheap alternative brandsBroad rangeEnvironmentUpscale store environment*CommunicationsBelievable price ads42可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDRIVERS OF PRICE PERCEPTION BY SEGMENT% total weight* Causes poorer price perceptionSource: Team analysisAvid bargain huntersHigh income bargain huntersRange seekers on a budgetFrustrated shoppers on a budgetQuality seekers and time saversReference pricePrices are usually lowLow prices on items bought most often/well-knownPromotionsGood promotionsFrequent discountsRange architectureCheap alternative brandsBroad rangeEnvironmentUpscale store environment*CommunicationsPamphlets Believable price ads43可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumA LIMITED NUMBER OF KVIs APPEAR TO BE ESPECIALLY IMPORTANT FOR BUILDING PRICE PERCEPTION* Based on McKinsey previous experience Source: Consumer surveyDo you base your assessment of store prices on a few key products?How many items do you normally memorize the price of to assess the price level of a store?NoYesOverallBogotBuenos AiresMexicoSan-tiagoSo PauloAverage number of items consumers claim to memorize the price on to assess retailer pricesDifferent consumers have different KVIs, as a result an individual store can have up to 100 KVIs*46可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumOUR SURVEY HAS IDENTIFIED ABOUT 500 KVIs IN EACH METROPOLITAN REGION ONLY ABOUT 150 ARE COMMON TO MULTIPLE SEGMENTSNumber of different KVIs mentioned spontaneous responses638545474474461Buenos Aires BogotSantiago So Paulo Mexico D. F. Source: Consumer survey, team analysis Mentioned by only 1 segmentMentioned by at least 2 segments48可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum AND, OUT OF THESE, ONLY A DOZEN ARE ULTRA-KVIsNumber of different KVIs mentioned spontaneous responses154150139147130Buenos Aires BogotSantiago So Paulo Mexico D. F. Source: Consumer survey, team analysis Ultra KVIs Only 2 segments3 or 4 segments All Segments Mentioned by: 49可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responsesSource: Consumer surveySo PauloSugar Unio 1 kgRice Camil 5 kgCoffee Pilo 500 gRice Camil 1 kgRice Tio Joo 5 kgDetergent Omo 1 kgRice Camil type 1 5 kgBeans Camil 1 kgOil Lisa 900 mlDetergent Omo Multiao 1kgBuenos AiresSugar Ledesma 1 kgMilk Sachet La Serensima 1 literSugar Domino 1 kgDetergent Ala 800 gSugar no brand 1 kgSugar Chango 1 kgMilk Fortuna 1 literOil Cocinero 1.5 literOil Natura 1.5 literCoca-Cola 2.25 literUltra-KVIs (mentioned by all segments)50可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responses Source: Consumer surveySantiagoSugar Iansa 1 kgRice Tucapel 1KgBeef 1 kgAceite A cuenta 1 lAceite Belmont 1 lAzucar Iansa 5 kgAceite Miraflores 1 lAzucar Dama Blanca 1 kgOil Chef 1 literLeche Soprole 1 lMexico D.F.Aceite 1 2 3 1 lDetergente Ariel 1 kgSuavisante de telas SuavitelArroz Morellos 1 kgAceite Capullo 1 lCaf Nescaf 200 grPapel Higinico Petalo 4 rollosDetergente Salvo 1 kgDetergente ACE 1 kgShampoo Caprice 1 lUltra-KVIs (mentioned by all segments)51可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTOP TEN KVIs BY METROPOLITAN AREA% of unaided consumer responses Source: Consumer surveyBogotPanelaAceite leo SoyaAceite (no recuerda marca)Chocolate/SolCrema dental ColgateArroz DianaDetergente en polvo ArielArroz Flor HuilaArroz RoaDetergente en polvo FAB52可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumKEY TAKEAWAYS FROM STUDY1.Latin America: diversity of consumers, and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers (mostly) getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition53可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDO CONSUMERS GET IT RIGHT? PRICE PERCEPTION ACCURACY BY METROPOLITAN AREA Source: Team analysisMarket averageSantiagoMexico D.F.BogotBuenos AiresSo PauloAccuracy of price perception+-Universe of primary shoppers and respondents that correctly identified retailers with low prices (retailers that had the price reality index at the bottom quartile of the market)54可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumRELATIONSHIP BETWEEN PRICE PERCEPTION AND PRICE REALITY* T-Stat lower than 2,0* The assessment of the So Paulo market was made without a clear high price playerSource: Consumer survey, team analysisMexico D. F.SantiagoBogot0,750,820,72So Paulo*Buenos Aires0,230,21Unlike the other markets, price perception in So Paulo and Buenos Aires, cannot be explained using actual pricesThese results are in line the lower accuracy of price perception of these citiesPrice reality (vertical axis) vs. Price perception index (horizontal axis)RelevantRelevantRelevantNot Relevant*Not Relevant*R255可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum035810020406080100RELATIONSHIP BETWEEN PRICE PERCEPTION AND PROMOTIONAL ACTIVITY0,060,19Proact index (vertical axis) vs. Price perception index (horizontal axis)0,16Promotional activity does not explain price perception in any of the Latin American cities analyzedNot Relevant*0,01Not Relevant*Not Relevant*Not Relevant*Not Relevant* T-Stat lower than 2,0* The assessment of the So Paulo market was made without a clear high price playerSource: Consumer survey, team analysisR2Mexico D. F.SantiagoBogotSo Paulo*Buenos Aires0,0356可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumREGIONAL DIFFERENCES OF LATIN AMERICA RETAIL MARKET DYNAMICSSantiago * Does not consider high price playerSource: AC Nielsen, market research, team analysisMexicoBogotaBuenos AiresSo PauloPromotional intensity Proact indexPrice reality indexR2 of real vs. perceived pricesActual promotional activity does not drive price perceptionHowever, promotional activity seems to relate to a less accurate assessment of prices from consumers promotion creates price opacity*Consumers perception is less influenced by price realityConsumers perception is influenced by price reality57可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumIN MOST MARKETS, PRICE LEADERSHIP IS CONSISTENT OVER TIMEPrice reality index over eight four-week periodsSource: AC Nielsen, team analysisBogotSo PauloBuenos AiresSantiagoNumber of periods of same leadership878858可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumHOWEVER, IN MEXICO, OTHER PLAYERS ASSUME THE PRICE LEADERSHIP POSITION FOR A SHORT PERIOD OF TIME Price reality index over eight four-week periodsSource: AC Nielsen, team analysisMexico D.F.Number of periods of same leadership5Even though price leadership is lost for three periods, consumers perception is not influenced by short-term price investmentsRather a consistent long-term strategy seems to be more effective to build a sustainable price perception with consumers59可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDIFFERENT SEGMENTS CAN HAVE DIFFERENT PRICE RATINGS FOR THE SAME RETAILERPrice ratings can be uneven across segmentsRetailer in Buenos AiresRetailer in So PauloRetailer in SantiagoQuality seekers and time saversHigh income bargain huntersHigh income bargain huntersQuality seekers and time saversFrustrated shoppers on a budgetQuality seekers and time savers Source: Consumer survey, team analysis% of consumers who rated retailer as inexpensive or very inexpensive60可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumKEY TAKEAWAYS FROM STUDY1.Latin America: diversity of consumers, and not just in the depth of their pockets2.The few key levers that matter in building price perception and the one that doesnt3.Consumers (mostly) getting it right in their search for value4.Retailers have an opportunity to get it right more often in their search for a better price proposition61可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumMAPPING OUT THE COMPETITIVE CHARACTERISTICS OF EACH PLAYERPromotionalactivityProact indexPricereality Source: Team analysis100More expensive retailersLess expensive retailersLess promotional retailers (stable prices)Highly promotional retailers (variable prices)MarketaverageEvery daylowest priceEDLP (Every day low prices) working definitionEDLP retailers are those that consistently have lower and more stable prices62可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHE MARKETS ARE AT DIFFERENT POSITIONS ALONG THE PROMOTIONAL ACTIVITY CONTINUUMPromotional activity indexMexicoBuenosAiresBogotSantiagoSo Paulo3.5xSource: AC Nielsen, McKinsey analysis68可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumSantiago SO PAULO AND BUENOS AIRES HAVE HIGH LEVELS OF PROMOTIONAL ACTIVITY IN ALL PRODUCT CATEGORIESAverage promotional activity index by category quartileTopAverage of 8 categories with the highest promotional activity in each countrySecondThirdBottomAverage of 8 categories with the lowest promotional activity in each countryOverall promotional activity index+Bogot B.Aires Mexico D.F.So Paulo Quartiles Source: AC Nielsen, McKinsey analysis69可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHERE IS NO PURE EDLP PLAYER IN THE REGION, AND THE CONCEPT IS BEST THOUGHT OF A AS CONTINUUMSource: AC Nielsen, team analysisBuenos Aires So Paulo Santiago BogotMexico D.F. Highest pricesLowest pricesReality price (actual price index)Promotional activity indexLow promotional activityHigh promotional activity70可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHERE ARE MANY DIFFERENT PRICING STRATEGIES EVEN WITHIN THE SAME MARKETSource: AC Nielsen, team analysisBuenos AiresPrice index vs. promotional activity indexSo PauloSantiagoBogotMexico D.F.In Mexico, promotional activity range from very low to very highMost retailers in So Paulo and Buenos Aires have high promotional activityRetailers in Santiago and Bogot have low promotional activity71可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumTHE COMPETITIVE GAME AMONG RETAILERS VARIES ACROSS MARKETS Source: Team analysisSo PauloBogotMexico D.F.SantiagoBuenos AiresCorrelation between promotional levels of each categoryMutual followershipPlayers have the same promotional intensity for the same categoriesIndependent behaviorPlayers have different levels of promotions for same categories72可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumIN BOGOT, A “MUTUAL FOLLOWERSHIP” PREVAILS, AS PROMOTIONAL INTENSITY IS SIMILAR FOR ALL PAYERS IN ANY GIVEN CATEGORYRetailer ARetailer BRetailer DRetailer C Source: AC Nielsen, team analysisFace creamCosmeticsChocolate (candies)Hair dyersBeerDairy beveragesCerealsCoffeeEdible oilsMargarineMilkProcessed meatToilet paperCleanersToilet soapLaundry detergentDeodorantsShampooDetergentTooth pastePromotional activity index, ranked from highest to lowest market averageCategories73可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumCheeseCrackersPastaWineJuicesBeerSoft drinksRTE dessertsYoghurtBreadsEdible oilsFresh milkSugarToilet paperTooth pastePersonal hygieneToilet soapShampooBody deodorantsLaundry detergentIN ALL OTHER MARKETS, LIKE BUENOS AIRES, RETAILERS HAVE DIFFERENT LEVELS OF PROMOTIONS FOR THE SAME CATEGORIESRetailer ARetailer BRetailer CRetailer ERetailer D Source: AC Nielsen, team analysisCategoriesPromotional activity index, ordered from highest to lowest market average74可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum Source: AC Nielsen, team analysisCategory promotional activity indexFEW CATEGORIES HAVE SIMILAR PROMOTIONAL ACTIVITYACROSS MARKETSSoft drinksToilet paperDiapersCookiesCoffeeCerealsBeerToilet soapSugarSnacksShampooYoghurtDeodorantEdible oilsIndustrialized BreadsRTD JuicesLaundry detergent+Average promotional intensity across marketsBuenos Aires So Paulo Santiago BogotMexico D.F. 75可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumCheeseCrackersPastaWineJuicesBeerSoft drinksRTE dessertsYoghurtPackaged breadEdible oilsFresh milkSugarToilet paperToothpasteSanitary protectionToilet soapShampooDeodorantsLaundry detergentLevel of expandability*+Retailer ARetailer BRetailer CRetailer ERetailer D* Expandable categories are those in which overall consumption increases when income increases (i.e., it is possible to increase per capita consumption)Source: AC Nielsen, team analysisPromotional activity indexCategoriesTHERE IS NO CONSISTENT PATTERN AS TO WHICH CATEGORIES WILL BE SELECTED FOR PROMOTIONSARGENTINA EXAMPLE-76可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumUNDERSTANDING DIFFERENCES IN PRICE PERCEPTION AT THE SAME LEVEL OF ACTUAL PRICESSource: Team analysisPrice reality (index of actual prices) vs. Price perception indexSignificant differences in price perception in situations with very similar real prices indexPrice perceptionPrice realityBASo Paulo77可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum Source: Team analysisSOME RETAILERS GET MORE CREDIT THAN THEY DESERVEAverage % of consumers that selected top 2 box (agree/strongly agree)ILLUSTRATIVEPrice perceptionOut of the three main drivers of price perception for So Paulo, retailer A has higher performance on Reference Price and Promotions, and similar performance on Range ArchitectureOne possible explanation for a better perception on reference price despite similar price reality might be execution (i.e. better choice of KVIs and categories, etc)Reference priceRange architectureIn-store environmentPromotionsCommunications Retailer with worse price perceptionRetailer BRetailer with better price perceptionRetailer AGAP17-1210-6-2724878可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumAND THIS DIFFERENCE IS EVEN STRONGER WHEN ONLY THE MAIN CONSUMER SEGMENTS ARE CONSIDEREDSource: Team analysisILLUSTRATIVEBreakdown of main store shoppers by segment%Performance on key levers according to bargain hunters% top 2 box (agree/strongly agree)100%High income bargain huntersRetailer with better price perceptionRange seekersQuality and timeIndifferent shoppersRetailer with worse price perception)Avid bargain huntersReference priceCommu-nicationsRange architecture In-store environmentPromotionsRetailer ARetailer B8036Price perceptionRetailer A delivers superior performance on Reference price and Promotions, which account for 60% of the drivers of price perception for bargain huntersGap24-11-5-1016Bargain huntersprice perception100%79可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumDIFFERENT SEGMENTS ARE ATTRACTED BY DIFFERENT PRICING STRATEGIESSource: AC Nielsen, team analysisHighest pricesLowest pricesReality price (actual price index)Promotional activity indexLow promotional activityHigh promotional activityRange seekers on a budgetHigh Income Bargain huntersQuality seekers and time saversIndifferent shoppers on a budgetAvid Bargain Hunters80可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumMARKETS WITH HIGH PROMOTIONAL ACTIVITY TEND TO HAVE A DISPROPORTIONAL SHARE OF THE BARGAIN HUNTERS SEGMENTSSo PauloBuenos AiresBogotSantiagoMexico D.F.* Includes both “Avid bargain hunters” and “High-income bargain hunters”Source: Consumer survey, AC Nielsen, team analysisPromotional activityProact indexSize of “Bargain hunters” segments*%Significant impact on retailers strategy as:Avid Bargain hunters tend to have the lowest basket size and the least loyalty among all consumersHigh-income bargain hunters tend to visit more stores and have low loyalty in some markets (e.g., So Paulo)81可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumISSUES TO CONSIDER FOR INDIVIDUAL RETAILERSWhich segments of consumers are most attracted to you? Which do you want to be? Which format is most appropriate to each segment?What is driving your promotional activity? Your suppliers, your category managers or the consumer?Where are you at the EDLP-HiLo continuum versus your competitors? Where should you be?Are you getting credit for value? What are the drivers of price perception for your consumers?What would it take to change your pricing approach? What are the implications for you, your suppliers and your consumers?82可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsumKEY TAKEAWAYS FROM STUDY1.Consumers are different - 5 distinct consumer segments in Latin America with different characteristics, attitudes, behaviors and preferences for retailers2.Forget pure EDLP - No pure EDLP player exists and the concept is best thought of as a continuum, with retailers employing different price and promotional strategies3.You get the consumer you deserve Hi-lo retailers in So Paulo and Buenos Aires have significantly more promotional activity and attract disproportionately more bargain hunters4.Reality equals perception almost - Reference price is the key driver of consumer price perception, but with important variations by segment. Consumers generally figure out the low price players, but not in a highly promotional environment5.Some of you get more credit for value than others Some retailers have better price perception than reality through working different levers on different segments83可口可乐市场分析InsidethemindsandpocketsofLatinAmericanconsum