Information Resources, Inc. (IRI,) a leading Retail and CPG analyst group, recently published its 2009 CPG Year in Review report. The report makes some unique insights,but most importantly addresses the permanent changes retailers are going to see in consumer behavior. The McKinsey Quarterly published a study of retailers in December 2009 which also echoes this prediction in consumer behavior. McKinsey states, “Many companies with strong premium brands are anticipating a rapid rebound in consumer behavior—a return to normality, as after previous recessions. They are likely to be disappointed.”The reason being is that consumers have tried lower cost items and been satisfied. Or, if not 100% pleased, they now feel that it is not worth the extra expense to buy the higher-priced item even if they do prefer it.

IRI calls the cost-saving strategies employed by many consumers as “draconian” insofar as people have gone far out of their ways to save money on things like food and beauty products. This has resulted in an increase in the purchase of do-it-yourself home goods and has also included increases in self-subsistence projects such as gardens. IRI predicts that some of these more extreme measures will eventually be scaled back, but that a commitment to frugality and value products will remain. 

So what does this mean for Retailers and CPG manufacturers?

First of all, private label goods have cemented their position as desirable goods that actively sought after by a wide range of customers. With cost saving and frugality still being important, consumers will most likely continue to embrace private label goods indefinitely - despite some gradual return to higher-priced premium goods.

Second, many CPG categories saw price increases in 2009which are expected to continue through 2010. IRI remains somewhat doubtful that consumers will not rebel against these increases as companies turn to innovation to capture market share through creating appealing value-priced goods. According to the Wall Street Journal, there appears to be a chance of nominal rebound in premium brands as producers implement pricing and promotiona strategies such as selling larger quantities for the same price or creating a better product whose value outweighs the price. Still, retailers have a harder job than ever of convincing consumers why they should consider purchasing the higher priced item. Marketing effectiveness therefore remains of paramount concern in addition to product innovation.

Ultimately, technology providers for Retail and CPG need to understand that many of the market shifts caused by the recession will have long lasting – if not permanent – effects as consumers continue to embrace cost savings measures despite improved Retail and CPG earnings and projections for 2010. Competition will remain fierce for increasingly demanding and informed consumers who have learned to do more with less. Technology providers therefore have a unique opportunity to capitalize on organizations' needs to better understand their consumers and maintain reduced operating costs so that they can be successful under these new conditions.