With most of the global economy struggling to recover from the Covid-19 crisis, one would expect households to be tightening their budgets. Indeed, in the major markets, in rich and poor nations alike, anywhere from 70% to 90% of consumers identify themselves as “value conscious”.

But how thrifty are consumers when faced with an actual buying decision? How attentive are they to the price tag? Are they always likely to go for the cheapest option, or only under certain circumstances?

The Boston Consulting Group’s (BCG) Center for Customer Insights recently interviewed 40,000 consumers around the world to learn more about what drives their choices at the time of purchase in different markets and categories. Among its key findings: it could be a serious mistake to base global pricing strategies on the assumption that “value consciousness” is an overarching preference among consumers.

When consumers were asked about their most recent purchase in a wide range of consumer goods and services, a surprisingly small portion actually selected the lowest-priced item. There was hardly any correlation between a preference for lower price as an attitude and consumers’ actual purchasing behaviour. This was true across virtually every market and demographic group.

Consumer mindsets

The proportion of price-sensitive consumers varies widely from one market and product category to the next. In emerging markets, the proportion of price-sensitive consumers isn’t necessarily higher than in wealthy markets. For example, the average Saudi Arabian consumer is more likely than Brazilians or the Chinese to choose the lowest-priced option in most categories.

The context in which a product is purchased is also a powerful driver of price sensitivity. Consumers in the US and Australia may be more price-sensitive when dining with kids than when they are dining out as a couple. These findings imply that brands shouldn’t define pricing strategies based only on stated consumer mindsets, such as value consciousness.

Brands need a much more nuanced understanding of how purchasing decisions are made in different markets and categories, as opposed to applying a global playbook. Getting pricing right is critically important; it can be the difference between winning in the market with a differentiated value proposition and unnecessarily sacrificing profitability, or even triggering a self-defeating price war.

Market differences

Pricing is a powerful tool for wooing consumers, and many brands have concluded they can gain a competitive edge by offering the lowest prices on the market.

But BCG’s research found that a bargain price usually doesn’t trump all other factors when it comes time for consumers to make a purchase. It is not safe to assume that consumers around the world, and in certain income and demographic groups, respond the same way to price.

BCG’s study covered Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Nigeria, Russia, Saudi Arabia, South Africa, the United Arab Emirates, the UK, and the US.

For the study, BCG used a strict definition of a price-sensitive consumer: a person who buys the lowest-price option, even when comparable products are available for a price difference of less than 5%. Only those markets were chosen where a wide variety of product choices were available.

Japan and France have the lowest proportion of price-sensitive consumers, while India has the greatest proportion across categories. This, however, does not rule out the possibility that lower-income consumers in Japan and France are not highly sensitive to price.

There was little overall correlation between national income levels and the share of consumers with a preference for the lowest price. The UAE, with a per-capita income of around US$ 70,000, has the second-highest ratio of price-sensitive consumers. Middle-income Mexico has generally a lower ratio of price-sensitive consumers than the US and Australia. The assumption that lower-income countries necessarily have a higher share of price-sensitive consumers appears to be untrue.

Beverages category

The lowest price is most likely to sway consumers when they are shopping for leisure travel. That is because consumers are accustomed to finding the best bargains by directly comparing prices for air tickets and hotel rooms on aggregator websites.

Many consumers are also price-sensitive regarding apparel, for which they frequently compare prices on e-commerce sites. US consumers are more likely than Brazilians to choose the lowest priced skincare product; South Africans are the most likely to buy the lowest priced snacks.

By contrast, few consumers are generally price-sensitive in the beverage categories – either because prices are already relatively low, or because they are willing to trade up for an interesting flavour or proposition, such as organic or healthy beverages.

Consumers in India are extremely sensitive about the price of restaurant or takeout meals, while those in Japan, Mexico, Canada and most of Europe are not.

Value consciousness

Except in India, the BCG study found no direct correlation between consumers’ self-declared value consciousness and their actual behaviour in terms of buying the lowest priced products.

Even though an overwhelming majority of consumers worldwide identify themselves as “value conscious”, the percentage who tend to choose the lowest priced option ranges from only 2% to 18%, depending on the category and market.

Why this contradiction? Consumers who state that they are value-conscious can also be quality-minded and brand-conscious. When making an actual purchase, consumers need to evaluate the options in front of them and make trade-offs between price and other factors they value, such as convenience, or environmental sustainability of the products they choose.

So when does price competitiveness make a difference? A significant difference maker is context, or the situation at the time of purchase. More consumers are likely to choose the lowest priced option when purchasing apparel for their family. Twice as many consumers are price-sensitive when the item is to be given away as a gift!

The BCG research confirms that while consumers say price is important, it is usually not their overriding consideration when actually buying a product. It is critical for marketers to customise their pricing strategies and policies by country and purchasing circumstances.

Brands need a deeper understanding of when pricing really is likely to sway purchasing decisions, and how it works in combination with a wide range of factors. They also need a way to operationalise this knowledge without antagonising consumers.