Developed markets more sensitive to price increases
Consumers in devleoped markets are more likely to abandon spirits categories if prices increase than those in emerging markets.
Lan Ha, insight analyst at data agency Euromonitor International, recently examined price elasticity – that is, how consumption changes in response to price – in major alcoholic drinks categories.
She found that developing or emerging markets do not witness as much change to volume sales following price changes as in the developed regions.
“Price elasticity at a category level shows how strongly consumers react to a price change, and whether they are likely to switch to another category as a result of a price change,” said Ha.
“This is different from brand level price elasticity, which measures inner-category competition between brands, and the effect of price change a particular brand on its sales.”
Ha’s research shows that in terms of particular categories, blended Scotch whisky in the least elastic, meaning it is the category least sensitive to price change. It is followed by brandy and Cognac, vodka and single malt whisky.
However, liqueurs, RTDs and Tequila and mescal are the most elastic, meaning that consumers are more likely to switch categories if prices are increased. Ha claims this could be because these are categories with a greater number of younger, price-conscious consumers.
“Price elasticity at a category level is driven by several factors, including the availability of substitute categories, the degree of necessity, purchase frequency, and whether the category is habit forming, added Ha.
“The demand for a product is more elastic to price changes if more close substitutes are available, as people can easily switch from one category to another.”
The research also shows that since price elasticity varies between markets, these regions convey different reactions to price changes.
In particular, Ha found a stronger reaction to price change in developing markets than emerging regions, potentially due to a lack of available alternatives in these countries.
To see the full report, go to Euromonitor International.