Trade promotions don’t seem to boost or sustain sales volumes in the way that they used to, so should our reliance on them be tempered?
Our latest Special Report on Pricing and Promotion in Europe highlights an average increase in the proportion of volume sales on promotion across the region of 2.7%, yet volume sales grew by just 0.1%.
Given that shoppers love promotions – which they use to meet the rising cost of their grocery shopping baskets – it might be hard to understand why volumes are remaining relatively flat. The problem is that people eventually become used to promotions but they tend to erode brand loyalty and make it more difficult for manufacturers and retailers to raise prices in the future without severely affecting sales.
The FMCG industry is now at a tipping point with manufacturers and retailers at odds over how to sustain and grow volumes as consumers expect deals and are actively hunting them out.
Retailers will fight fiercely to protect their primary footfall driver, making it likely that manufacturers will continue to fund promotions, at least in the short term.
But manufacturers also need to regain some of the margin that has been gradually eroded since the economic downturn began. Promotional strategies need to be re-thought to indentify new paths for growth, in terms of profit and value of the entire category, not just short-term sales revenues for individual promoted items. Maintaining a status quo is no longer an option.
Manufacturers must be more creative and innovative in their use of promotions in a shopping environment where consumers are overwhelmed by special offers.
The promotions that still work are those that demonstrate real value for shoppers and help them to feel in control. These include: round pound/euro pricing offers that make it easier for people to monitor their own spending; VAT discounts for large families; and offers linked to fuel which are particularly popular in the UK as they tap into consumer annoyance about the high price of petrol and diesel.
Tesco for example offered up to 50p off a litre of fuel for shoppers who purchased specific brands including Heinz, Robinsons and Nescafe Original or Gold Blend coffee.
In Spain there is an alliance between the newspaper, La Vanguardia and Condis stores, where coupons are collected from the daily paper in return for a specific shopping basket in Condis retail outlets. The same was possible in a scheme run by Carrefour and ABC newspaper.
Danone is using technology in Spain to help consumers make savings with QR codes on product packs. Shoppers can scan the code (from a convenient mobile app that gets 2.7million downloads a day) to sign-up to a loyalty programme that offers discounts.
Such deals appeal to shoppers because they enables them to buy some of their favourite national brands and to keep to their budget for groceries.
Personalised offers will also become increasingly important to shoppers as retailers make more use of mobile technology, which gives shoppers more control than ever before and drives an increase in “connected” users at home and on-the-go. Many of our clients have engaged with us to understand how technology can better to serve their needs.
People are not only looking for in-store promotions on-shelf but online too, as they spend more time preparing to shop. Using out of store media to communicate promotions effectively is crucial.
Improving shelf signage and providing shoppers with useful advice on how to enjoy products, such as economical recipes, help shoppers to budget without eroding the brand positioning that manufacturers have invested so much in.
In France many people read several retailer promotional leaflets at home before deciding where to spend their money. In-store leaflets still play a key role in many countries across Europe, with more than two thirds of shoppers saying that they are a leading source of information.
More retailers may adopt an Every Day Low Price strategy but different countries have different issues to deal with and must find the most effective solutions for them.
Value can also be provided, and gained, by offering smaller pack sizes at value prices. The buy-it-when-I-need-it approach to shopping allows shoppers to budget better and they don’t have to buy more than they need to qualify for the discount.
Regardless of how successful promotions are, manufacturers and retailers need to be aware that over-use of promotions will make it difficult to raise prices in the future, eroding the price premium that investments in brands generally provide.
What is clear is that manufacturers need clearer definition of the goals and priorities they develop with retailers before they push promotions to the tipping point.
Tim Eales is IRI’s strategic insights director.