What role should promotions play when consumers are savvier and more value-conscious? SymphonyIRI’s Rod Street believes offers can still be a sound short-term sales strategy – if implemented with the new consumer in mind.

The never-ending consumer recession has made shoppers more price-driven than ever before. They are taking new measures in the way that they shop to find value. Using online shopping sites and mobile applications, they are comparing prices before they buy. Trading down to retailers’ own-label products or even to a different category of product is increasingly commonplace. Shoppers are also looking more closely at the value they gain from promotions, increasingly weighing up each offer in context against the overall price. 

Our latest research into price and promotion across Europe shows volume food sales have increased even if only slightly across the region in every country except Greece. In most cases the increases are greater than non-food: people are cutting back but still need to eat even as food prices continue to rise and squeeze their budget (by an average of 3.2% across Europe). However food sales are at a virtual standstill in the UK and Netherlands with the pressures.

Promotional intensity on food is a more mixed picture. It has increased in Italy, Germany and the UK. The increase is highest in the UK, reflecting the intensity of promotional deals which now account for more than 56% of all products sold compared to an average of 25.6% across Europe. This is not true everywhere. In France, for example, there has been a significant fall back in all promotions, especially in food which fell by 5.7%, reflecting reductions in private-label promotions and a careful quality conscious shopper. 

Weather generated spikes in cereal prices however will continue to present the industry with real challenges. An overall demand squeeze combined with upgraded private label offerings will exasperate brands and continue to place the pricing trade-off on volume and position versus margin at the heart of sales discussions.

This challenge is hardest on non-food products that tend to experience slightly higher levels of promotional pressure in many countries (but not all) and is seeing a prolonged cutback in shopper demand in many markets. Troubled as food is by rising costs, it benefits as families replace dining out with dining at home, and their choice of some quality items to make the experience more special. 

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All this puts goal setting and tight execution to the top of the agenda for promotions. 

The objective has to be profit instead of mere volume or revenue. The realisation of better returns on the EUR25bn spent on promotions each year by grocery brands and retailers across Europe is vital when growth is so tough to find. 

Promotions are not a long-term growth driver nor are they a shortcut to increasing market share and defending territory. As fast as you reduce the price of your brand, your competitors in the category soon follow creating a dangerous vicious spiral that can erode the value of the entire category, reducing potential returns for all.  

So what role should promotions play? Although promotions may still not drive long-term growth, they are still a good short-term sales strategy. 

Key features of a successful approach to promotions include:

A closed loop across sales, marketing and finance that makes sure the investment goes exactly where and when it is needed;

Budgets set in the context of overall commercial plans and embedded into the joint business plans between supplier and retailer;

Well-understood results from previous events that shape the choice of mechanic, optimise deal depth and select promotional items and frequency carefully;

A clear set of realistic objectives for events that recognise the short term nature of lift, and maximise the attention drawn to the category, to trading up or to innovation.

It certainly does not include a predatory use of promotional pricing that will undermine margins or the simple use of promotions to defend a brand that needs much more strategic treatment. These will too quickly make no commercial sense in the current environment and will only encourage the desperately price sensitive shopper, who does still not represent the majority even in the current climate!

Consumers in the seemingly ever increasing search for better value are viewing and reacting to grocery promotions in a much savvier fashion than five years ago. More discerning, more informed, more value conscious and less ready to jump at a poorly thought through offer. 

They present retailers and suppliers with a real challenge. As margins continue to be squeezed under the hammer of rising commodity prices and aggressive competitors desperate for growth, brands that want to avoid becoming commodities need to understand the new role that price plays to the value driven consumer. 

To listen again to the webinar on the role that promotions have in frugal times, click here.