Sales promotion: beyond the zero-sum game of deep price cuts
Price cuts dominate the retail market, but major brand-owners are keen to develop price promotions as a tool to build consumer loyalty and value sales, writes Stuart Derrick.
Marketers know that price cuts are the most powerful form of sales promotion. Time and again consumers pick a juicy discount as the offer most likely to get them to purchase.
No wonder, then, that price cuts are a favoured marketing tool, with the UK Europe's most promotionally active market. According to SymphonyIRI, 56% of grocery products are sold on deals, more than double the European average of 25.6%. The Institute of Promotional Marketing (IPM) estimates FMCG brands spend £14.4bn a year on discounting.
Yet brand-owners are starting to tire of this cycle - one that Unilever chief executive Paul Polman described to Marketing earlier this year as a 'zero-sum game', pointing out that 'big promotions and deep cuts are not building brands and consumer loyalty'. Unilever is reducing its reliance on promotions in the UK, he said.
It is not the only brand-owner doing so. Procter & Gamble and Coca-Cola are also reported to be looking to take the heat out of discounting.
John Pickering, customer development director UK at Mars Petcare, says such promotions no longer cut through. 'Shoppers feel overloaded with promotions and struggle to distinguish them from each other.'
Recent research by the IPM underlines the fatal attraction of price cuts. Working with consultancy Storecheck, it tested two promotional techniques. Sales of Bahlsen biscuits went up by 350% when a 50p discount was applied in-store, but only by 30% where the discount had to be redeemed online. The same offers for Lil-lets produced uplifts of 225% and 30% respectively.
However the cost of sales revealed a deeper picture. Every extra pack Bahlsen sold on price discount cost £1.11, whereas the online cashback cost 7p a pack. For Lil-lets, the figures were £1.02 a pack for the discount, compared with 1p a pack for the cashback.
The results demonstrate that brands need to concentrate on a new metric - the cost of growth, according to Storecheck managing director Colin Harper. 'Marketers need to have systems in place that allow them to properly analyse the real costs of all of their promotional marketing activity,' he adds.
Becky Munday, chief executive of promotional risk-management company Mando, points out that putting price back in its box is never going to be a quick fix, so embedded in retail culture has it become. 'Some brands have been running BOGOFs and money-off deals to the extent where the discount price is now the default price in the consumer's mind and they won't pay the full price,' she says.
The good news for brands is that price is just one of the sales promotion techniques that they can turn to when they need to drive short-term behavioural change.
Mars Petcare's Pedigree worked with experiential agency Sense for its 'Has your dog had his four-a-day?' brand-education activity, bringing the message to life in-store.
Jon Spary, new business director at Sense, says that traditional on-pack promotional activity has to work harder and that brands have to carefully consider the target audience. 'Experiential engages with consumers putting the brand on their radar as they enter store.'
The agency also ran a Kleenex Balsam roadshow, which helped the brand's value share reach its highest peak to date of 50.9%.
In commodity markets, marketers are using promotional activity to help build loyalty. The majority of milk is bought on price, but brand leader Cravendale has a premium position which it is supporting with an on-pack 'Epic straws' promotion.
The three-month activity requires participating consumers to collect 10 tokens from 2l bottles and enter pack-codes online. The gifts are straw kits with which they can build Heath Robinsonesque devices to drink milk.
'This is our fourth on-pack promotion,' says Cravendale brand manager Sophie Macaulay. 'We started with a kitchen collectables range, which went down a storm. Then we did a Muppets backpack. We want to reward loyalists who pay a little bit extra.'
The data acquired through Cravendale's promotions is used for a newsletter that goes to 160,000 loyal consumers and Macaulay says that the Arla Foods-owned brand could look at running a loyalty scheme.
With the ongoing economic gloom, the promotional coupon has undergone a revival, with redemptions doubling in the past three years, according to research by handling company Valassis. Managing director Charles D'Oyly says retail coupons from loyalty schemes such as Nectar and Tesco Clubcard are driving the growth.
'Supermarkets are now fighting tooth and claw for every shopper,' he adds. 'The coupon market has also been given a lot of excitement in recent years by companies like Groupon.'
Promotional standbys such as a free gift with purchase remain attractive to consumers. Powerade promoted its Olympic sponsorship with an on-pack offer of the same water bottle used by athletes. Consumers had to enter a unique code online to receive the gift. More than 286,000 have been claimed.
'The Powerade sports-bottle activity has been our most successful on-pack promotion,' says Kerttu Inkeroinen, Powerade brand activation manager. 'The presence of the bottle on the field of play during both UEFA Euro 2012 and the London 2012 Olympic and Paralympic Games really captured the public's imagination and the demand was unprecedented.'
Promotions are increasingly required to present a good brand fit as well as deliver sales. Batchelors' 'Fuelling Britain' campaign linked with concern over high petrol prices to offer free tanks of fuel.
'We found a sweet spot between our brand - a product that fuels mums and families - and high fuel costs,' says Andy Smith, senior brand manager for Batchelors. 'We timed the competition around the Budget, which made it "of the moment". We beat our target number of entries by 38%.'
As long as the economy remains tight, price promotions are here to stay, according to Jeremy Stern, managing director of promotional verification service PromoVeritas. However, brands can apply it in a way that works for them. 'More brands are looking at "try me free" cashbacks and "money-back" guarantees that can help build confidence in a brand and encourage trial.'
Darren Keen, managing director of shopper marketing agency MARS\Y&R, says brands should adopt a more holistic approach, using smartly timed price promotions sparingly. They should also look to add value in other ways.
'These can range from improved packaging formats, use variations, quality, efficacy and other small but significant treats and experiences delivered by a raft of onand offline promotional tactics.'
Price promotion will remain part of the marketing armoury for the foreseeable future. The challenge for brands is to scale back their influence and to ensure it is not the first weapon reached for.
How it works - A GPS-enabled device is inserted in-pack. This can be used to alert a brand team to the location of a named individual.
How does it add value? Geolocation adds excitement to prize-giving by allowing a winner to be tracked down to a precise location and presented with a prize.
Which brands are using it? Nestle is using the technique for its 'We will find you' promotion on its Kit Kat, Yorkie and Aero chocolate bars.
2. Digital gumball machine
How it works - Users insert a coin and receive a digital gift, such as music, an app or ebook by tapping their smartphone on the machine.
How does it add value? People usually obtain digital objects through app stores, so there is an element of surprise for consumers in receiving something from an old-style gumball machine.
Which brands are using it? The project was conceived as a trial by Razorfish Frankfurt, so has yet to be used by brands.
3. Augmented reality
How it works - Brands use image-recognition systems such as Blippar or Aurasma to project brand communications via smartphones.
How does it add value? Augmented reality-enabled packaging can provide additional information, competitions or entertainment.
Which brands are using it? Heinz has used Blippar to connect shoppers with a virtual recipe book and a chance to win branded merchandise. Shoe brand Clarks brought Clarks Kids characters to life in store with Aurasma.
4. Smart vending
How it works - Vending machines can be digitally enabled to allow consumer interaction. Coca-Cola updated its classic 'I'd like to buy the world a Coke' campaign to allow app users to buy a drink for somebody from vending machines around the world.
How does it add value? By turning a straightforward transaction into a moment of brand theatre.
Which brands are using it? As well as Coke, Pepsi has trialled the technology, and Unilever used facial-recognition technology to give Ben and Jerry's ice cream to smiling consumers.
5. Outdoor couponing
How it works - A coupon dispenser is attached to a poster site and produces a coupon when a button is pressed.
How does it add value? Coupons are a tried-and-tested technique, but combining the dispenser with outdoor posters allows the addition of sound, motion and even smell for a 360 degs brand experience.
Which brands are using it? JCDecaux produced the system to promote McCain chips and Ready Baked Jackets. Unilever has trialled NFC couponing with Magnum, Lynx and Vaseline.
YES - COLIN HARPER MANAGING DIRECTOR, STORECHECK
All brands would love to discover a way out of discounting. They want a magic wand, but there isn't one. Sales directors are driving discounting, not marketers, and sales directors have only one tool: price. Marketing directors are seeing their budgets eroded by people who are destroying their brands.
Brands have to come up with ways of adding value on the shelf and improving stand-out. There are no quick wins, but if brands can understand that their supply chains are letting them down, they might be able to cut out a promotion by lowering volume and not needing to sell on price - then they can invest some of that money in on-pack activity. It does work.
NO - RICHARD HAYHOE MARKETING DIRECTOR, MACE
Without price promotions, many convenience stores would find it even harder to remain competitive.
Shoppers are still feeling the pinch and they're looking for value, particularly from their favourite brands. Convenience stores and forecourts face stiff competition from supermarkets and they have to challenge the perception that they're expensive.
A key way they can do this is by offering promotions on branded items, driving footfall and increasing basket spend. A standard convenience store achieves about 60% of its sales from only 500 branded lines. Consumers search out these brands and if they are on promotion, so much the better.
1. Loyalty points
What they are Consumers who spend money on a company's products are rewarded by being issued with loyalty points intended to keep them coming back for more. These points can be redeemed for merchandise or product upgrades.
Brands that have used them Loyalty schemes have been used by companies as diverse as supermarkets Tesco and Sainsbury's, food and drink brands Starbucks and Coca-Cola, and travel and hotel brands British Airways and Marriott.
How they are used online With consumers spending more time and money online, there is scope for brands to use loyalty techniques here. Digital currencies such as Microsoft Xbox Points can be bought, awarded for purchases and even earned for interactions. Other social currencies include Linden Dollars for Second Life and Sony Rewards in the US.
2. Gaming cards
What they are Ever since the National Lottery launched its instant-win scratchcards in 1995, UK consumers have embraced the format. The technique was quickly mirrored in sales promotion for instant-win games.
Brands that have used them Scratchcards and their many variants have been used extensively in the drinks trade for onand off-trade promotions by Smirnoff, Coke, Grolsch and Budweiser, among others, as well as non-drinks brands such as Tesco and McDonald's.
How they are used online Rather than scratching a physical card, a virtual card is represented on a website or app. PG Tips is currently running a promotion to encourage greater engagement through its social channels. Followers who download an app have a daily chance to win £100.
What they are Brands have been appealing to our collector instincts for as long as promotions have been running. By linking purchases to collectable tokens and encouraging consumers to 'complete the set' they create loyal purchasers.
Brands that have used them Robertson's used its Golly badges from 1928 until the mascot was 'retired' in 2002. Other branded collections have included PG Tips cards and Tetley Tea Folk ceramics.
How they are used online Collecting digital items appears to be no less compelling, and the ability to show off possessions to a wider audience through social media carries more kudos. Innocent teamed up with Disney's Club Penguin for promotions that challenge followers to collect 25 virtual items. Frito-Lay has partnered Zynga's FarmVille games for a promotion that lets players collect virtual items.
This article was first published on marketingmagazine.co.uk
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