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What Next for Promotions?

02/10/14

Five years of recession focused marketers’ minds on price-driven promotions; but they need switch back to value added promotions if they are to grow brand equity, says Tony Nunan of Visuality Group

  • At last, things are looking up for UK PLC. Unemployment has fallen to a five year low, with the largest quarterly rise in people in work since records began.

    The ONS informs us that, at last, wage growth is outstripping price inflation. And the Bank of England has again revised upwards its forecast for UK growth in 2015 to 2.9%. Even the IMF are admitting they got it wrong.

    So, the good times are here again – well, almost.

    As far as Grocery retailing is concerned there’s precious little sign of this upturn, where all the talk remains resolutely fixed on price. Morrisons continues to announce price reductions; Tesco has been telling us for a while that its prices are “down and will stay down”; ASDA remains fixed on its target to remain “the UK’s cheapest Grocer” and Sainsbury’s proclaims that its “Brand Match” mechanic guarantees it will remain price-competitive.

    The interesting thing about this latest round of price cuts is that, if you believe the publicity, they are not promotional – they’re permanent. EDLP is the new order of the day. This, in turn, means there will be a much restricted role for price promotion over forthcoming months as the likes of Morrisons, in particular, work hard to convince savvy, even cynical, shoppers that their sharp new prices are here to stay.

    In many respects, this combination of circumstances – growing prosperity plus a widespread antipathy amongst grocery retailers to Hi-Low price promotions – should usher in a new resurgence in added value, brand-building promotional activity. Given the absolute fixation on price for the last four or five years, this will represent a genuinely new challenge to many brand managers who have never faced this challenge before, and whose experience of creative promotional activity will have been restricted to occasional investment in an ASDA or Tesco Event.
    Any marketers who took up their roles since the recession began in 2009 and who have only worked in a price-driven promotional landscape suddenly face a brave new promotional world where they need to think about promotional activity as a way to create awareness, drive trial and, above all, create brand equity, not simply chase volume.

    So where do they start?
    One would have thought that the World Cup earlier this year would have represented a great opportunity for keen promotional minds. Four weeks of passion, excitement, colour, noise and, above all, coverage. Clearly direct opportunities to leverage the event are restricted to the big corporate sponsors – the likes of Sony, Coca Cola, and Visa – and these relationships are protected with increasing rigour.
    However, even without any official licence to take part, the sheer number of matches being televised must surely have equated to an unusually high incidence of young men getting together, at home or in pubs and bars, resulting in an increasing number of consumption opportunities – and a specific opportunity for many brands selling to this demographic.

    According to figures published by Assosia in The Grocer, Beers, Wines & Spirits, Soft Drinks, and Crisps, Nuts & Snacks all increased their share of promotional space during the run up to the World Cup.
    However, the emphasis was again on chasing volume, not building brand value. For example, according to The Grocer, many lager brands were cheaper during the week before Brazil than in the previous World Cup four years earlier. Volume sales have gone through the roof, with Lager & Ale sales at +47.4%, however Value is up just 20.1% – reflecting an overall reduction in margin.

    Two contrasting perspectives can be found regarding this race to the pricing bottom in a recent article in The Grocer. According to Chiara Nesbitt, beer buyer at Tesco, “The (Beer) market seems to be stronger than ever with promotions and there is only one winner – the customer”.
    In contrast, a reader responding to the previous week’s news that Morrisons’ is cutting prices on 135 more products tweeted “Sounds good, but bad for suppliers, quality and sustainability.”
    Of course, when Assossia talks about promotions, it means pure price promotions. We need to educate marketers, particularly those who entered the industry in the last five years, about the fact that not all promotions are price-based!
    The World Cup could have been the opportunity for fmcg brands to work with retailers to create a whole range of value-added promotions. Some did – the majority just stuck to price promotions.

    Yet it doesn’t have to be like that. It’s not on the same scale as the World Cup but when the Tour de France came to Leeds the entire city centre was suddenly gripped with a love of cycles, cyclists, and all things Gallic.
    It was a big opportunity for all the local businesses, big and small. There were some nice touches by big businesses – for example, mobile phone retailer 3 re-branded as Trois for the weekend, but the real excitement was generated by the smaller traders, like the street food vendors, who were suddenly selling a range of fun, French-themed dishes.
    And guess what? They all charged more than usual.

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