It is generally accepted that below-the-line expenditure is now nearly 60 per cent of fmcg manufacturers’ marketing budgets. This demonstrates a massive switch in emphasis over the past few years brought about by influences such as severe price pressures, a need to target more effectively, the growth of direct marketing and the building of customer databases. Also, the fragmentation of media is increasingly giving less “bangs for your buck”.
But what does the consumer think? In a major survey of more than 7,000 households on Homescan, a number of questions were posed relating to attitudes to promotions which give a worrying insight into the struggle manufacturers and retailers alike have in retaining loyalty.
Consider that more than 70 per cent of customers actively look out for price promotions in stores. In response to the statement “I always compare the prices between different brands before choosing”, only one in five disagreed; indeed, this went as low as one in seven within “new families”, where there is greater likelihood of a recent reduction in joint earning power.
The power of promotions to cause at least temporary change in buying habits is borne out in particular by the attitudes of “maturing families” where, perhaps, repertoire is widest. Fifty per cent agreed with the statement “I will buy a brand I normally don’t buy if it is on offer”. Only 20 per cent disagreed.
It is hardly surprising, in view of this self confessed “promiscuity”, that loyalty-building programmes and database marketing has grown so rapidly and the emphasis shifted from mass- to micro-marketing.
So what are the spending patterns on promoted lines? In a period covering just over two years, to the end of September 1995, the proportion of the shopping basket accounted for by products on some form of promotion rose from just over 14 per cent to 16 per cent. These promotional items would include both on-pack offers (extra free coupons, money-off next purchase, etc), as well as store-specific promotions (multi-buys, money off).
Does it vary by category? By simply scanning the shelves, the perception that liquor is the most heavily promoted category is certainly borne out, in that 1 in every 4 is spent on products which have some form of special offer attached to them.
Confectionery, which includes crisps and snacks, is not far behind, whereas at the other end of the spectrum only 11 per cent of chilled products spending is on promoted lines.
There are some noticeable variations between the major grocery retailers, in terms of promotional levels and trends. Sainsbury’s and Tesco both have about 20 per cent of the basket but Tesco has risen from 17.6 per cent in mid 1993, reflecting its aggressive stance in the battle for market share. Asda has revived its fortunes through a thorough re-evaluation of positioning and what it offers. However, this has not been reflected in an increased emphasis on specific product promotional activity since it has dropped in terms of basket share from 14 per cent to 12.5 per cent, as opposed to the overall increase. Clearly, “everyday low prices” are not necessarily the function of promotions.
What type of promotions are growing? While the simple store price reduction dominates the promotions scene, accounting for more than a third of all promotional expenditure, multi-buys have shown the major growth from 12 per cent in 1993, to 16 per cent by September this year. This pattern has been repeated in all the major retailers, with the exception of Somerfield and Kwiksave, where this mechanism is relatively unimportant.
Furthermore, most of the individual categories reflect the same trend, but there has been a substantial increase in the importance of multi-buys in the household products sector, where it is the dominant promotional tool at 30 per cent of spend on all promoted lines. Coupons feature far more frequently in this category at about four times the overall average.
There seems little likelihood that below-the-line activity will slow down. The only question is which particular mechanism will work best in the future. Clearly, the direct marketing developments could well mean a diversion of funds away from straight on-pack offers, since it is unlikely that retailers will allow manufacturers to move significant investment away from some of the specific store promotions.