Promotional fears unfounded

They are a common sight on supermarket shelves. “Two for the price of one”, scream the displays. “Special low price – while stocks last,” the point-of-sale materials proclaim.

Short-lived price cuts and “multi-buys” are the retailers’ way of building sales and tempting shoppers to buy more of a particular type of grocery, or health and beauty product.

But there is a fear that when these consumer promotions come to an end, shoppers will be less likely to buy the products because they have stock-piled them during the promotion. This means that the end of the promotion can spell a slump in sales.

Some believe these slumps can wipe out the extra sales gained during the promotion, and could even compromise future sales.

There is no doubt that retailers are getting more proficient in their use of these promotions, and have found ways of extracting the maximum impact from promotional drives.

When IRI Infoscan looked at nine categories of health and beauty products, it found that the average time spent on promotion had fallen over the past 12 months.

The emphasis of promotions had switched from simple price cuts, with no special displays or point-of-sale materials, to promotions backed by signs proclaiming the price reductions. These have a greater impact on consumers and lead to greater sales than price cuts alone.

With this improved efficiency – which is probably due to greater understanding of the way promotions work by both retailers and manufacturers, and to the use of diagnostic tools, it seems logical to assume that after a promotion there will be a slump in sales. In-deed, looking at manufacturers’ own shipment figures and consumer panel data this seems to be the case.

However, scanning data collected weekly by IRI InfoScan shows that in the vast majority of cases, sales following a promotion do not drop below pre-promotion levels.

There are several reasons for this. Firstly, not all the store’s normal purchasers of the promoted product will visit the store to buy that product during a promotion. If a promotion lasts four weeks for a product consumers usually buy every six weeks, the consumer may well miss the deal, returning to the store and buying as normal after the promotion has finished. The reason why consumer panel data can sometimes show a post-promotional dip may be because the panel is picking up a number of consumers buying the promotion and extrapolating to give the impression that a larger proportion of consumers is buying the promotion than is shown by scanning data.

In addition, there will be consumers who miss the promotion due to buying the product from a different retailer on that occasion – for example running out of shampoo and stopping to pick some up from the corner shop. And some deals just don’t appeal to all consumers – not everyone has the space to store, or the immediate cash to buy, three large boxes of detergent – even if the offer is generous.

Any promotion is likely to lead to shoppers trying the products out and these customers will possibly be converted and become regular purchasers. They will therefore add to rather than diminish the sales when the promotion has finished.

The post-promotional dip often witnessed by manufacturers is possibly caused by retailers buying in more stock than they will actually sell during the promotion and continuing to sell from stock after the promotion. This doesn’t always happen, and can’t if the promotion is dependent on a special pack, but there is no doubt that when it does, the subsequent low sales period can be worrying for the manufacturer.

The slump can be avoided by adopting a policy of every day low pricing (EDLP) and doing away with promotions altogether. But this does not suit every manufacturer.

Though inconvenient, it has to be accepted by manufacturers that this kind of sales slump may occur but is short term and does not indicate that the promotion has had a serious impact on consumer purchasing behaviour.

All in all, the proportion of a product’s regular consumers who take advantage of a promotion is not enough to compromise the sales level following the promotion.

It is far easier to persuade a store group buyer to run a promotion than it is to influence the many thousands of consumers who may visit a store each week. Despite post-promotion reductions on sales from the factory, it seems that sales gained by such trade promotions are indeed incremental – the only question is how efficient is one promotion compared with another.