Retailers should avoid knee-jerk reactions

David Ringer, general manager for UK and Ireland at leading global retail promotion consultancy TCC, asks whether retail marketers have learned the lessons of the recession.

Despite a predicted modest decrease in consumer price inflation over the remainder of the year, consumers and retailers alike, are more fixated about anticipated food inflation and VAT rises come the New Year.

High street retailer Next has stated that there has been a “notable cooling in demand” from shoppers and analysts are banging the “worrying run up to Christmas,” drum.

Debenhams has launched a 25% discount sale in an attempt to woo wobbly customers in to store and to part with their cash.

Understanding that we need to put this into context, it is hard not to see a worrying trend of retailers falling back into the same knee-jerk fire sale trap that we all berated last year, and arguably, the year before.

Countless articles and research studies since then have demonstrated that this behaviour is not conducive to strong brand allegiance and loyalty, not withstanding the impact on brand perception.

Slashing prices and incentivising customers on discounts doesn’t work as a sole promotional strategy. Brands opting for price promotions over added value spend stretch activity, for example, reduce retail brand values and overall retail margin whilst simultaneously increasing brand promiscuity.

Incentivising customers through price alone to create the perception of saving money gives comfort to the retailer and the illusion of value for money to the shopper. But, whilst price promotions may result in some volume growth in sales, it is without equivalent real sales value uplift, eroding real pricing, with the whole leading to reductions in brand loyalty generally.

So, doesn’t it make sense for retailers to put a strategy in place now, ahead of the VAT rise and/or food inflation that will not only help boost regular spending and long term loyalty, but critically, profitably increase average transaction value? Of course it does.

Even with the unique issues we face now, the double whammy of food inflation and VAT hikes from 1 January, well structured retail sales promotions can influence day-to-day buying behaviour, without slashing margins and brand values into the so called bargain.

Staggered sales promotions for example, that offer immediate, short and long term rewards, with desirable or high perceived value, offer a means to not only lock in your customers and instil loyalty, but the ability to carry this over well into the New Year.

The trick of course is identifying the right mechanic and the right redemption criteria. For example, with Christmas coming up what will help them reduce the cost of their Christmas or make post Christmas spending easier. Could it be as simple as mixing up the rewards to say 50% off next purchase or save your rewards for an ultimate prize?

We are not dealing with the same shopper we were heading into last Christmas or arguably those from the year before that. Savvy and spend conscious, we need to match the sophistication of the shopper with equally sophisticated marketing and sales promotion techniques.

If we do that, we stand a chance of looking forward to the New Year with profitable growth for retailers through well rewarded shoppers.