Price promotions are here to stay

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The economy remains sluggish, which means that price promotion will continue to be a prominent tool for retailers and brands despite concerns that it erodes brand equity and margins. Brands, however, are finding alternative promotional methods to deep discounting, to attract customers.

As much as 60% of goods are now sold on promotion. This rises to nearly 90% if products such as tobacco that are never discounted are excluded, according to Kantar. Instead of encouraging loyalty to a brand, consumers are encouraged to switch to whichever brand is on promotion.

There are signs of brands adopting alternative strategies to cut back on steep discounts and recent research from the IPM found that more than three quarters (76%) of brands surveyed rated pulling back from price discounting as fairly high or very high on the agenda.

Energizer Holdings, which owns Energizer and Wilkinson Sword, has taken the decision to promote less often and less deeply in favour of other ways to give the brand visibility beyond price such as a partnership with Help for Heroes to donate to the charity for every pack purchased.

Nick Powell, managing director of Energizer, says: “If it doesn’t stimulate sales or growth you’re just walking your brand value out the door. We still want the tools to differentiate our brand and encourage brand switch, but it doesn’t need to be 50% discount.”

Powell believes that the short term impact on market share is vital for the long-term health of the company’s brands.

“We’re taking a long term, responsible, approach to building the category. We believe its right for the category and if the competition is doing the same kind of strategic analysis they will end up at the same conclusion,” he says.

Energizer is not alone in feeling that price promotions has become too deep. Other brand owners such as Heinz and Procter & Gamble have indicated that increasing prices and cutting back promotional activity is on the agenda in coming months.

Gary Carp, director of consulting for Kantar Retail, says brands have two choices; One is to accept the that promotions are a necessary part of retail and find a way to make it work, the other is to adopt new strategies that reduce the reliance on retailers such as direct selling.

Müller has adopted an alternative price strategy based on a three tier price structure on single units and multipacks to protect its brand equity, while Nespresso is an example of an fmcg brand that has shunned the retail route to consumers to protect its high-end brand positioning from supermarket promotions. It only sells its coffee cartridges directly to consumers through its Espresso Club.

Carp adds: “It’s a brave marketing and sales director that pulls back because of the volume hit you take.

“Brands and retailers must realise that they are in a war and there are more tough years ahead. I can only see promotional activity increasing. Everyone is competing very hard for a greater proportion of a shrinking pie. The big challenge for brands is to get to a position where they are always on promotion but not damaging value.”

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