Can UK promotions woo EU hardliners?

The UK sales promotion industry feels threatened. Backward-looking European legislators, it fears, are preparing to force through new laws which could wipe out the entire industry.

It is an alarming scenario, particularly as the UK industry employs more than 10,000 people and claims to generate &£10bn worth of business a year. But how real is the threat?

The European Commission has been promising to harmonise laws on commercial communications since 1996. At the moment, every country within the European Union has different rules on what advertisers and promoters are allowed to do. This can be a major headache for companies which run pan-European campaigns.

The UK has one of the most liberal regimes, with “buy one get one free” (bogof), prize draws and discounts screaming from every supermarket aisle. In Germany, by contrast, most forms of sales promotion are outlawed.

Harmonisation, if it is to happen at all, is likely to be a protracted and painful process.

The first tentative steps were taken earlier this year when a Committee of Experts – comprising 15 civil servants from the 15 EU member states – met to discuss money-off coupons and discounts. It was, predictably, split along national lines, with the German delegation, backed by Belgium and France, calling for an EU-wide clampdown, to prevent “foreign” advertisers and agencies invading domestic markets.

The big fear, among UK players, is that when the EC finally legislates, it will follow the German model.

Industry trade bodies the Institute of Sales Promotion (ISP) and the Incorporated Society of British Advertisers (ISBA) are joining forces to fight the UK’s corner by forming a promotions committee (MW September 23).

ISP director Simon Mahoney says: “If we don’t have a voice now, we will suffer the same fate as the tobacco industry. There will be legislation based on ignorance.

“Unless we get our point across, we will lose 50 per cent of this industry, and it could be 100 per cent.”

Lobbyist Paul Suchard, of Cabinet Stewart, is helping the ISP put its case in Brussels. He says: “It is a real threat. It would be a big mistake to think legislation will never happen or that the issue will go away.

“If the industry wastes time talking and writing position papers, before it knows it, the legislation will be on the table. I’ve seen it happen before.”

Suchard argues that tighter legislation flies in the face of everything the single market stands for.

He adds: “If you are looking for expansion and growth and you want to use the internal market as it is meant to be used, then liberalisation makes sense.

“The Belgians say they don’t want change – but this was not the promise of Europe.”

The laws governing sales promotion in Germany date back to the early Thirties, when free gifts and discounts were banned. These restrictions were further strengthened through case law during the Sixties and Seventies, fuelled by the rise of consumerism and widespread mistrust of multinationals.

Today, the maximum discount allowed in Germany on any consumer item is 3 per cent – and giving away free gifts, unless they are of low value or of an educational nature, is likely to end in High Court action.

German supermarkets compete on everyday prices alone. There is thought to be concern among the larger companies, such as Metro and Tengelmann, that liberalisation will lead to incursions from foreign retailers, experienced in the “black arts” of sales promotion.

Angelika Baumgarte, legal adviser at the German/British Chamber of Industry & Commerce, believes the German consumer is over-protected, and liberalisation is inevitable.

She says: “Our laws protecting the consumer are much stronger. In the UK, the test for whether a consumer can be confused or unduly influenced is based on the average, reasonable person. In Germany, I believe they look at a very stupid person, and how easily he or she could be influenced.”

Although the German position seems to be rooted in antiquated laws – and smacks of protectionism – the country’s dislike of aggressive promotion and discounting is not entirely out of tune with current trends in retailing.

Electrical retail giant Comet, headed by ex-Wal-Mart man Joe Riordon, is the latest UK company to abandon seasonal sales in favour of everyday low prices (EDLP).

Comet marketing manager Paul Geddes believes more will follow. He says: “It’s no surprise that EDLP is sweeping through UK retailing. There is a growing realisation among consumers that most sales are artificial. There is also confusion over prices.

“We are just acting on customer reaction. They are saying ‘I don’t believe in all these savings you are doing. I don’t understand why prices are going up and down all the time’.”

But rather than fearing the German model, can British retailers learn from it?

Clive Vaughan, director of consultancy at industry analysts Retail Consultants, believes not. He says: “The German market seems to be heavily dominated by price.

“In the UK, there is a lot more activity between retailers and manufacturers. Promotional activity is working within the overall objective of category management. It is launching new products and supporting existing ones. And UK consumers seem to like this level of activity.

Vaughan adds: “Harmonisation along German lines would be retrogressive. It would not allow German companies to do any more and it would prevent British businesses from doing what they do already.”

The current chaotic situation cannot last forever. New media in particular is highlighting the flaws in the system and impossibility of trying to impose national laws across international boundaries.

The answer, according to the UK promotions industry, is “mutual recognition”, where advertising is controlled by its country of origin.

In practice, this would lead to widespread liberalisation, as countries with tougher regimes are bombarded with ads and promotions from more liberal neighbours such as the UK and the Netherlands.

It is unlikely that Germany, Belgium and the more regulated countries will ever allow that to happen.

Ultimately, there will have to be a compromise, but the ISP and ISBA can expect a long and bitter battle before a deal is struck.