Offering value without hitting the bottom line

Supermarkets and brands have become increasingly vocal about the damage being caused to margins and brand equity by the high level of promotional activity.

Sainsburys

There has been a stark increase in the number of retailer issued promotions in the last year, with 56% more issued this year than last year, according to voucher marketing firm Valassis.

Its research also shows that redemption of coupons has increased 96% over the last three years, nearly doubling from 115 million to 225 million in half a year as retailers turn to promotional vouchers to attract shoppers.

Peter Kerr of the Institute of Promotional Marketing says that it would be “commercial suicide” if the use of conditional spend vouchers and promotions continues at the current rate. He adds that there are other promotional vehicles at their disposal. However, contrary to received wisdom, the increasing use of vouchers is not exclusively being driven by consumer demand, he adds.

Marketing Week looks at five alternative promotional models that supermarkets should dial up to break out of the cycle of giving away free money to shoppers.

1: Brand Match

Brand match initiatives, such as those run by Sainsbury’s and Waitrose, provide supermarkets with an opportunity to promote an overall value position without giving away free cash to shoppers.

Sainsbury’s says that its Brand Match initiative “reinforces how competitive [it is] on price” and since its launch last year it claims the percentage of people that believe the supermarket sells brands at the same price as its rivals has increased to 80 per cent, from 68 per cent.

Penny Dryden, commercial director at voucher firm Valassis, says that brand match promises have had an immediate effect on consumers and have helped change consumers’ perceptions about retailers that are often viewed as more expensive.

2: Discounting to encourage additional purchases

Paul Alexander, CEO of consumer insight agency Beyond Analysis disagrees that price guarantees are an effective promotional tool arguing that they are “generic” and “erode margin and make sure that [a retailer’s] profit is only as good as their buying department.”

Instead he suggests that retailers should discount only when it means that a customer will also buy something else on full margin.

He says: “The general idea should be that you’re doing it so that customers will buy something else from you like having hummus on offer by crisps at full price or vice versa. There are real deal seekers who will wait for things on promotion, and those people you won’t be able to change the habits of, but other people who are just looking for a good deal are buying a range of things so just giving a blanket store wide discount will never work for business.”

3: More targeted data based offers

Supermarkets should focus on developing highly targeted promotions designed to achieve specific objectives such as enticing lapsed shoppers back in to stores, says Neil Saunders, managing director of retail consultancy Conlumino.

Tesco and Sainsbury’s already use loyalty scheme data to target specific offers at consumers based on their own habits and Morrisons has begun to roll out an initiative that provides shoppers coupons based on their basket spend but despite this, the market has been flooded with non-specific conditional spend vouchers in recent months.

Saunders adds: “Activity should be carefully targeted to drive specific behaviours or influence certain groups rather than being used on a blanket basis. Such targeting saves on costs by ensuring activity is not directed at already loyal shoppers.”

4: Restricting promotional activity

The danger that retailers face is that continued use of conditional spend voucher promotions is that they become less effective the more they are used and consumers become trained to only shop when there is a money off promotion.

Saunders suggests restricting this kind of activity to make sure that it remains valued by consumers rather than expected.

“Eventually it could reach the stage where they are seen as a hygiene factor and weaning customers off them proves increasingly difficult. Retailers need to moderate activities such as couponing to set periods and ensure that activity is planned rather than just being used randomly on an ad-hoc basis,” he says.

5: Jump off the bandwagon

CEO’s of two of the UK’s largest supermarkets Tesco and Morrisons have expressed their dissatisfaction with the current high level of voucher activity, but both chains have continued to participate.

Beyond Analysis’s Alexander says the situation is entirely “self-perpetuating” adding that the first thing retailers should do is “stop and think about whether it’s what their customers actually want, or if it’s just what their rivals are doing”.

He says: “Every supermarket has a different proposition, values and customer profiles so the treatment of promotions needs to be different [by each]. Too many are getting into the cycle of thinking ‘someone else is doing it so we need to do it’ without enough conscious thought about what they’re doing.”

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