June 21, 2024
Sales signs hanging from the ceiling of a retail store

In times of trouble, marketers tend to reach for one of the most familiar and dependable weapons in their armoury: the sales promotion. This method of stimulating demand and boosting sales volumes, usually by offering price discounts and shouting loudly about them, is back in vogue in the UK as millions of consumers continue to struggle with the cost of living.

Research published in the Institute of Practitioners in Advertising’s latest Bellwether Report reveals that sales promotions were one of only three marketing tactics to see an increase in expenditure between the first and second quarters of this year. 

The institute notes that “the net balance of firms recording budget expansion [in sales promotions] rose to 13.4% – up from 8.8% in Q1. Notably, the uplift in spending in this area was the most pronounced in over two decades of survey data. “There is an obvious reason why this should be the case. Price and value have always been key battlegrounds on which to win consumers, but these factors seem to have become even more central to shoppers’ purchasing decisions as the cost-of-living crisis drags on. For instance, market research released by NielsenIQ in August shows that discount supermarket chains Aldi and Lidl have collectively attracted 800,000 new customers in the UK this year.

Can sales promotions harm a brand?

Point of Purchasing Advertising International (Popai) is a trade body representing agencies that specialise in in-store promotions. Popai has yet to collate annual figures for promotional activity, but its managing director in the UK and Ireland, Phil Day, says that the anecdotal evidence already indicates a marked year-on-year increase. 

He has instigated an in-depth study of retail strategies during the cost-of-living crisis. His observations so far have led him to infer that supermarkets, in their bid to position themselves as consumer champions, may be leaning on suppliers to fund deep price cuts.

We instead provide additional incentives to the consumer to enhance an already compelling proposition

In June, Popai researchers visited several branches of the UK’s leading supermarket chains around the country, where they assessed the number and type of sales promotion occurring in each store. They found a sometimes dizzying array of posters, signs and labels promising prices that were dropped, locked in, held down or available exclusively to holders of loyalty cards. So complex was this mix of messages that Popai had to present it to members in a series of tables to help them make sense of it all.

Retailers, particularly those in the health and beauty, grocery and convenience sectors, are mounting an unusually large number of promotions, with supermarkets accounting for about 80% of the growth, Day reports.

“Brands in those sectors are spending more on tactical executions. Although the mechanics of these promotions vary, they are definitely price-oriented. From my perspective, this activity is being driven by retailers, not brand owners,” he says. 

For brands, the classical sales promotion can prove a difficult pill to swallow. Lowering prices can feel like a one-way street, with discounters struggling to restore the previous price once shoppers have grown accustomed to getting more for less. As a result, some differences are being observed in the latest round of promotions, with brands seeking to protect their investments in long-term brand-building – or at least to minimise the damage.

They are becoming increasingly aware of the long-term harm that excessive discounting can cause. Take Gap, for instance: the clothing brand discounted so heavily and so often that shoppers became unwilling to pay the full price for anything. It ended up closing most of its physical stores in the UK, although it has since re-entered the market via a partnership with Next.

Which tactics work best when inflation is high?

Fortunately, it may not be necessary to slash prices to attract custom. According to Popai’s research, consumer behaviour appears to be shifting in favour of a different kind of promotion. Shoppers have come to prefer promotions that offer more product than those offering lower prices. In effect, 20% extra seems to be more attractive than 20% cheaper to someone who’s trying to feed their family on a tight budget during a period of high inflation.

Although the mechanics of these promotions vary, they are definitely price-oriented

Marketing agency Multiply works for a range of clients that includes big brands such as Heinz and Kenvue (the former consumer healthcare division of Johnson & Johnson). Its head of business, David Roberts, reports that “we’re definitely seeing a desire to activate at the point of purchase. Price reductions are happening; they are part of a promotional matrix. But we’re also seeing a desire to talk more about what a brand stands for and to add value on top of the price, rather than come down from it.” 

As a result, more brands are choosing alternative mechanisms, such as competitions, limited-edition products and tailored incentives, to tempt customers. Travel-based promotions are proving especially appealing to cash-strapped shoppers who haven’t been abroad since before the Covid lockdowns. 

With such tactics, brands are seeking to boost sales volumes in the short term without undermining their efforts to establish the brand values that justify a long-term premium on their pricing.

Short-term reward versus long-term risk

It’s always been tricky to strike the right balance between price-led promotions and long-term brand-building, but establishing a lasting reputation for providing value for money can be an effective strategy in itself.

Automotive brand Dacia has spent a decade carving out a reputation in the UK for providing good-value vehicles. Graham Robertson, a senior manager at the Romanian car maker, says that its products are always competitively priced, which suits consumers who are scrutinising every penny they spend. Nonetheless, the brand does not cut prices further during sales promotions.

“Our short-term sales activities very much play to our brand strengths by highlighting that we don’t need to slash our prices considerably for a limited period. Instead, they provide additional incentives to the consumer to enhance an already compelling proposition,” Robertson says. “The cars we sell will remain the same price, but the incentive to purchase, such as enhanced servicing packages, add value for the consumer.” 

He continues: “We often talk about keeping things simple and being ‘the good-thinking choice’ when building the brand for the long term. These messages are equally relevant during shorter-term tactical activities, so it’s simply a case of dialling them up lightly in those periods.”

The sales promotion clearly remains one of the most effective measures that firms can take to boost sales volumes in the short term. But experience during the unexpected and prolonged return of high inflation has taught them to use it less as a blunt instrument and more as a precision tool if they’re to preserve brand value for the long term.

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