Research emerged last week showing that supermarkets have been reducing their ‘complex deal’ promotions in favour of everyday low prices, as bundled offers such as ‘three for the price of two’ are being phased out (‘Promo slowdown reflects shift to everyday low prices,’ 16 April, p19).
The prime reason is because shoppers don’t understand the real value in them. However, with the alternative being everyday low prices, how can traditional grocers compete with the likes of Aldi and Lidl, and does this step-change signal the death of promotions altogether?
First things first, promotions are very much alive and well - there are many categories that have historically performed strongly, and will continue to do so. For example, consumers generally respond positively to promotions on products such as soft drinks and snacks. On the other hand, it’s hardly surprising that consumers are far less interested in promotions on everyday staples such as bread, eggs and milk. If a grocer possesses the knowledge that if a customer buys more, they will actually consume more, this will make their promotions more valuable.
But if bundled promotions are no longer creating genuine excitement, what will? The answer lies in thinking strategically about which categories and products are most sensitive to promotions, and employing tactical mechanics - ie should this product be 10% or 20% off, or bogof? Should we put the product on a specific in-store display, and how should we go about advertising it? What should the duration of the promotion be and when should we repeat it?
Combining these elements will truly make a difference when it comes to a successful price and promotions strategy, because it reflects a fundamental understanding of customers.
Added to that, customers are expecting retailers to invest in targeted, personalised promotions. Such individualised rewards for valuable customers demonstrate to shoppers that the supermarket can deliver a special deal on the products that matter most to them.
Understanding what shoppers have bought, and are likely to buy, enables supermarkets to offer the right promotions, discounts and price levels, at the right time through the appropriate channel. As the mood of UK consumers continues to evolve, this sort of thinking will ultimately place them at a competitive advantage.
And while the purpose of promotions is to generate excitement, successful pricing is all about trust. The drop-off in bundled promotions is proof that grocers are trying to instil more trust in their core base pricing. The holy grail is being competitive on lines that matter most to price-sensitive customers without sacrificing consumer trust. This means keeping promotions clean and simple, to ensure customers understand that the promotions offer genuine value.
Dunnhumby’s Combating Value Retail report found that value perception is more important than price perception for customers, so effectively communicating a strong ‘quality + price’ message will be crucial.
Howard Langer is MD for price & promotion at Dunnhumby