“A big chunk of your promoted sales is actually just subsidising existing sales. You’re giving away discounts to people who would have bought you already,” he said.
“Another chunk of your sales are just time shifted. You’re bringing sales forward. You’re getting extra sales this week at the expense of next week.”
I struggle to know whether or not I agree with Les Binet when he makes statements such as these, it feels like a sweeping generalisation that isn’t applicable to all product sectors. It is a marketers dream to think that there is a level of brand loyalty that exists in the mass market world of food and drink. In a long-gone era, where the power of the retailers was less and brands had the upper hand when it came to negotiations then, maybe, this thinking was applicable to mainstream food and drink categories as well as luxury goods.
I agree that some of the larger deep pocketed brands such as Coke can and potentially should, avoid the temptation of excessive promotions, but they have a product which is so unique in taste that if you are a Coke drinker the retailers own label equivalent will just not cut it for you – how many other food and drink products really have this uniqueness?
The reality for new (and some not so new) non multi-national food and drink brands is that they cannot afford to wait for the long-term brand building power of advertising to kick in, assuming they even have the budget to advertise on such a scale as to make any impression in the first place. Where retailers are (rightly from their perspective) only interested in category sales (not individual brands) they have to demonstrate that there is good demand for their products or they are off the shelves at the next ranging window, sometimes as quickly as 12 weeks post launch. For food and drink suppliers to be successful they too need to measure their performance in the context of the wider category, they have to talk to their trade buyers about the value they add to the category as a whole and demonstrate a reasonable ROS to justify the space they occupy on the shelves. In our latest Levercliff consumer tracking survey, 60% of consumers reported that they have started looking for offers to help with rising costs, this is up from 48% in March, so I question how they can do this without promoting?
In terms of promotions just resulting in a time shift of sales this may be true for some products but not generally for FMCG. The reality is that many food categories are going to be shopped week in, week out i.e they are non-discretionary purchases vs many non-food sectors (let’s face it, food is essential, handbags are not). In short shelf-life categories such as dairy, a purchase is going to be made, but I would argue in the current economic climate that increasingly for consumers this is at a category level i.e they go to the store knowing they need yogurt but undecided as to which one they will buy until they see the cost. They plan their shopping at category level, less so at a brand level as Binet infers.
So, if we buy into the idea that ‘offers are a bad idea’, are we, as category consultants really meant to tell our clients not to promote their products when all we hear from consumers is that they will buy what is on offer when they visit the stores? Increasingly they are willing to forgo any loyalty they may have had to brands in order to stick to a budget. By brands I also mean retailer own label brands. Shoppers are deciding what to put in their basket/trolley at point of purchase when they see what is on offer and how much of their budget they have left. 43% of consumers told us that they will trade down to retailer brands if they are cheaper in order to minimise their expenditure. Brands are therefore faced with the choice of either promoting their products, reducing prices to parity with retailer brands or risk losing significant volume sales as consumers switch.
I wonder if the econometric modelling referred to by Binet in his recent article in Marketing Week was based on a time prior to this recession, before shopping choices were all about stretching a significantly reduced food shopping budget as far as they can? Weekly shopping budgets are being set after taking account of what they need to keep the lights on. Perhaps rather than thinking about how much profit brands can make (and I know they must make a profit), they should be thinking about how they can really help shoppers in this downturn, perhaps this is the way to build longer term loyalty and if offers help with this, who are we to tell brands not too promote?
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