Promotional cannibalization: how bad is it and what to do about it?

The most recent benchmark data from Accuris indicate that cannibalization wipes out, on average, 17% of the additional sales volume created by promotions. The value of the products being cannibalized typically constitutes even 22% of the promotional uplift, as the volumes sold at a discount supplant those sold at full price.

Strategies to reduce the cannibalistic impact of promotions should include avoiding shallow discounts, stopping ‘one size fits all’ promotions, refraining from single unit promotions, and circumventing promotions leading to a downgrade in purchase weight or value.

Accuris analyzed what factors contribute to cannibalization, which categories tend to be more affected and how to reduce unwanted cannibalization. Read the full article on Linkedin.

Cannibalisation wipes out 17% of the uplift of a promotion (Source: Accuris)

ABOUT MUST-WIN BATTLES AND BIG BETS

Why Bold Strategic Choices Are the Only Option for FMCG Companies to Change the Status Quo and Generate Above-Average Growth



"Market-side opportunities should dictate strategy. We recommend our clients to place big bets on new opportunities where we feel they have an exceptional proposition to offer the consumer; then there is their traditional business where we identify specific market segments and consumption occasions that are must-win battles for our client. They fund these strategies by divesting from other activities and frankly by saying “no” to many middle of the road initiatives." - Accuris.



The consumer goods industry in the Western world has become used to slow growth and incremental improvement. The sudden double-digit growth experienced in some categories during the Covid pandemic will remain an exception.

- How to break away from complacency with modest progress?

- How to stop the habit of gradual but slow advancement?

We make a case for pursuing a bold and focused strategy.




MATURITY VS. GROWTH



1

Fast moving consumer goods businesses are complex. The number of products, channels, customers, staff, shoppers and consumers is far greater than in most other industries. A key consequence is that change in such businesses is difficult to achieve. Most FMCG companies have perfected their business models throughout the years, providing stability rather than flexibility. This has led to opportunities missed and painful adaptation to a changing market. Still, their business models and market positions are so robust that, unlike leaders in other industries, missing an important market opportunity does not fundamentally weaken them or put them out of business altogether.


Consider these global FMCG leaders:

• The Coca-Cola Company initially missed the emergence of the energy drinks segment and plays catch-up in this segment, in many markets, still today.

It bought Energy Brands Inc. in 2007 and Monster Beverage Corp. in 2016. Only in 2021 it achieved market leadership in the USA, 24 years after Red Bull created and led the segment in that market.


• Walmart had several failed attempts to offer shoppers an online alternative to Amazon. It initially dismissed online as a meaningful channel and had to rely on outside companies to create its online presence. It acquired a patchwork of businesses to catch up, including Jet.com, ShoeBuy, Bonobos, Moosejaw and Parcel, a package delivery company.




2

The typical FMCG company is a mature business. And they have become extremely good at managing, at scale, their mature operations for decades. However, managing for growth requires a different set-up than managing a large, profitable, stable organisation.


Managing a large, complex organisation requires distinct skills many of which are internally oriented, not driven by market trends.


Some of the distinct skills FMCG companies master wonderfully are:


Management attention. From the key account manager to the country manager, management attention needs to be divided between numerous brands, transactions and people. The sheer breadth of the business requires extensive management attention to keep the big machine rolling.


Long running relationships. Retailer-supplier relationships in the industry typically span decades. Dozens of predecessors have looked into ways to contracts, collaboration, planning. It is hard to substantially change a collaboration that has been mutually beneficial for many years.


Annual contracts. Collaboration is very much cemented for 12 months to come. Short term initiatives or changes are difficult. Lead times are long. Christmas is planned not long after Easter. And more often than not, next year’s annual contract looks a lot like last year’s.

Lack of a clean sheet. Continuity is crucial for a mature FMCG business. It also means that there is almost no practice of using a clean sheet approach.


Established silos. Brands, categories, accounts are all ran by dedicated managers. In spite of the creation of in-between roles, like market & sales planning or revenue management, many decisions are still taken with one main perspective in mind. Trade terms are largely negotiated based on the commercial, supplier-retailer relationship. Brand marketing and activation is largely determined by market insights. Few companies manage to systematically link the two.



3

Strategic options


There needs to be a willingness to make clear, bold choices. From the top down it needs to be clear that certain areas of the business will be given priority and others will be de-prioritised. Some parts will receive an over-investment, others will receive less support.


In practice, we recommend our clients to make explicit choices for one of three strategic options:

- Must-Win Battles (MWB)

- Big Bet (BB)

- Turf Defending (TD).


These strategies will be discussed on the next pages. They are based on market potential and relative market position.


There is one other market situation you could find yourself in: a business area with low absolute potential where your organisation has no competitive strength. We call it a Do Not Enter business. It is probably too late to change strategy, the only option is to divest the business.




The objective is to create clarity about your strategic choices




MUST WIN BATTLE (MWB)

Large absolute market potential and clear competitive strengths. This business you must win.


BIG BET (BB)

The market shows a large absolute potential but you do not yet have a strong position. Invest big and win big.


TURF DEFENDING

Market potential judged to be small, declining or not strategic to the company. Defend your strong position but not at any cost.


DO NOT ENTER

Small market potential and weak position. Avoid this position. Divest.




MUST-WIN BATLLES


4

In a Must-Win Battle (MWB) a company identifies a market opportunity as too good to lose out on, and believes it should defend its already leading position. Both aspects together define an MWB: it has great potential to contribute to company goals (profit, market share, future growth etc.) and the company has a demonstrable competitive strength.

An MWB can be a market segment or even a market event. The more specific it is defined, the better the strategy will work.

Christmas, for example, is a market event MWB for Coca-Cola. The company simply cannot afford not to win the hearts, minds and wallets of consumers during the end of year period. It gains hugely from this anti-seasonal sales push (soft drinks sell more in Summer) and with its Santa Claus association it has a formidable strength over Pepsi.

Ketchup is a market segment MWB for Kraft Heinz in the sauces category. The heritage of its main brand (“Heinz, 57 varieties”) as well as its pricing power and production flexibility (sizes, varieties, packaging) mean that it has a huge strength over competitor Unilever. The segment is presumably more profitable for Kraft Heinz than other sauces.


Christmas is a consumption moment that represents a must-win battle for Coca-Cola

The prerequisites for a successful MWB are having a competitive strength and the perspective of solid absolute profits or other major benefits.

The common steps to set abusiness up for an MWB are:


1. Identify large consumption habits or occasions

Like every strategy, there needs to be a market-side opportunity. Look for a sizable “battle” where competitive strengths make the difference. It can be a demographic (e.g. Birds Eye with fish fingers aimed at families with young children), a channel (e.g. online), a product segment (Heinz with ketchup), a consumption occasion (e.g. on the go, sports events, Christmas etc.) or any other logical entity for consumers.


2. Increase availability, grow distribution

Sales efforts and motivated trade customers need to facilitate wide availability of your offer for the MWB. It is likely that a disproportionate amount of resources (sales staff, trade spend) are invested to ensure maximum available for the shopper.


3. Increase/adjust prices of non-elastic packs and price cut elastic packs

Adjust prices to maximise the outcome (profit, volume or otherwise). Price elastic packs are to be chosen if volume is the objective and prices need to be set low enough to maximise demand. Similarly, price inelastic packs can be sold more expensively to the point that profit or profit pools are maximised.


Stacking vs. layering? Must-Win Battles are best served with simultaneous execution of above and below the line activities


4. Stacking marketing & sales efforts

Marketing and trade promotions are sometimes layered, with an advertising campaign alternating with waves of in-store promotions. With an MWBs both are ideally aligned and executed simultaneously. No space – promotion or otherwise – should be left to competitors to undermine your strategy.


5. Promote for scale up and trade up

An MWB is typically not a situation where promotions need to create trial or loyalty. Promotions need to use the strengths already created and encourage shoppers to trade up (buy more valuable products) or scale up (increase their weight of purchase). Certain brands and packs and promotion mechanics will indeed motivate shoppers to spend more. A single unit price cut on a hero pack is not one of them. Multibuys and ladder promotions on large packs and premium brands can be a better choice.


6. Create visibility at point of purchase

Visual cues need to remind the shopper that your offer is the only one to seriously consider. POP visibility cannot be left out. Dedicated, permanent in-store branding (or online banners in the right product category or for the targeted user) creates the visibility at the moment the consumer makes her or his shopping decision.



BIG BETS

5

This strategy is for growth areas where the company hitherto had a limited or no presence. It is based on a concentration of management time and investment in a growing area of the sector for a limited amount of time. It assumes that spread-out efforts will not change the status quo. The company will invest big to break through competition and win big. It takes on more risk than it is used to as a mature business.

The implementation of a BB strategy follows most of the steps for a Must Win Battle strategy, although in a speedy, condensed, superlative version. The marketing element is often too costly so an even bigger emphasis will be on distribution, promotion and in-store visibility.

A runner-up soft drinks brand of a major FMCG supplier in Belgium broke into Coke’s quasi-monopoly using a BB strategy. It popped up in Summertime, at beach clubs, with sampling, increased local distribution, local sponsoring, promotions and giveaways to establish itself as the main alternative to (Coca-) cola. It charges a higher price per serve and gradually gained national distribution.


TURF DEFENDING

6

Not all areas of the business are MWBs or BBs. Again, a company needs to make very clear choices and for the Turf Defending (TD) strategy it may mean disinvestment and accepting consequences. Business areas where your organisation does not have a particular edge over competitors or which are of no particular strategic interest should be considered for TD. But that does not mean giving up on it entirely.


We referred to Coca-Cola and Christmas earlier. What are the options for Pepsi? Fight head-on, knowing that Christmas is very likely an MWB for Coke? It takes the opposite side of Coke’s position. It knows that there are shoppers who are not charmed by Coke’s “it is a wonderful world” message at Christmas and tells them to “try a new tradition this Christmas”. Pepsi does invest in advertising and promotions at Christmas but only a fraction of what Coke does. It is not much but probably enough to keep most of the loyal Pepsi drinkers from falling for the appeal of the Christmas truck and the white bearded man. And this for a fraction of the budget Coke is spending on Christmas.


The TD strategy has many similarities to a cash cow strategy as defined by the Boston Consulting Group. Here are some of the best practices for a TD strategy in the FMCG industry.


Assortment: reduce the width of your offer to cover the main demand within the TD area. Remove complexity in production, marketing, consumer choice.


Pricing: assuming you do not have a strong competitive edge, your products may become price elastic. Consumers see your products as offering generic value, which they can also get from other brands, so they are not willing to pay any premium. You may want to lower prices, gradually, to keep attracting demand and maximising your profits.



Remove complexity in production, assortment and merchandising when executing a Turf Defending strategy



Promotions: a permanent (multibuy) promotion gives away some margin but becomes a permanent attraction for the shopper in this TD area. As the “reason to buy” for the shopper is generic, we should offer a mainstream product. We use the promotion to encourage shoppers to scale up: buy a larger quantity than what they had planned originally.


Distribution. As most TD strategies are formulated for businesses with a strong history, distribution is often wide but falling. Trade promotions and other trade investments can help to keep products listed and support sales rotation. Often companies have tried to run deep promotions every so often (e.g. buy one get one free) to give a sales boost to their products, so that the retailer decides that, overall, the product is selling fast enough to be kept in the assortment.



IMPLICATIONS FOR ACCOUNT MANAGEMENT

7

The greatest challenge for implementing one of these strategies is probably for account management. They need to change the margin and funding structure to fall in line with MWB, BB or TD and convince the trade to play along.

BB is the easiest negotiation. Annual budgets can be re-structured to concentrate on a limited period, but the trade will still receive the “guaranteed” total spend. As more of the terms involve working budget – i.e., trade investments made dependent on achieving sales results – this can actually turn out to be advantageous for the supplier. The Big Bet strategy, if successful, will provide all the upside to the supplier. It is the supplier who takes the bet and they will reap the rewards. Retailers never participate in these kinds of initiatives so suppliers will be solely responsible for any wins or losses.


IMPLICATIONS FOR REVENUE MANAGEMENT


8

Revenue management is very closely involved in determining explicit market strategies. After all, market-side opportunities and their constraints dictate what is the potential for revenue growth. Consumer demand will determine the sales and profit potential of any MWB or BB strategy. Revenue management is best placed to evaluate it. Analysis of how shoppers will respond to products, promotions and prices determine the potential for a strategy. The way trade terms are being structured needs to be recommended by revenue management. A high proportion of the trade investment needs to be “working” and serve the strategy. For MWB and BB it means that trade investment can be used to guarantee listings, grow distribution, (legally) lock out competition, ensure critical promo slots and adhere to jointly agreed pricing and activation tactics (pricing being at the sole discretion of the retailer).



SUMMARY


Resource allocation in mature consumer goods businesses needs to be based on clear market opportunities. Where companies see emerging demand they can compete for, they need to place big bets and concentrate their investment to make a difference.

Where they have a critical interest at stake, they need to defend their position and strengthen their competitive advantage. Must-Win Battles need to be explicitly identified and marketing and trade strategies need to serve the goal. Senior management needs to communicate strategic choices and ensure that the entire organisation acts in line.

Large, successful FMCG organisations are wired for stability. Their business models ensure continuity and they are a beacon of profitable stability. However, their corporate culture and organisational processes often make it difficult to change and make the most of growth opportunities in the market. They need to make clear choices for bold business strategies and execute them effectively.


A Toast to New Beginnings!

What a year it was! We all were hoping that the festive season in 2021 would be “normal” again, but our hopes were in vain. Restrictions and (semi-) lockdowns are back again and we just need to postpone our desire to live a fully free life again.

Shoppers’ traffic to stores seems to be down in many cities, but sales of premium food products appears to be stronger than pre-pandemic.

Anyway, enough business talk, we wish you a merry Christmas and a happy New Year, from all of us at Accuris! We are appreciative of your support and friendship!

Make sure you check out our Christmas card at www.accuris.com/ny2022

We would love to hear from you in 2022!

Trade Promotions in Times of Corona

Sales are going through the roof in many categories. Recent data reported on British grocery sales during the 4-week period around the start of the lockdown period, showed that supermarket sales went up by one fifth. Some categories even grew by more than half, e.g. beer / wine / spirits (67%) and frozen foods (84%). With sales going that strong, do suppliers need trade promotions? The short answer: not so much. With the self-quarantine period expected to last for weeks or months and restaurant and pub visits picking up only slowly after that, home consumption will remain strong for many more months.

If agreements already in place with the trade allow, suppliers in “hot” categories should consider de-escalating promotions. Where to start?

Promotions with high subsidisation levels

The biggest cost of promoting are the discounts ending up in the hands of loyal shoppers who otherwise would have paid full price. The most recent Accuris benchmark data on trade promotions shows that 37 pounds of every 100 pounds sold on promotion, is subsidisation. This is far greater than costs related to own product cannibalisation (£10) or stock piling (£2). While stock piling will obviously be far greater during the corona crisis, subsidisation can easily be avoided by opting for more selective promotion types. Single unit price cuts guarantee that all shoppers get the discount, including those who were not looking for a promotion. Large multibuys will motivate shoppers to buy more, in return for a discount, while light shoppers pay full price.

blob:https://twitter.com/7a05efba-2b8a-49f3-ac3f-a1467bebb0bd

Promotions for hero packs

Most brands have one or two products that are the core of their range. A key product that has higher sales and higher penetration than any other SKU. These are the hero packs, the products that do not require promotional support in times of strong overall sales. They can stand on their own feet. In a seller’s market, brand owners have the opportunity to promote other varieties, other sizes and packs. Shoppers will discover that there is more to a brand than the hero pack they usually buy. They may even develop a habit to buy multiple products of the same brand, thanks to promotions for a non-core product. Would it not be great if they continue to do so long after the corona period?

 

Promotions at online stores

There are two reasons to prioritise a reduction of promo activity at online stores. Firstly, online is predictably growing even faster than offline. In the same 4-week period in March, Ocado had the largest sales increase of the London-listed retailers and saw further market share gains in an already strong market - even in spite of their platform problems.

Secondly Accuris research indicates that shoppers for groceries are paying less attention online than offline. Identical promotions at retailers who have both channels are markedly less effective online than offline. The online shopper is more of a replenishment shopper, following a mental (or actual) shopping list, whereas offline shoppers are generally more open to impulse buying.

Learnings from 2008

Trade promotions are notorious for failing to create loyalty. Shoppers are encouraged to switch between brands and stores and will continue to do so even in Corona times. This switching behaviour is the main reason why brand leaders continue promoting. If they do not, they risk losing market share. However, we do expect an overall decline of promotional activity, not unlike what happened after the 2008 financial crisis. Then, as now, shoppers stopped visiting restaurants and increased their “at home” consumption. This unexpected bonus for grocery retailing led indeed to a decline of promotions. However, the following years there was a sharp increase, especially in the depth of discounts offered. That happened on the back of falling raw material costs, widening base margins for suppliers. Will history repeat itself? Certainly not in the exact same way; Brexit removed a big chuck of the profit margins of many suppliers. Still, with oil prices on a 20-year low, we could see a strong motivation for suppliers and retailers to increase promotions once we are well past the current crisis.

#promotesensibly

The curse of the round pound

The Great Recession started ten years ago, with the demise of Bear Stearns and Lehman Brothers as dramatic casualties of worse to come. It was around that time that retailers in the UK started to notice how shoppers responded enthusiastically to simpler, more straightforward offers. Out with the buy 2 for “2.99” and in with the “Feed a family for £5”. Ten years later, it appears that the majority of promotional offers are stuck to “round pound” price points. What used to be a fresh way to communicate an attractive offer ten years ago is now increasingly becoming a curse.

For many brands, it is almost impossible to move away from round pound promotions

The majority of products in supermarkets sell for a few pounds or less per unit. Ever since the habit of round pound promoting became mainstream, it has become very difficult to promote at intermediate price points. A single unit is promoted at £1, £2 or £3; multibuys are promoted at a multiple. This leaves little room for (promotional) price increases or for recovering increased costs of goods. Your product may have had a recommended sales price of £1.19 in 2008 and £1.29 or £1.39 in 2018, but its promo price was and still is £1. Brand owners may propose it, but retailers are often pushing back.

The Pound has lost 27% of its value against the euro

The depreciation of the pound is a major problem. With so many ingredients or finished products sourced from euro countries, suppliers and retailers need to find a way to sustain profit margins. Price increases should be the obvious solution. But how is this achieved when so much volume is sold on deal? And so many deals are stuck to a round pound price point? There is a huge pushback to replace a “£1” deal with a “£1.27” deal. Most promotional price points - even for multibuys - are being reset to the nearest 50 pence if not to a round number. This eliminates the ability to maintain margins and encourages brand owners to look for other ways to recover lost margins. Promoting less or increasing base prices are options, but this has led to market share gains for private label and hard discounters.

The industry needs to revert to a greater diversity of price points.

We need to move away from round pound pricing. The way offers are communicated can help. “£1.19” may not sound as attractive as “£1”, but “20%” off may still resonate. Optimum mechanics, price points and communication depend greatly on the type of category, store and brand. Does a particular brand bring in new shoppers into the category? Is consumption in this category expandable? Is this a store environment where impulse buying is encouraged? All these questions need to be answered before deciding on new price points and how to communicate them. But the biggest question of all is: should we promote at all?

RGM - Revenue Management - Round Pound - Accuris.jpg

4 Ways (not) to fail with Revenue Growth Management

Revenue Management is just for the RM team

Revenue management is your core business. It requires to be led by senior leadership and needs to be supported by all main functions of a company. Just like an empty hotel room or a half-filled passenger plane for those industries, missing out on a shopping trip can’t be reversed and is inefficient use of your business platform. 

 

It is all about increasing prices

Contrary to common believe, the biggest wins do not come from raising prices. While price adjustments may be a quick initial win for established brands, they also risk to alienate more shoppers in increasingly commoditized categories with hard discounters and private labels simply winning volume share faster.

 

Ignore why a shopper is shopping here and now

For decades companies have segmented shoppers with different brands, propositions and price points. Targeting different shopping occasions is, surprisingly, still relatively new to some companies. Replenishment shopping in a hypermarket needs a different offer vs fill-in shopping in a convenience store.  Some retailer and suppliers are still offering a one size fits all pricing and promo offer and by doing so are leaving money on the table.

 

Ignore that shoppers switch between brands and stores

Some shoppers happily switch to a new product, a bigger pack size or a store with a big promotion. Others remain remarkably loyal. Targeting differentiated shopping behaviour is the main price of any revenue growth strategy.  Currently very few companies have developed RGM programs that target shopping behaviour.

 

For more ways (not) to fail with RGM, please click here.  

13 years of Revenue Management in FMCG

In April 2005, about 13 years ago, Accuris were called into a meeting by a London based client who wanted us to help with their “revenue growth management”. It was the first time we worked in this area, focusing especially on promotions and pricing.

Ever since that meeting most of the companies we work with today have adopted the concept, created (net) revenue (growth) management roles and increased the focus on generating growth profitably. While our client saw a substantial payoff and is still considered a leader in RGM, other companies have not always achieved strong results. Let’s take a look at some of the factors that determine success with revenue management as a branded consumer goods suppler.

Search google for "11 Ways to fail with Revenue Growth Management" 

3 quick fixes for improving promo R.O.I.

The biggest obstacle to improving the ROI on promotional investments is an organisation’s inertia. There is often a habit of repeating what was done the years before, plus or minus a few changes. As more companies realise that promotions are inevitable but by no means a long-term growth solution, improving the R.O.I. becomes the main focus.

Here are three ways to achieve quick ROI improvement.

1.      Focus on elastic segments only
There is no reason to support every part of your portfolio with promotions. Some brands, packs or segments may not respond well to promotions anyhow and other means of marketing should be considered. And keeping slow movers listed thanks to promotions is not sustainable and will likely be a very bad use of company resources.  

2.      Reduce subsidisation
The biggest cost of promoting is putting discounts in the hands of your loyal shoppers. Accuris UK research shows that more than a third of promotional sales go to shoppers who were planning to buy your product and pay full price. All too often shoppers are rewarded for just buying one product. Stop using single unit mechanics across all your packs and focus on mechanics that encourage shoppers to increase the spend in return for a discount.

3.      Be aware of the margin mix
It is astonishing how often we at Accuris come across promo plans that are not at all taking into the profit margins of products into account. Offering a 30% discount on a product with a 25% margin obviously means that losses increase the more you sell on promotion. It’s our 3rd quick fix.

36 out of every 100 pounds sold on promotion are subsidised sales to shoppers who would have paid full price but are getting a discount (Source: Accuris UK Benchmark 2017)

36 out of every 100 pounds sold on promotion are subsidised sales to shoppers who would have paid full price but are getting a discount (Source: Accuris UK Benchmark 2017)

Decline of multibuy mechanics, raise of subsidisation costs

In 2015 Tesco started their “project reset”, a project that included both One Stop stores and Express stores. In a recent interview for Grocer magazine, Convenience MD and One Stop CEO Tracey Clements has stated that the retailer has removed 46% of the master range available to Express stores over the past year due to an “availability challenge”.  Following a general trend in the UK, it seems that also at Tesco multibuy promotions are losing ground fast to the simpler 'round pound' ones. Pragmatism and convenience seem to be the key words when thinking about today’s shopper: “You just don’t have the time or the space to carry it, you want a simple promotion. We’re moving away from multibuys into much simpler, round-pound deals for customers that are relevant to them as convenience shoppers.”, said Clements. 

However, single unit promotions, unlike multibuys, do not reward shoppers with a discount in return for an increased shopping effort. They lead to higher subsidization costs, as 100% of all sales will have a discount. Many suppliers and retailers are ignoring subsidization costs, not even measuring it. This is problematic as subsidisation costs are the biggest drain on promotional efficiency. 

According to Accuris research, subsidisation can be reduced as follows:  

  • Require an effort from shoppers in return for receiving the deal
  • Avoid single unit promotions
  • Use multibuys, larger pack sizes, ladder promotions or volume-plus or value added promotions
  • Promote more in large stores and less in small stores 
  • Target replenishment shopping trips with multibuys
  • Target fill-in shopping trips with non-price promotions   
     

 

UK Food inflation leads to less (multibuy) promotions

Recent research shows that UK grocers are running substantially less multibuy promotions than they used to do a year ago. Three of the top four retailers, Sainsbury, Tesco, Morrisons have cut multibuy promotions, with Sainsbury having pledged to phase out the mechanic entirely.

The Grocer is citing figures indicating that multibuys used to have a share of around 30% of featured promotions a year earlier, while it has fallen to roughly 20% in 2016. 

Interestingly, this move comes on the back of food inflation driven by the fall of the pound against major currencies (around -15% since the announcement of the referendum). Inflation has been very visible and not just in the high profile cases of Marmite or Toblerone. Private label products from foreign origin (or containing foreign ingredients) are equally affected by a fallen pound. Increasing costs of these products are making it harder to fight price wars and are affecting retailer's bottom lines.

Single unit promotions to the rescue!
Single unit price promotions help to keep prices low and have suppliers pay for it. The mechanic lowers the price, albeit temporarily, for all shoppers: shoppers who buy regularly in the category as well as those who enter the category thanks to the promotion; shoppers loyal to your brand as well as those who normally buy a competing brand; shoppers who had planned to buy the promoted product and pay full price anyway as well as those who are truly seduced by the offer. 

The biggest efficiency drain of promotions is putting discounts in the hands of shoppers who gladly would have paid full price. The ones planning to buy your product but finding themselves lucky finding to buy it on promo. It is called subsidisation and the single unit mechanic is the worst possible kind. Shoppers should be rewarded with a discount in return for changing (upgrading) their behaviour. 

The better alternative to multibuys is no promotions at all. Single unit promotions make the economics worse, not better. However, while it lasts, shoppers can only benefit from it - at the expense of loyalty and the overall commercial sustainability of the industry.  

December basket value generates 5% less revenue than a year ago

Fierce competition between multiple grocery retailers and discounters drives down pound value for the same basic 35-product basket vs. December 2014.                   

Tracking prices published online, mySupermarket.co.uk announced that a basket of 35 popular groceries cost £85.91 in December, 5 per cent less than in December 2014.

Behind the revenue decline are price drops for grocery staples and fresh products such as pasta, onions and mushrooms. However, yoghurt, sausages and toilet paper saw price increases of 3 per cent and more the company reported.  

End of year sales are disproportionally important for grocery retailers too, and shoppers tend to temporarily leave discounters and return to the Big 4 for their festive sales. November data from Kantar Worldpanel showed that discounters Aldi and Lidl had seen their 12-month market share increase by 16.5 per cent and 19 per cent respectively. Part of the deflation of the basket value is due to the Big 4 defending their traditional December strength by pushing harder with discounts.

Example in case is Sainsbury's, who cut prices on several products for an estimated value of £150million, funded in part by reducing its interim shareholder dividend.

Source: mysupermarket.co.uk and own reporting

Shopping basket £5 cheaper than a year ago

Recent figures released for the UK grocery market show that the value of the average basket is £5 lower than it was a year ago. Clearly, retailers still consider price the primary tool to win back business. Problem is, they all are using price as a weapon, and the German hard discounters know best how to play this game. 

For all others, consider Revenue Growth Management. 

Shoppers are very price aware, but not for all products, and not all the time. Revenue Growth Management helps to understand where there is room for offering more convenient packs, more choice, value-add promotions and - dare we say it - increase prices. 

It all starts with understanding shopper trips and consumption occasions. A quick trip to the store at lunch time cannot be compared to replenishment shopping on Saturday morning. Still, supermarkets are mostly selling the same packs at the same price and with the exact same promotion to all shoppers - regardless of why they are visiting a store. There is a lot of money left on the table. 

However, reality shows the industry is characterized by too many linear price cuts and automated price matching. And while price and price image are an element of choice for shoppers, product and service differentiation do not get the strategic focus they deserve. The result is a race to the bottom, with falling pound sales and falling revenues as a result. 

The UK research mentioned earlier writes there was “extra cheer” for food shoppers heading into August as the price of the most popular branded ice creams decreased 4% in July. Not sure if ice cream suppliers' shareholders are joining in the cheer. 

Read more

Why FMCG brands need Revenue Growth Management

Every morning, Susan starts her day by pouring herself a hot cup of coffee. However, on this particular morning, she sadly realises that she is completely out of coffee.

On her way to work, she stops by the corner shop with the intention to buy herself a coffee, but she quickly adds a few other items that grab her attention into the shopping basket: a pack of breakfast biscuits, a 1-litre bottle of water, and a few chocolate bars for snacking in between meals.

She hadn’t planned on buying these items, but since she was already in the store, she figured she will need them later on during the day, so she impulsively bought them. However, she paid more for them than if she had went to the supermarket the night before.

Susan is just an imaginary person, but we’ve all been in her shoes at some point, impulse buyers or not. Going into a store with the clear intention to only buy one item, yet leaving with a bag full of unplanned groceries, simply because the items were placed conveniently within our reach and because we found ourselves in an immediate consumption occasion.

In the FMCG industry, consumer behaviour changes significantly depending on the consumption occasion. 

As brand loyalty registers a steady decline, more and more people are starting to base their shopping decisions on occasions. They are more likely to switch brands if the occasion asks for it. For instance, Susan is more likely to buy a different brand of coffee and breakfast biscuits from the corner shop when she’s in a hurry and doesn’t have time to run to the supermarket for her weekly grocery shopping.

When they go to the store, shoppers have an occasion in mind. They may want to stock up on food items for a party, buy a few snacks for eating on the go, or get the necessary ingredients to prepare a healthy family dinner. The occasion will determine where they choose to shop, what items they will purchase, and how much money they are prepared to spend. Brands need to be able to leverage the various consumption occasions to their benefit.

 The ability to segment the market and better meet every consumption occasion with a personalised offering is essential for FMCG brands that want to set themselves apart from the competition.

Revenue growth management (RGM) helps companies increase profit and margin by targeting shopping and consumption occasions. Shopping occasions refer to the goals for a particular shopping trip, such as replenishment shopping, speedy fill-ins, or immediate consumption, while consumption occasions refer to the place and time of consumption: breakfast at home, lunch at work, work and study time, leisure time, and so on.

When implementing a consumer-centric approach, a certain brand is linked to a consumption occasion, allowing marketers to tailor their messages to specific occasions and reference groups. For instance, breakfast biscuits are linked to breakfast on the run, while nuts and dried fruit are linked to healthy snacking.

RGM makes it possible to offer certain packs at a selection of stores, adapt your promotions to each type of shopping and consumption occasion, and price your products differently depending on the time and location of the purchase. For instance, you are willing to pay more for a bottle of water at lunchtime during office hours than when you are doing your weekly grocery replenishment shopping.

By developing a deep understanding of consumers, shoppers, consumer occasions, and motivations, you are able to adapt your marketing strategies to various consumption occasions, pairing the right brand with the right packaging and pricing at every point of sale, thus increasing brand value and achieving sustainable growth.

 

 

 

 

UK supermarket price war pushing coupon use

Price match initiatives currently employed by many grocery retailers have led to an increased use of money-off coupons in UK supermarkets.

The Grocer reports that the most recent figures from Valassis, which handles more than 85% of coupons in the FMCG industry, indicate that British consumers redeemed 688m coupons totaling £1.7bn in savings last year, an increase from 604m redeemed in 2013.

Retailer-issued coupon redemptions have more than doubled in the four years since they were introduced to the market, from 229m in 2011 to 564m in 2014.

The number of UK consumers using money-off coupons is expected to increase, as more and more people turn to coupons to tackle the rising costs of food and living and have made saving money a priority.

Consumers are actively seeking out discounts, deals, and loyalty programs to get the best value for their money, which means that retailers must intensify their marketing efforts.

Tesco has recently started testing mobile couponing by sending coupons to consumers’ smartphones as they walk past the stores and we can expect to see more similar initiatives in the near future as consumers’ appetite for redeeming money-off coupons increases.