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?