Cheaper brands gain most from promotions

20 April 2010

NEW YORK: Trade promotions generally produce the most impressive results when they are applied to cheaper products in competitive categories, a study by Nielsen has found.

The research firm argued that trade promotions were the "800 pound gorilla of marketing spending", worth some $100 billion (€74bn; £65.6bn) in the US each year.

However, it also suggested that marketers do not always balance factors like price elasticity, the nature of the offer with the frequency of discounts and the level of the price cut concerned.

More specifically, Nielsen said the most effective promotions are run on "must have" products or "easy to eat" meals, which are "stockable", regularly consumed and often comparatively expensive.

For example, a similarly sized and located in-store display boosted demand for a line of toilet tissue by 82%, falling to 28% for a range of yoghurt, 15% for a beer brand and 14% for toothbrushes.

Elsewhere, Nielsen discovered that goods in these sectors priced at more than $5 typically enjoyed a 23% uptick in sales when they were the subject of a display-led promotion, a figure that stood at 32% when prices were cut by 20%.

These totals reached 43% and 44% in turn for products that originally cost less than $5, suggesting that promotions on cheaper items may ultimately deliver greater returns.

"On the pricing front, food shoppers like deals and are highly responsive to promotions. Drug channel consumers, on the other hand, value convenience over price," the company added.

"On the display front, food shoppers prove to be high impulse/unplanned utility item buyers. Drug channel consumers plan their purchases and look for features, but are less responsive to displays."

A third segment of shoppers, who made the majority of their acquisitions at mass merchandise chains, favoured consistently low prices rather than discounts.

The study suggested that the best results were achieved on offers on multiple items, deals coming in at under $10, and in competitive categories where making large numbers of purchases was "logical".

By contrast, brands commanding high levels of loyalty, generally taking the form of goods which were infrequently purchased or "niche offerings with few competitive options", showed less price sensitivity.

Nielsen concluded that manufacturers must seek to assess the behaviour of their customers both with regard to specific brands and in different retail outlets to gain a true understanding of their habits.

"The definition of a truly successful promotion plan is one that delivers results for retailers and manufacturers alike," it said.

"By looking at sales from a consumer perspective, [brands will] be able to do just that."

Data sourced from Nielsen; additional content by Warc staff