Promotions can hurt brands, says IPA

11 June 2009

LONDON: An increased focus on price promotions in a number of different product categories in the UK is having a negative impact on overall levels of brand loyalty, says a new report from the Institute of Practitioners in Advertising.

Recent research from Billetts demonstrated that CPG manufacturers in the UK pay around £8 billion ($13.1bn; €9.3bn) to grocery retail chains to support promotional activity a year, and that "the net impact of deeper discount activity is almost invariably to decrease ROI even if cash returns are increased."

In the IPA's new report – entitled Price promotion during the downturn: shrewd or crude?Dunnhumby, the marketing firm, assessed purchase data from 14 million members of the Clubcard loyalty scheme run by supermarket giant Tesco

The company found that the number of promotions run in the UK soft drinks category rose to 380 in the fourth quarter of last year compared with 209 over the same period in 2007.

Similarly, the number of discount initiatives in the household sector increased from 188 to 472 in this timeframe, and also grew from 472 to 734 in the "snacks" sector, and from 1081 to 1791 among beers, wines and spirits brands.

By contrast, the number of health and beauty promotions actually registered a downturn from 526 schemes in the final three months of 2007 to 245 in Q4 last year.

The IPA argues that brand loyalty has declined in each of the areas that have witnessed high levels of promotional activity, and thus that focusing on a short-term increase in sales may undermine previous efforts to add value.

In support of this, Dunnhumby states that the number of consumers that could said to be "brand loyal" – that is, shoppers where 70% of their purchases in a particular category are of a specific brand – has declined in all of these sectors.

This included a fall from 20.8% in the last quarter of 2007 to 19.3% in the final three months of last year for soft drinks, with beers, wines and spirits brands seeing a similar drop off from 10.6% to 9.9%.

Overall, the household category also witnessed a 1.5% slide in the number of "brand loyals", to 9.2%, with the "snacks" segment down 0.7%, to 3.9%.

Figures proved more stable in health and beauty, where promotional activity has been less pronounced, remaining largely static, at 6%.

Dunnhumby's Lawrence James said: "While in percentage terms these decreases may seem small, the associated value and volume of units sold are significant."

"Brand owners are losing out and must try to engage and work with retailers on a basis of understanding the impact of their different marketing activities – both short and long-term – on the retailers' customers."

For more information on the IPA's Price promotion during the downturn: shrewd or crude? report, please click here.

Data sourced from utalkmarketing; additional content by WARC staff