Promotions lose favour

01 February 2011

NEW YORK: Major brand owners like General Mills and Kimberly-Clark are hoping to reduce their reliance on promotions, a marketing tool that is seemingly losing effectiveness among shoppers.

According to research firm SymphonyIRI, approximately 30% of products sold in 70% of consumer packaged goods categories last year offered a deal, discount or other incentive.

The first of these figures had climbed from 60% four years ago, while two-thirds of sectors witnessed an increase in such activities in 2010.

However, the average uptick in volume sales delivered by each initiative dropped in 57% of segments, SymphonyIRI said.

"We do believe there's a level of promotion fatigue out there," Susan Viamari, editor of the company's Times and Trends reports, told AdAge.

"Promotion has been very high in the industry over the past couple of years, even though we did see a moderation in the growth. CPG manufacturers need to evaluate everyday pricing strategies."

SymphonyIRI also found a third of shoppers are experiencing challenging financial circumstances, resulting in the adoption of restrictive expenditure patterns.

"That option of stocking up just because something is on special is not a very easy option," Viamari continued.

Procter & Gamble has maintained its marketing outlay at 10% of annual sales, but expects a more coordinated approach will yield stronger returns than short term solutions.

"We're seeing somewhat of a deceleration of temporary price reductions or discounting," said Robert McDonald, P&G's ceo.

"We measure marketing ROI on marketing spend. And our marketing effectiveness is at all-time high levels. Part of the reason for that is we're doing a better job operating as one company."

He added: "When we operate as one company and take advantage of the full portfolio of brands that we have, it results in greater growth and it results in much better efficiency of our marketing spend."

Elsewhere, Kimberly-Clark has faced intense rivalry from private label alternatives in fields like paper towels and tissues, as buyers seek to save money.

"It's still a competitive marketplace out there," Thomas Falk, Kimberly-Clark's ceo, said last month.

The organisation has also enhanced its R&D and traditional media budgets, backing launches such as U by Kotex, Huggies Jeans Diapers and Kleenex Hand Towels.

"We supported our brands and growth initiatives with $100m increase in strategic marketing as we raised our strategic A&P investments much faster than sales," said Falk.

"I'm encouraged that our marketing innovation programs are improving our brand's market positions."

Equally, General Mills reported "net price realisation and mix" knocked three points off US sales growth during the previous quarter.

The parent of Cheerios and Pillsbury boosted expenditure in this area in the opening half of its fiscal year, a tactic liable to change as the climate evolves.

"The operating environment through the first six months of this year included higher levels of price promotion by food manufacturers and retailers," Don Mulligan, General Mills' cfo, argued.

"As you look ahead to the second half, we expect to see our pricing trends improve over the period as promotional spending levels ease and price increases take effect across a number of our businesses."

Retailers like Supervalu have attempted to stimulate volume sales by offering price-conscious consumers compelling reasons to buy their products.

"We invested more heavily in promotional activities and continued to make investment in price. Both actions drove basket size at the expense of gross margin," said Craig Herkert, Supervalu's ceo, in January.

"In general, we introduced well-planned holiday programmes early in the quarter to capture customers' attention.

"However, we executed some ineffective price promotions in other categories such as carbonated beverages, soups and frozen foods which did not drive incremental traffic."

Data sourced from AdAge/Seeking Alpha; additional content by Warc staff