Promotions may not benefit brands, IPA warns

04 February 2010

LONDON: Many brands in the UK are using promotions to try and attract shoppers in the downturn, but this activity could have negative consequences in the long term, the IPA has warned.

The advertisingindustry body, has published a new study, Pricing for the upturn: how can brands fight back?, which is based on a recent conference it organised focusing specifically on this area.

Its latest research builds on a report from last year, Price promotion during the downturn: shrewd or crude?, which found that the growth of discounting and similar approaches was eroding brand loyalty.

According to Colin Harper, from the Institute of Sales Promotion, the proportion of goods sold "on deal" rose by 25% in 2009, reaching a value of £14 billion ($22.3bn; €16.0bn) in November alone.

The organisation also discovered that 70% of sales directors expect this trend to continue going forward, with expenditure in this area thus likely to surpass that budgeted for advertising in the near future.

As retailers also now believe that brand owners should fund around 90% of this kind of activity, such a tactic is becoming increasingly unprofitable for brand owners.

Giles Quick, from TNS, the market research firm, added that 30% of consumer spending was directed to goods running special offers in the third quarter of last year.

However, the number of people trading down has also decreased, with shoppers using promotions to buy more products, control their expenditure, and even to "trade up".

In the July to September period, budget and "standard" offerings saw sales fell by 0.3% and 6.2% in turn, while "median-priced" lines enjoyed an uptick of 5.7%.

This improvement stood at 5% for the premium category, and 7.4% for "super-premium" offerings, suggesting that discounters could "stagnate" as the broader economic climate improves.

John Noble, of the British Brands Group, argued many retailers are attempting to drive customers to their own-label ranges by adopting pricing strategies working to the detriment of branded goods.

However, the launch of the Groceries Supply Code of Practice this week should help at least partially reassert the balance in this area, he continued.

This new regulatory framework will aim to ensure that supply agreements between retailers and their providers are adhered to, and that payments to suppliers are made in timely fashion.

Moreover, it will require that manufacturers are not "forced" to contribute to retailers' marketing costs and other expenses, and will also cap the amount brand owners are required to pay for promotions.

Data sourced from IPA; additional content by Warc staff