Sales promotion can reduce ROI

26 May 2009

LONDON: Consumer packaged goods manufacturers in the UK pay around £8 billion ($11.2bn; €7.0bn) to grocery retail chains to support promotional activity each year, while the share of profits taken by the latter from these initiatives has increased by over 10% since 2003, new figures from Billetts show.

According to a study by the research firm – a full version of which can be accessed by WARC Online subscribers here – most brands see sales promotion as a means to boost their market share, revenues, and/or volume sales.

The company also reports that some 70% of UK grocery suppliers expect to increase the amount of products they sell on promotion in the next year.

However, the share of profits drawn from such schemes by retailers has increased from 78% in 2003 to around 90% this year, limiting the return on investment for brand owners.

Discounting also appears to have a sizeable effect on manufacturers' potential ROI, as Billetts' data suggest that "the net impact of deeper discount activity is almost invariably to decrease ROI even if cash returns are increased."

With regard to the impact of promotions on incremental volume, around 12% of this change actually results in "brand range cannibalisation" for the supplier, with "category substitution" another frequently-observed trend.

To read more information about this study into promotional activity in the CPG sector, click here.

Data sourced from WARC Online