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BOGOF bites the dust

News, 20 September 2016

LONDON: Multibuy promotions have little effect on sales according to a new study which highlights the finding that price cuts are far more likely to deliver benefits to retailers.

IRI, a provider of FMCG market intelligence, conducted a study of over 85,000 promotions in the UK to help answer the question "Do promotions really help retailers?" and found that, on average, a category will grow by only 0.13% when on promotion.

This, IRI suggested, was "very low" compared to industry estimates that suggest a promotion can help retailers grow a category by as much as 5%.

And when it looked more closely at particular types of promotion, it reported that multibuys had a minimal impact on sales at a category level (0.02%). But price cuts were delivering significantly greater benefit to retailers (0.20%).

This confirms an ongoing shift that has been evident for some months – IRI reported a 40% decline in deep-discount multibuys over the past 12 months as retailers have moved towards clearer price cuts and "round pound" deals.

Some retailers are faring worse than others. At health and beauty retailers, for example, price cuts led to an average 0.12% decline in category value while multibuys resulted in a 0.34% decrease, as shoppers simply switched within the category to cheaper alternatives.

Convenience stores, on the other hand, have seen the greatest benefits, with growth of over 2.5% in category turnover when promotions are used.

The IRI study also showed that private label promotions performed significantly worse than brands, driving down overall category sales value by -0.35%. "Without manufacturers funding these promotions, they are draining category value at an alarming rate," it noted.

Thomas Hall, Analytics Programme Director, IRI and author of the study, added that "manufacturers do very well out of them [promotions], growing their sales by around 10%, on average, due to steal from their competitors".

"Many promotions and categories actually have a positive impact on revenue when they are executed in the right place at the right time, helping to grow a retailer"s business, and excite the shopper," he said.

"The key is identifying promotions that genuinely drive sales and provide a win-win situation for retailer, manufacturer and shopper."

Data sourced from IRI; additional content by Warc staff