Customers are worried about their purchasing power, brands fear a drop in their margins, consumer brands are struggling to keep up with all the solicitations they receive. Promotion must reinvent itself to meet the challenges of each of the stakeholders.
We have not finished talking about purchasing power. As Michel-Edouard Leclerc and Dominique Schelcher, bosses of Leclerc and System U, recently recalled in the media, the inflation we are currently experiencing is a consequence of the Covid crisis. The war in Ukraine, the effects of which will be felt in the months to come, risks passing like a second wave even more devastating on the cost of living.
Retailers and consumer brands are doing everything they can to keep prices down – so as not to impact their customers too much and to maintain their competitiveness – but despite their efforts, inflation will have a strong impact on household purchasing power.
Consumer goods manufacturers and distributors are also directly affected in their P&L: the rise in energy costs is devastating for these industries. Their margins are squeezed and therefore their ability to reduce prices is small.
The dilemma still remains the same. How to make impactful offers to consumers even when the pockets of investment are increasingly limited? How to be generous while preserving your bottom line?
Promotion as a shock absorber against inflation
The promotion, because it is more specific than a reduction in prices, can make it possible to combine this desire to “make a gesture” for its customers while maintaining prices compatible with profitability.
Finally, not for all… Some manufacturers face such a shortage of raw materials that promotion is not possible. Production concerns may lead to lower product volumes and for them, the best way will be to optimize the sale of the units they can produce.
For others, on the other hand, offering “good deals” from time to time is a real opportunity to gain market share. But this can no longer go through “old-fashioned” promotion where a single offer is defined for all customers and in all the brand’s stores through a long and rigid process (remember that catalogs are defined months in advance). Especially since these mass promotions have a more than uncertain ROI: according to Nielsen*, 67% of the promotions offered in retail have no or even negative effect on sales.
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Relevance, Profitability, Flexibility and Responsiveness
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In this context, it is essential that promotions gain in relevance, profitability, flexibility and responsiveness. This is how they can have a real impact for consumers, brands and retailers. It is by being more effective that promotions will allow each stakeholder to find their way around.
More relevant and more profitable, they can be if the offers finally move from a Product First logic to a truly Customer Centric logic. It is by offering each consumer what really interests him (and not what manufacturers would like them to buy) that brands and distributors will be able to give personalized promotion the magnitude it deserves.
And to avoid subsidizing purchases that consumers would have made anyway, everyone should be rewarded up to their potential by encouraging them to flit less. In other words: seek to remunerate only virtuous behavior. Easy to say, less easy to do, but technology, big data and AI can provide the answers to these challenges.
More responsive and more flexible. The emergence of food e-commerce, with Drives and home delivery, has accelerated the pace of commerce. Promotional programs must adapt. It is not by defining offers several months in advance that we will meet everyone’s challenges and expectations. Digital, through mobile applications, websites, in-store touch screens, offers this responsiveness and flexibility. We can now avoid heavy and incompressible production times.
The retailers and brands that will come out on top are those that will be able to adapt to offer more effective offers. Customers are very sensitive to the cost of their basket and those who offer them the real bargains, on the products that matter to them, will be the big winners in this tense period.
Author: Cédric Chéreauco-founder & CEO d’UntieNots
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* Source Nielsen: The Path To Efficient Trade Promotions – Feb. 2015
(c) Ill. DepositPhotos
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