Guest Contributor Ranjiv Gill
| November 27, 2019
Global Director, Commerce, Insights Division
Promoted goods are big business. Global spend per annum on promotional activities exceeds $500bn, accounting for one in every five dollars globally spent in FMCG categories according to Kantar. But promotions aren´t as effective as you may think and there are other ways to drive sales at point of purchase.
It´s easy to understand why brands invest so heavily in promotions. They´re an easy way to deliver a quick sales boost and convert buyers who aren’t predisposed to the brand. However, Kantar analysis shows that the impact of promotions is short-lived, with any uplift in sales, penetration or volume quickly reverting to pre-promotion levels. In other words, promotional activity does not support long term growth and over-reliance can undermine short-term margins and set up customer expectations that the brand will be sold repeatedly on deal in future.
It isn´t easy to convert shoppers who aren’t predisposed to your brand without promotions, but it is possible. Analysis from Connected Shopper studies across categories reveals that up to 50 percent of undisposed brand buyers purchased at regular price, not on promotion. Surprising? Not once we learn that these shoppers prioritise finding the best product for their needs above low-price and promotions. In other words, if your proposition isn´t seen to be compelling versus the competition then it won´t be bought – with or without a promotion.
In fact, I´ve experienced it first-hand with the Shandy category, specifically with Free Damm Limon, which has become my go to option when it´s hot and I´m thirsty. I remember the first time I bought a Free Damm Limon. It was during the summer on a Saturday morning, I was in my local store with my son, standing at the drink´s fridge ready to buy a soft drink (usually a Sprite). I scanned across and noticed a block of bright yellow cans with “Free Damm” written in bold black font, it caught the eye. My brain instantly associated the word Damm with Beer (i.e. Estrella Damm), but I wasn´t as quick to associate the word “Free” with ‘alcohol-free’. My mind subconsciously went through the following thought process:
- It´s amongst the soft drinks so is a plausible option (guilt lowers)
- Yellow means it´s Lemon (confirmed, it says Limon on the pack, good)
- I look closer and realise it is alcohol free (zero-guilt, great)
- It´s cold, so I know it´ll be refreshing (good)
It was such a persuasive proposition for me that price didn´t really come into the equation, I didn´t care whether it was on promotion or not (it wasn´t). The product was cleverly placed amongst soft drinks and so appealed to my specific usage need/occasion, it looked different so stood out, the on-pack messages were compelling and persuasive, and it was alcohol free, so I didn’t feel guilty about drinking it before noon. It was the perfect option for me in that moment.
It was a win-win: I was positively energized by the experience and Free Damm recruited a new buyer, at full margin. Proof that although it isn´t easy to convert undisposed buyers it can done, without relying on promotional tactics. For more on effective activation check out our webinar on the topic. But why do you think so many brands invest heavily in promotions? Please share your thoughts.