In case you hadn’t noticed, Brits love a bargain.
95% of us like to show off a good deal, whilst only 75% will brag after spending a lot of money. This is a key reason why promotions are such an important part of our supermarket landscape.
Special offers have a huge influence on the items that end up in our trolley in store and online. Before you rush to plan your next promo, there are a few things you need to know...
1. Shoppers say they want prices to stay low every day, but they really love promotions.
According to an IGD Shopper Survey, 58% of people agree that there should be fewer offers and instead, every day prices should remain low. Yet, another IGD survey shows that buying products on promotion is the #1 way people save money in store. Every Day Low Prices (EDLP) has been a hot topic over recent years. It has become a key part of the battle between the major supermarkets and their discount competitors, Aldi and Lidl.
EDLP is nothing new. Asda first adopted the idea of ‘permanently low prices’ in the mid-90s, something that became an even bigger part of their identity following their takeover by Wal-Mart.
After 20+ years of retailers trying to communicate EDLP in various ways, 31% of what we buy in the supermarket is on promotion.
There are a lot of upsides to retailers implementing EDLP. With cost savings, less waste and less planning needed by retailers. Yet the sales impact for highly promotional categories proves difficult to offset.
2. When it comes to getting a bargain, our heart usually rules our head.
The way we determine 'good value' is part rational thinking and part instinct. This depends on the shopping mission and environment we're in. We call this System 1 and System 2 thinking.
System 1 thinking uses intuition and habit. We use this when we make fast, automatic decisions. E.g. "that looks like a good deal".
System 2 thinking uses rational thought. We use this when we take the time to reflect and make logical decisions. E.g. "it's normally this price, so I'll save this much."
We are mostly habitual in our supermarket shopping. We have a lot of decisions to make requiring a lot of cognitive energy, so we use a lot of intuition (System 1 thinking) when we see a big red SAVE sign – that’s a subconscious shortcut to “great value”.
3. Promotions are more important to some categories than others.
There are certain categories where promotions are more prevalent and have a bigger impact. We’re more likely to buy beer, chocolate or shampoo on offer than we are fresh fruit and veg.
A few things drive this...
Impulsivity: A good promotion is a top reason for impulse purchases. A lower price can give you permission to buy a treat or it can trigger your fear of missing out on a good deal.
A special offer can sway your decision with items you have planned to buy, but a packet of biscuits can easily sneak into your trolley when it’s not on the shopping list.
Expandability:
Expandability is how we measure if consumption increases with the amount you buy.
For example, if you buy a big multi-pack of beer, it's likely that you'll drink it quicker than if you just buy a couple of bottles.
Promoting products with high expandability means shoppers will come back sooner.
Ability to stockpile:
Frozen, Ambient and Non-Food items see a higher proportion of sales on promotion than Fresh and Chilled products. A big reason for this is that you can store them for a long time.
If you see a great deal on laundry detergent you might buy as many bottles as you can store... if you see a great deal on bananas, it's a different story.
Encouraging stockpiling is not a great idea and creates a lot of waste but it is part of the way people shop today. For brands and retailers to remain competitive, they need to be aware of this when planning promotions.
Promotions are most important in categories that are highly impulsive, highly expandable or easy to stockpile.
4. Different mechanics trigger different shopper behaviour.
When planning your promotions, it's important to consider what you want to see shoppers do...
To attract new shoppers to the category... you're probably going to need a straightforward price cut with off-shelf feature.
To drive repertoire within a category or brand... multi-buys are the way to go.
To trade shoppers up from cheaper brands... a smaller discount or gift with purchase can work better long-term than going too deep on price.
5. The 'DFS effect' means some people will never pay full price for certain items.
If a shopper keeps seeing the same promotion, they will start to perceive the promoted price as the permanent price. They will not pay full price for that item.
This is especially true with items they can stockpile. Even if a purchase is planned, a shopper can put it off because it's not on offer. They will be confident it will be cheaper on their next visit or in another store in their repertoire.
36% of shoppers claim to check prices of products between different retailers, so it could even influence where they shop on that occasion.
Promotions are important, they are a vital part of how we shop and can influence our decisions in-store (and online) in a huge way.
Many brands promote purely to drive short-term volume. It is key to consider the shopper perception or long-term implications to your brand.
Once you are confident you understand the role promotions play in your category and the dynamics of the market, it’s time to start planning the perfect mix of mechanics and frequency for your brand.
If you want to know more about planning promotions, sign up to my Promotional Strategy training course or get in touch to see how I can help!