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Promotional effectiveness in decline

Nawal Es-sdiqui - Lucky Cart

By Nawal Es-sdiqui
On 21 July 2017

This article is an excerpt from our ebook Sales Promotion: How to improve the performance of your investments which you can download for free. 

Discounts are a retailer and brand’s favourite weapon in order to boost sales, gain market shares and manage stock. In a market dominated by price wars, professionals tend to use and abuse promotions in order to maintain their market shares. Promotional pressure has never been so high: in Europe, the number of products sold on offer increased by 20% between 2011 and 20161.

However, this increased spending on promotions does not always bring the expected results. Whether in the US, Canada, Spain, Italy, Germany or the UK, the figures all tell the same story: the majority of promotional campaigns on sales make a loss. In nearly 60% of cases, the cost of a promotional campaign is greater than the additional net revenue generated2.

Promotional effectiveness in decline

The French market is no stranger to this trend. Despite a 5-point increase in budgets devoted to promotions between 2010 and 2015, the cost of campaigns is still greater than the additional net revenue generated in 61% of cases2. Part of the problem comes from some retailers and manufacturers overdoing their promotions. In a seemingly endless war on offering the best promotion, market players compete against each other to the detriment of their profit margins and, sometimes, their image.

Promotional effectiveness in decline - Stéphane Smolarek

The detergent sector presents a good illustration of the situation. The total amount of promotions offered to customers increased by 9 million euros in the first five months of 2016 while consumption fell by 7 million euros in the same period2.

Excessive promotions cause consumers to adapt their behaviour, which in turn leads to adverse effects such as anticipation, depression and cannibalism. Taken to the extreme, this development model is a trap for manufacturers. Some categories of products – particularly mass market products – are now dependent on promotions. This is the case with cola drinks for example, where 83% of sales volumes are discounted3.

Promotional effectiveness in decline colas

These conditions lead some manufacturers and retailers to start doubting the effectiveness of the promotional model at any cost and turn to other methods to increase their market share. A finer and exhaustive measure and analysis of promotional ROI, better targeting of consumers, personalisation of messages and generosity of offers thanks to the advent of Big Data are all examples which open up new opportunities to market players.

Sources

(1) Delvallée, J. (2017). Toujours plus de promotions en 2016, le bilan par enseignes [Etude Panotrade], LSA Commerce Connecté [online]. [Last accessed on July 2, 2017].

(2) Forum LSA (2016), L’évolution des techniques promotionnelles à l’heure de la guerre des promotions , Nielsen [online]. [Last accessed on July 5, 2017].

 (3) Eales, T. (2015). IRI Special Report – Price and Promotion in Western Europe: Encouraging signs of recovery, IRI Worldwide [online]. [Last accessed on July 2, 2017].

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