In promotions, can less be more?

May 02, 2012

Retail winners tend to stay away from hyper-promotional environments in their stores.

Can retail winners help create distance from losers with more consistent pricing strategies?

Research from RSR shows more than three-fourths of retailers (76%) are sending more price changes to their stores in 2012 than in 2011—in effect, using promotions as a frequent sales lever and fostering a hyper-promotional environment. 

This activity is more common in fashion retail than in food and beverage (27%). Yet RSR in its Retail Pricing in a Post-Channel World: Benchmark Report 2012 says:  “We would have expected retailers selling basics to be using promotions as a lever more frequently—especially given erratic commodity prices. We wonder if those retailers are using package sizes and contents as levers instead:  using smaller packages and different ingredients while leaving prices the same.” 

The Lempert Report concurs, as we’ve previously reported that’s exactly what’s happening at the supermarket shelf. CPG continues to push odd-size packages out to retailers to make it harder for shoppers to compare prices of brands against private label.

What’s driving the hyper-promotional activity? Two-thirds of survey respondents (67%) report consumer price sensitivity as a primary business challenge, up from 46% in 2010. One outcome:  41% of retailer executives surveyed say their companies have become more promotions-driven in 2012, up from 31% who said this in 2010; only 12% focus more on everyday low prices, the findings show.

Yet among retail winners (with comp-store sales growth in excess of 3% annually, says RSR), the simple discounting of high-low pricing (38%) and EDLP (25%) are the primary pricing levers. Only retailers classified as losers (annual comp-store sales growth under 3%) used a hyper-promotional strategy (18%). The RSR study doesn’t go beyond pricing and promotions, but TLR believes the retail winners have other appeals that drive growth, such as services, assortments, convenience and expertise.

In retailers’ opinions, the top five downward pricing pressures are:
•    Increased price sensitivity of consumers (67%, up from 58% in 2011 and 46% in 2010)
•    Increased pricing aggressiveness from competitors (51%, up from 48% in 2011 and 38% in 2010)
•    Increased price transparency—the impact of comparative price shopping (47%, up from 40% in 2011 and 11% in 2010)
•    Need to protect our brand’s price image (42%, up from 38% in 2011 and 28% in 2010)
•    Need to provide consistency in price across channels (27%, down from 32% in 2011 but up from 6% in 2010)

Predictix and Revionics sponsored the RSR study.