There is a fundamental change in consumers’ shopping behaviour, which has led to a decline of the effect of trade promotion. The impulse purchases of consumers are lessening and they are checking the promotion section even for their favourite items.
Retailers too are inventing more complex trade promotion strategies in a bid to boost shopper visits and drive larger baskets. Among the manufacturers, the smarter ones are already overhauling their strategies to align themselves with changing consumer habits and evolving marketplace.
By having a look at the data gathered by various studies on trade promotion across several categories, we can understand the evolution pattern of today’s practices. This data includes a direct feedback from retailers’ sales teams and shoppers.
CPG manufacturers were forced to raise prices to retailers after the 2008 recession started eating out a couple of years later. However, this only increased the dollar sales and had an adverse effect on sales volumes. To recover from this loss, they turned to trade promotion during the beginning of the following decade.
The significance of consumer behaviour
The recession had also affected the consumer behaviour. Shoppers began storing less and buying only to the usage occasion. The habit of sticking to the budget, and not buying on impulse, dominated. Shoppers looked more for “on deal” items and hopped grocery stores for different items to save on daily needs’ shopping. Any shopper was hardly loyal to a single retailer. While most of them had some or other retailer’s loyalty card, a very small part of the shoppers was exclusive to a particular retailer.
Declining shopper trips worried retailers and they began making extra efforts like never before, to attract shoppers to their stores by capturing their attention. It is in times such as these that a robust trade promotion strategy gains importance.
Increased amount of promotional exercises, however, are having a different effect on shoppers. They are getting used to buying products on promotion. Receiving several promotional messages every week gives them the confidence that a particular product will be definitely on promotion sooner or later. More than half the shoppers haven’t hidden the fact that a certain category of products are always bought on sale, and they wait for those products to appear on sale.
On the CPG manufacturers’ part, the everyday low pricing (EDLP) is used to combat the sudden volume and share losses due to unexpected shopper switch to their competitors. CPG manufacturers need still newer strategies to maximise promotional spending. One of the most popular among them lately is retailer segmentation. Over 50 per cent of them is executing trade promotion strategies by segmenting retailers looking at the programs offered by them.
After a challenging decade, in their bid to get a foothold in the market, retailers and brands have been holding down consumer prices. This is earning them razor thin margins. In such a condition, more investments in operational excellence will hardly bring satisfactory ROI. From here, the only way they can go ahead is effective trade promotions.
There is a growing interdependence between manufacturers and retailers. A vital touch point in this collaboration is a trade promotion. By filling the existing gaps between retailers and manufacturers in terms of insight and analytics, and completing the circle with trade promotion strategies and campaigns will boost the ROI for both parties.