SALES PROMOTION: P&G’s gamble: price or promotion?

Procter & Gamble’s strategy of Every Day Low Pricing was examined in Marketing last week. Now, Cathy Bond asks, what are the implications for the sales promotion sector?

Procter & Gamble’s strategy of Every Day Low Pricing was examined

in Marketing last week. Now, Cathy Bond asks, what are the implications

for the sales promotion sector?



The smallish notice on the supermarket shelf at my local branch of

Sainsbury’s last month said simply that customers might experience some

difficulty buying some Procter & Gamble products because of

’manufacturer’s problems’.



The notice was right: P&G’s leading detergent brands, Fairy and Bold,

were thin on the ground that day. Enquiries at the store brought news

that P&G was in the middle of rationalising its lines. There would be

some de-listings, but a normal service would resume soon.



It was a neat euphemism for a radical change of strategy at the home of

some of the world’s best-selling grocery brands. For P&G, getting back

to ’normal’ does not mean a slide back into the old ways of offering

consumers the widest possible choice. Neither does it mean back-to-back

promotions, especially price cuts generally bankrolled by manufacturers

but benefiting the name over the supermarket door rather than the brand

itself.



But will the big retailers play ball? Only last month, a profits warning

from beleaguered Sainsbury’s prompted retail analysts to predict a

vicious price war, and you can be sure it won’t be waged on own-label

goods alone.



Now the company dubbed ’Procter & God’ by the US grocery trade has set

out to change the way retailers use sales promotion. In many cases price

cuts have been axed and extra value added by way of permanently low

prices.



Like many FMCG manufacturers, P&G finds its hand being forced on

promotions dictated by competition. With the UK’s major supermarkets

locked in battle over market share, often fought on price as a way of

luring people through their doors, manufacturers have found themselves

being sucked into a promotional vacuum. They argue that brand loyalty

and profit margins are disappearing into this black hole.



Surprisingly, the grocery giant has gone public over the affair, using

industry forums to explain its mission and put the fear of Procter & God

into the sales promotion sector.



’We believe in building the equities of our brand franchises and this is

best done with investment in product and advertising,’ says Dick

Johnson, corporate affairs director for P&G. ’It’s a question of

reducing expenditure on what we regard as damaging promotions, such as

multi-buys and price discounts.’



With on-pack promotions P&G takes an equally tough line. Johnson says:

’In this company such promotions are few and far between. They

jeopardise the efficiency of production schedules in our plants and have

no brand equity or loyalty-building value.’



On the face of it, the company’s new approach seems highly logical, and

is a model component of Efficient Consumer Response (ECR), which P&G

champions globally.



But how will P&G’s consumers see it?



Take Sainsbury’s, for example. A decade ago, the stores group

streamlined a corporate approach to marketing. With brands played down

and promotions uniformed it seemed to be shaping the future for

supermarket retailing.



As it turned out, Sainsbury’s had managed to strip much of the fun and a

lot of the perceived added value out of shopping. Today, profits are

down and the initiative is firmly with its more imaginative rivals,

Tesco and Asda.



’In the UK, retailers are building shopping as entertainment and a

family experience,’ says Sue Short, secretary-general of the Institute

of Sales Promotion. ’The power of what is set up to attract the

consumer’s attention in-store should never be underrated.’



Conversely, recent research shows that customers are spending less time

doing their weekly shop. This may rule out cruising the aisles as a

popular leisure activity, but it also increases the pressure on

marketing techniques either to swing a purchasing decision in a much

shorter time, or to embed permanent brand loyalty.



With the vast majority of such decisions being made at point of sale,

however, sales promotion looks home and dry.



P&G says that promoting at point of sale does work, but is not a

universal solution. People can be persuaded to consume more food and

drink, it argues, and impulse purchasing is high in some sectors, such

as confectionery.



But in some markets, like detergents and nappies, where incremental

purchasing is unrealistic - and where the company happens to be strong -

it is little more than a corporate headache.



’We have brands operating in markets where there is a lot of

discounting,’ says Johnson. ’Frankly, it’s been a promotional zoo with

shoppers not knowing where they stand.’ New product variants abounded,

shored up with two-for-one promotional offers and price cuts designed

either to secure trial or see-off a competitor.



P&G’s idea of sorting out the mayhem is to introduce Every Day Low

Pricing (EDLP) - a strategy of reducing core costs in manufacturing,

distribution and marketing support to fund a permanently reduced price

tag for products on the shelf.



’Price reductions on these brands are funded by reductions in

promotional spending and efficiencies accruing from a study of

production schedules,’ says Johnson. ’The aim is to make sustained value

the critical factor in the shopping experience and to avoid the major

fluctuations in sales that promotions can cause, seriously affecting

product schedules.’



And how is P&G dealing with the trade? In the US it works with retailers

in a fragmented supermarket sector, pooling sales data to promote

efficient sales throughout whole categories. Its stand on promotions is

like a breath of fresh air in a market saturated with discount

offers.



In Germany, as Marketing reported in December last year, P&G got a bumpy

ride when store chains became irritated and would not co-operate when

faced with what they saw as an attempt by an outsider to reorganise

their systems.



’Retailers were not happy at first because they were asked to change the

way they handled P&G products because we had changed ours,’ says

Christil Karesch, corporate affairs spokesman for P&G’s head office in

Germany. ’We were taking the initiative and they were having to react

But while we may be on different sides, we are still in the same

boat.’



Damaging promotions



Karesch claims that new contracts have now been signed and have replaced

inept, multiple-discount arrangements with the trade with a structure

that not only gets the products to stores more cheaply, but at a price

that is ’transparent’.



’There has been some reduction in sales because there were some

concerns, but now the contracts are fixed we think volumes will grow,’

she explains.



The story is the same for the UK. Reorganisation, says the company,

results in rationalisation but ultimately in cost savings all along the

line.



Damaging price-led promotions were not a big problem in the German

market, where sales promotion is more of an adjunct than an absolute, in

marketing terms. In the UK, retailers are unlikely to spurn P&G’s plans

for efficient ordering and distribution, but they could be intractable

over promotions.



’EDLP isn’t raised as a particular issue as far as retailers are

concerned,’ says Frank Davidson, food retail analyst for James Capel.

’It’s been a success in the US, but brands are much stronger there and

the market is fragmented. In the UK, however, it’s too late - they

should have taken it on board here 15 years ago. For example, when they

cut the cost of Fairy Liquid, the own-labels simply cut their prices so

there was no extra incentive to buy the brand.’



No extra incentive and, in the absence of sales promotion, no room for

manoeuvre - although this situation could change according to the

success of P&G’s direct marketing efforts. ’It was never our intention

to pull out altogether, but to reduce the major price discounts,’ says

Johnson.



’We promote the use of direct marketing databases to run sampling and

trialling events. That’s a major focus.’



’It’s a positive move because unless manufacturers establish new

relationships with customers they are in a weak position. Any incentives

will be relevant to the task in hand and the individual, whereas sales

promotion treats all users the same. However, not using on-pack

promotions could be a short-sighted move as it is a valuable way of

getting new names.’ says Jon Voelkel, planning director for direct

marketing consultancy Craik Jones.



Promotion’s power



On the face of it, P&G has set out to re-educate shoppers to expect

reasonable prices week in, week out, and to prefer this to the blatant

arm-twist of a buy-one-get-one-free offer. The company says that,

according to its research, it is only doing what consumers want.



What’s more, it adds, ’sustained value’, driven home by direct marketing

initiatives and overlaid with advertising, will be enough to foster

brand loyalty to the extent that consumers have made their buying

decision before they walk into the supermarket.



But where does that leave the retailers? They can counter whatever

market research the manufacturers produce with evidence of their own to

prove that having a reputation for providing significant price savings

on a permanent basis - but not necessarily on the same brands - does

bring customers back.



Gary Cormack, head of marketing for Boots, says: ’If customers didn’t

respond, then we wouldn’t do it, and we do masses of research into

attitudes, as well as reading sales figures, to find out what customers

respond to best. They want this kind of offer and we know that Boots is

perceived as being better than its rivals at providing it.’



’Our consumers have responded very favourably to price-led promotions

and we have a lot of activity involving this,’ says Anne Bailey, media

relations manager for Safeway. Last year Safeway linked with

Kimberly-Clark on a buy-one-get-one-free promotion for Huggies nappies,

the second best-selling brand to P&G’s Pampers. ’It was the most

successful promotion we have ever run,’ says Bailey. And Kimberly-Clark

got the chance to get its product into the hands of new customers.’



Tellingly, Safeway’s marketing director Roger Partington looks upon the

request for fewer short-lived sales blips as a P&G campaign. ’They’d

like to get rid of price promotions because they don’t need them,’ says

Bailey.



’But this gives the smaller brands an opportunity to attract attention.

And we haven’t had any resistance from manufacturers. But then the P&Gs

of this world are huge.’



And that’s the crucial point. Two-and-a-quarter years after P&G first

value-priced one of its key brands in the UK, the company is still

struggling to win over retailers which look to share-of-shopping rather

than category performance as a measure of success. The ethos is sound,

but are the retailers listening?



’Some of them understand our point of view,’ says Johnson. And does P&G

still participate? ’Yes, occasionally, but it’s a question of weaning

the market off such events, not just turning off the tap.’



This could be perception, audacity or wishful thinking. According to

Asda: ’P&G has had no direct communication with the company about

this.



There has been no criticism of Asda promotions or any involving its

(P&G’s) brands.’



And at Safeway, P&G’s gutsy fundamentalism is overridden by the store

chain’s aspirations. ’We’ll always try to offer what people want.

Promotions are going to get smarter, as technology lets us get to know

people better,’ says Partington.



WHAT THE SALES CONSULTANTS THINK



’P&G’s move comes across as a criticism of sales promotion, but I don’t

think that’s what it is,’ says Mike Leaves, director of sales promotion

consultancy LGM. ’There’s no evidence that sales promotion doesn’t work,

even in the marketing of detergents. All P&G’s research shows is that

more often than not people prefer lower prices to promotions. But we’ve

known this for 40 years. And we also know that what people say and what

they do are not always the same.’



Efforts to discourage price-led promotions could even benefit the sales

promotion sector. Despite the enthusiasm for discount deals, retailers

still need to make a promotional strategy their own.



’Retailers are always asking for something different. They really are

prepared to listen to suppliers which can come up with something new

because they don’t want to run the same promotions as their

competitors,’ says Louise Wall, managing director of Option One.



’I think we’ll see fewer and bigger promotions which will last longer

and will have an element of trial and loyalty linked to them. Retailers

will still insist on techniques such as the multi-buy and link-save but

they will be tied in more overtly with their own loyalty programmes.

On-pack promotions will continue to diminish, but will be more

focused.



’What’s happening now is not going to dictate a whole movement,’ claims

Leaves. ’Sales promotion is one in an armoury of techniques; you can

only make decisions based on market conditions. Dozens of sales

promotion activities are available to manufacturers which don’t have the

luxury of being able to rearrange prices in the way that some suppliers

can. The motivators will remain the same: getting something for nothing,

and something for less effort.’



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