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
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
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
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
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
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
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
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
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
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
’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
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,’
The story is the same for the UK. Reorganisation, says the company,
results in rationalisation but ultimately in cost savings all along the
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
’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
’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.
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
’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
There has been no criticism of Asda promotions or any involving its
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
’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.’