Shoppers are becoming ever-more demanding as they look to save money. Brand loyalty is a low priority as consumers switch between stores and products to find the lowest prices. They are sticking to shopping lists rather than buying on impulse and are using the internet to research their purchases, find the lowest prices and seek out online discount vouchers.
This canny consumer, not persuaded by the blandishments of advertising but obsessed with finding discounts, could be a long-lasting legacy of this recession.
It seems these shoppers are even extending their thirst for discounts to the festive period. While ‘three for two' gifts at the likes of Boots and Superdrug have become the default option of the spendthrift Christmas shopper, elsewhere, retailers such as Marks & Spencer and Morrisons have sparked a price war on Champagne, with the latter selling prestige labels including Bollinger and Lanson at a substantial discount. Whether Marks & Spencer launches a ‘dine in for two for £10' Christmas meal, and consumers buy it, remains to be seen.
Over the past 18 months, brand owners and retailers have responded to the downturn by unleashing an onslaught of promotions and discounts as they fight to attract savvy shoppers. Yet brands are conscious that they still need to add value to their offers through competitions, free gifts and charitable tie-ups. As a result, marketers are trying to strike a balance between attention-grabbing price cuts and adding value through offering shoppers something new and different.
In supermarket retail, promotions have been transformed over the past year as shoppers seek straight price cuts rather than BOGOFs and ‘twofers' (two for the price of one deals). Where supermarkets previously offered quantity at low prices, shoppers are now looking to cut out waste and get the lowest possible price wherever they choose to shop.
‘Consumers have generally become much more streetwise since the last recession,' says Jamie Matthews, managing director of sales promotion agency Initials. However, he adds, ‘retailers have wised up to the fact that clever shoppers are stocking up on discounted lines, and are now starting to demand something in return from them'. He points to Tesco's ‘Buy one now, get one free later' campaign, which has the headline appeal of the traditional BOGOF, but requires the consumer to make a return visit to claim the free item and is likely to encourage them to buy more in the process.
Online is proving a particular draw for brands looking to launch promotions, providing a low-cost option and the chance to reach a young and comparatively upmarket audience.
In September, convenience-store group Spar launched an online game called Shelf Sniper, where players ‘zap' products on a fast-moving shelf with a barcode scanner controlled by their computer mouse. They win a voucher for £1 off £10 shopping from Spar if they pass level two. The game is linked to Spar's TV ads, which show people in everyday situations pulling a supermarket shelf into view and taking products.
‘This game is about innovation - it is something new and different that challenges the way people look at Spar and which, at the same time, is low-cost and low-risk,' says Adam Margolin, Spar's head of marketing support.
The game is also cashing in on the trend for consumers to seek discount vouchers online. Since the launch in late September, Shelf Sniper has been played by 350,000 unique users and 4000 have downloaded the £1-off coupons. However, Margolin says it is too early to determine the game's effect in attracting new customers.
The use of online vouchers and discount codes has soared over the past year, according to Matt Ramsey, managing director of InboxDMG, the agency that created Shelf Sniper. This year the value of coupons used is expected to exceed 2008's £500m. There has also been a sharp spike in online searches for discount codes, he says. Ramsey argues that brands need to ensure that promotions create a dialogue with consumers rather than just giving them something for free. ‘We are trying to create a brand conversation before giving up the premium. The critical word is promotion, not discounting,' he says.
The growing importance of promotions during the recession is underlined by figures from the IPA's Bellwether Report for the third quarter of this year. It shows sales promotions declining at a slower rate than other traditional forms of marketing communications. Total UK promotions are thought to be worth about £38bn a year, according to the Institute of Sales Promotion. In retail, there are about £25bn-worth of promotions a year, with about £14bn of this involving price cuts. The rest are value-added mechanisms such as competitions and prize draws.
According to Phil Bourne, chief executive of agency KLP, there has been a knock-on effect from price-cutting on sales promotions. If a brand cuts its price, this often forces its competitors to protect their market share by adding value through a sales promotion, rather than responding with a similar discount that would spark a price war.
Bourne believes agencies that create sales promotions have little interest in simple price discounts such as BOGOFs as they are more interested in using promotions to create an emotional bond with consumers through engagement and creativity, demonstrating the importance of hiring an agency.
‘The best promotions are constructed in such a way as to capture your imagination, rather than simply encouraging a rational decision to save money,' he says.
Bourne points to a promotion KLP has created for NikeGolf offering a first prize of playing a round of golf with Tiger Woods. The promotion, which ran between December 2008 and June 2009, was created to promote a range of Nike golf clubs called Victory Red Irons. The sales promotion, the first that NikeGolf Europe had ever undertaken, was run mainly online, through the Victory Reds website, where people buying a set were entered into a prize draw. Bourne believes the activity underlines the importance of creativity and engagement in running promotions.
Another area of growth in recent years has been in cause-related promotions. Procter & Gamble's Pampers nappy brand has run a promotion offering to donate funding to Unicef for a tetanus jab for babies and mothers in need. One jab is donated for each purchase of the product.
Simon Hathaway, chief executive of shopper marketing agency Saatchi & Saatchi X, which helped create the promotion, says this is an example of the way promotions have changed since the last recession of the early 90s. ‘People have been resistant to buying brands to enter competitions for some time and most of them are primarily aimed at younger people,' he says. ‘The National Lottery killed off the belief that you were likely to win prizes.' Promotions should focus on brand experiences instead, he believes.
There are notable examples of brands that have managed to escape the cycle of discounting. Apple's iPhone has shown that even in a recession, a brand with strong appeal can maintain its price premium. In the UK, Apple has achieved this through the phone's exclusive tie-up with O2. However, now that Orange has won rights to sell the phone, and Tesco Mobile and Vodafone are poised to enter the fray, it remains to be seen how the increased competition will affect pricing.
Retailers have long been the strongest exponents of price promotions and have often required the brands they stock to engage in discounts. However, they stand accused of building their reputations as low-price retailers at the expense of the brands they stock, which get trapped in a downward spiral of discounting. Lower prices leads to less investment in marketing and development, and brands risk becoming commoditised.
For this reason, sales promotion agencies argue that it has never been more important to create promotions that are both powerfully creative and succeed in engaging consumers' attention.
Marks & Spencer
M&S has pulled out all the stops over the past 18 months as it has sought to respond to the recession and draw shoppers into its stores. But a spokeswoman says that this Christmas there is unlikely to be a repeat of last year's ‘exceptional' promotional behaviour - including two one-day spectaculars, when prices on most goods were slashed by 20%.
‘Last Christmas was unprecedented in promotional activity across the sector. We had to react according to the economy. We expect a better full-price Christmas this year and we'll have the usual range of tactical promotions as opposed to the spectaculars,' she adds.
This year, the retailer has launched its ‘Penny Bazaar' days, where a range of products are sold for 1p or shoppers are asked to give a donation to charity. This is typical of current sales promotions, which offer price cuts but also have an added-value message - in this case, fundraising and cause-related marketing. The Penny Bazaars were part of M&S' 125th anniversary and harked back to the original market stall, where all products sold for 1d. The retailer says the promotion attracted a huge number of people to its stores.