Promotions boost consumer interest, but prices keep them coming back
focused, with groups such as Tesco and Asda leading the move
towards every day low pricing (EDLP). But recent research from UK
think tank IGD suggests that companies should not write off the
benefits to be gained from promotional activity, a major driver of
impulse purchasing, reports Chris Jones.
According to the IGD report, some 69 per cent of shoppers will purchase new products or different brands to normal as a result of promotional activity. In particular, the shoppers aged 25-34 (80 per cent) and those with children aged 0-5 (80 per cent).
The report found that advertising and promotions - and not necessarily a low price - is the most powerful way of influencing shoppers to try new products. A fifth of shoppers will buy something they have not bought before after seeing it on TV.
But of particular interest to the retailers is the revelation that in-store promotions are a particularly good way of attracting shoppers to new products. "In-store promotions give customers the confidence to try new things," the IGD said. "19 per cent are attracted to a new product by Buy One Get One Free offers, while 12 per cent try a new product because it is reduced in price and 11 per cent are influenced by '3 for 2' offers".
The IGD said that shoppers see promotional techniques like these, which provide a price saving (rather than offering a low price all the time), as less risky ways of trying something new. If they have not paid the full price - no matter how low it might be - they are less concerned about whether they like the product, the research suggests.
Another interesting revelation from the report is that a recommendation from family or friends can be an incentive to experiment: one in 10 shoppers said that they were more likely to choose a new product because of a recommendation than any other promotional activity.
Some of the shoppers IGD spoke to said they need to try before they buy, and would purchase a new product after sampling it, either in-store (5 per cent) or through a sample in a magazine (7 per cent), as this means they can try a product without spending any money. The fact that trial pack sizes are usually smaller also attracts shoppers because it means less wastage if a product is disliked.
"We have found that although advertising is the primary driver of new product purchase, shoppers clearly expect it to be supported by other promotional tools in-store such as introductory prices or multi-buy offers," said Joanne Denney-Finch, IGD chief executive.
"They are particularly attracted by multi-buy offers because they like the sense of getting something for free. However, given that TV advertising is a powerful medium of encouraging trial of new products, IGD believes that the move towards in-store media indicates that retailers and manufacturers have identified an efficient way to communicate to shoppers at the point of sale."
The IGD's report makes for interesting reading, especially as an earlier survey by the organisation, from late 2003, suggested that EDLP was more popular than promotions.
The December 2003 survey showed that 60 per cent of British shoppers preferred stores that offer consistently low prices and limited or no promotions, while just 40 per cent opted for stores which offer a variety of different promotions.
However, that survey also revealed that shoppers felt that a pure EDLP strategy meant that they missed out on a level of in-store excitement associated with promotions. As one shopper said: "If it is low price all the time, eventually that is what you expect to pay, you don't think you are getting a bargain."
According to Denney-Finch, "From a shopper's perspective, both prices and promotions can influence overall trolley price and both have a role to play when choosing where to shop. It is also clear that promotions are not just about reducing the overall cost of shopping, but are liked because they bring variety and excitement to what can be a routine task."
The question is, then, have the market leaders such as Tesco, Asda and Morrisons gone too far down the EDLP route to keep their shoppers interested? Their financial performance in recent months would suggest that this is not the case, with sales, at least for Tesco and Asda, continuing to rise steadily.
In contrast, recent data from analysts Goldman Sachs suggests that companies that focus too heavily on promotions are losing out. For example, GS estimates that promotions account for 25 per cent of the average basket at Sainsbury's, compared to just 10 per cent for the EDLP players, but even compensating for this disparity, Sainsbury's still appears to be far less competitive than its rivals, suggesting a further shift towards lower prices across the board is necessary.
