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The Path to Loyalty – Step Two

in place of price
Taming Price Discounting

Deliver Volume
and Profit
targets for less
Rebuild your
Core User Base

£195

“ There are known knowns.

These are things we know
that we know.
There are known unknowns.
That is to say, there are things
that we know we don’t know.
But there are also
unknown unknowns.
There are things we don’t
know we don’t know.



Donald Rumsfeld

The Path to Loyalty – Step Two | The Institute of Promotional Marketing

The Institute of Promotional Marketing
The Institute of Promotional Marketing is the only UK trade association that truly represents brand owners who use
promotional marketing and the agencies and suppliers servicing them.

Problems

Our mission is to protect, promote and progress creative and effective promotional marketing across all media
channels. We aim to achieve this through our renowned education programme, our highly-regarded legal advice
services, our annual awards scheme and a ground-breaking research programme.
This White Paper is the latest product of that research programme, and is aimed at extending our understanding of
the different promotional techniques that convince consumers to buy products in store.
The IPM defines promotional marketing as:

Solutions

Any marketing initiative intended to create a call to action that has a direct and positive impact on
the behaviour of a targeted audience by offering a demonstrable, though not necessarily tangible,
benefit. Promotional marketing content can be delivered via any media.
In our previous White Paper, we explored the impact of price-based promotions, which are increasing in their usage,
driven largely by the demands of the major retailers.

In this White Paper, we are exploring how marketers should be analysing the real impact on both the bottom line and
also brand equity of a range of different promotional techniques. We also look at how successful promotions must be
matched with the right stock levels – if consumers cannot find a promoted product on shelf, then that can be more
damaging than not having the promotion in the first place.
Obviously, in the current economic climate, the pressure from retailers on brand owners to run price-based
promotions on an almost permanent basis is massive. But brand owners must find ways to prove to retailers that
such a focus is short-termism, and that a balanced portfolio of promotional techniques will work far better for the
longer term health of both brand and retailer.
Of course, promotional marketing is not the exclusive preserve of FMCG brands selling through the retail channel.
But IPM research has shown that in 2009, out of a total spend on promotional marketing in the UK of £36 billion,
branded goods manufacturers spent a total of £25.6 billion on promotions in retailers (mainly, but not exclusively, the
big supermarkets), £14.4 billion of which went on price promotions.
If brand owners spend just a fraction of what they can save by reducing their use of price promotions, then they will
be able to drive extra sales without sacrificing margin, and grow their bottom line and brand equity at the same time.
We will be continuing to develop this line of argument with future White Papers in our Path to Loyalty series.
If you are a brand owner, an agency or a service provider who can help us further build the case for added-value
promotions, we would be very interested to hear your comments and any supporting evidence you want to share
with us.
Annie Swift Chief Executive Officer, The Institute of Promotional Marketing

3

Resources

That research conclusively demonstrated that while price promotions have their place in the promotional marketer’s
armoury, they should be used with caution. An over-reliance on price promotions, to the exclusion of other, valueadded, techniques may not actually deliver real profit increases and will almost certainly destroy brand values in the
longer term.

The Path to Loyalty – Step Two | In Place of Price

Insight and the Strategic Value of Promotional Marketing
The Institute of Promotional Marketing is investing in research in order to illustrate the strategic value
of what our members do, over and above the tactical capabilities of promotional marketing.
This research clearly benefits our members and also helps us reach out to the wider promotional
marketing industry.
We at the IPM know that the UK produces the best promotional marketing campaigns in the
world – you only have to look at the success of promotional work created by British agencies in the
European IMC Awards and the worldwide Globe Awards to see that.
But knowing our work is world-class is not enough. We have to be able to prove to marketers that
promotional marketing can deliver the goods, so they can demonstrate, to their managing directors,
their finance directors and their boards, our real strategic value.
In the healthcare profession right now, the talk is of ‘evidence-based medicine’ – treatments that
work because they have the research to prove it. What we need right now is to build evidencebased promotional marketing.
Until the IPM started its current research programme, our industry sector had been sadly lacking
in that kind of research, which means that we have been at a disadvantage compared with
advertising, direct marketing, digital and media buying. We need to close that gap.
We need to be able to demonstrate why award-winning campaigns work; how value-added
promotions build brands; why a focus on price-promotions only can damage brands; how different
techniques can work together to deliver a whole that is greater than the sum of its parts…
Above all, we need to show how real insights into consumer responses to different techniques
can lead to creative solutions that in turn drive successful value-added campaigns that change
behaviour.
Bob Suppiah Chairman, Institute of Promotional Marketing

4

The Path to Loyalty – Step Two | The Continuing Path to Loyalty

The Continuing Path to Loyalty
The Insight area within the Institute of Promotional Marketing is just 12 months old, and has produced in that time two
white papers and a number of international headlines.

Problems

These related in particular to research the IPM carried out with iMotions software, and the University of Westminster,
showing how strong the impact of promotions really are on the shopper. The headlines – promotions as strong as porn –
may have been over dramatic, but they were accurate nonetheless. The ripples spread as far as Australia. Alongside this,
other research has also shown how unforgiving shoppers are when companies fail to deliver on their promises. Typically
they get angry when there is just not enough product in the right place, to satisfy the demand.
Effective promotions demand the use of effective measurement if only to make sure companies can actually supply the
demand they create.

It is absolutely vital to identify what these measures should be. They clearly need to be discriminating, robust,
proportionate (not over costly), and must have a broad scope so that they can compare across all marketing tools. Times
have changed considerably in the last 10 years – and benchmarks need to keep pace. Existing measures then need to be
reviewed to make sure that they are still relevant.

Where else may you need to measure?
Obviously, at the point where a message impacts on a recipient.
Outside of this, though, times are changing. The rapid growth of social media means that word of mouth spreads well
beyond the immediate neighbourhood. You can see easily how this benefits promoters with the growth of sites such
as moneysavingexpert.com. Here people combine to advertise current offers. A message that spreads almost at the
speed of light.
The role of customers as promoters is frequently underestimated – the IGD say that advocacy delivered 23% of new
triallists in 2010. This is up from 9% in 2004. The trend is obvious. And well-thought-out promotions can leverage this
consumer advocacy to deliver well beyond the one-to-one relationship with the individual consumer.
As an example, promotions on pack – such as the Red Nose Day award winner featured in our last white paper – gained
immeasurably from the use of the web.
And, of course, immeasurably is the correct word. What is needed here is a measure of the extent to which people
experiencing the product, or the advertising, are willing to go out and buy and tell other people.

5

Resources

One of these existing measures, and the focus of this white paper, is the view of retail distribution as being just the number
of stores your products are expected to be in, without regard to the level of service they offer your shoppers. It should
change your view of just headcounting your stocking stores.

Solutions

What you cannot measure, you cannot manage

The Path to Loyalty – Step Two | The Continuing Path to Loyalty

Looking forward, we see three steps on our promotional Path to Loyalty:
Step 1. Understand the market, your product positioning within it and the way appropriate techniques are in
use currently.
Step 2. Measure normal and promotion demand for current and future activity as well as the impact on the
‘inner shopper’. Here the promotions industry needs to bear in mind measures used elsewhere.
Step 3. Build on Steps 1 and 2 to select appropriate promotion techniques to meet company objectives.
This white paper is the first for Step 2. In suggesting measuring the demand developed by a discount we also
indicate how you can multiply your ROI from one simple additional piece of knowledge applied to information that
is already available.

Coming in the future are:
• The size of the promotions market outside of Fast Moving Consumer Goods (FMCG) – it is harder to measure the
spend in non-FMCG sectors, but increasingly important as their use of promotional marketing increases.
• The inner shopper – reviewed and tested approaches to forecast demand from promotion techniques

Promotions should not be, as perhaps they are for many companies, a journey into the unknown.
Yes, they are powerful, and yes, they can certainly be misused.
No, this does not mean they should be avoided. On the contrary, well thought through promotion activity, ticking all
the boxes, is tomorrow’s solution for getting sales and brand growth by bringing products and services together in
front of potential customers at the kind of rate that modern marketing demands.
The IPM aims to find those boxes and help our members to tick them.
Colin Harper Head of Insight

6

The Path to Loyalty – Step Two | Contents

Contents
Page

8 Introduction and Executive Summary

Problems

P
roblems Stores supplying brands core markets are letting shoppers down very badly.
The result of this is the rapidly declining brand loyalty all observers report.



12 The Anatomy of Shopper Demand – Can’t Buy, Won’t Buy
19 Where Supply Systems Fail Shoppers
S
olutions – Growing Brands Safely in Store It is vital to understand and manage the impact of
discounts. If carried through properly, costs go down, volumes up and brand strength is retained in a
brand/retailer win/win. Smarter promotions bring new business into the facing, or create shelf standout.
This increases mental availability and re-builds brands at preferred price levels.

Solutions

25 Developing ‘Win-Win’ Promotional Calendars with Retail Partners – Simon-Kucher & Partners
32 Managing Price Discounts and High Incentive Promotions
36 Building the Core – Smart Promotion Alternatives – Richard West, The University of Westminster
38 Packing More Punch
43 Home is Where the Heart is – Buy your Way into their Affections
Resources for Change Turn to here for more information on the issues discussed.

Resources

48 Geo-Targeting for ROI and Brand Growth – ProfitsCheck
49 About Simon-Kucher & Partners
50 Measurements for Results – fast.MAP
51 Bring the Store to Your Shopper’s Door – TNTPost
52 Promote and Research 8 million People for Pence – yousay
53 Delving Deeper – Course Qualifications from the IPM
54 Corporate Membership 2011

7

The Path to Loyalty – Step Two |

Introduction and Executive Summary

Introduction and Executive Summary

Effective Shopper Availability – The New Marketing Frontier
Headlines
£3 Billion pounds of the £14.4 Billion currently spent on FMCG discounting is actually promoting
either competitive stores for the retailer, or competitive products for the brand, to the shopper.
Core stores – those with the highest proportion of target market in their catchment area – have the
highest demand pressure and run out of stock first as discounts increase. Other stores can cope better.
Maintaining core stores in stock at all times is a joint objective for sales and marketing disciplines.
For many products the primary market is now at a discounted price (over 60% of Health and Beauty
products are sold at discount).
Targeting company effort at the smaller subset of core stores offers the best opportunity all round to
get ROI and brand growth;
• Managing supply and discount levels to maintain availability and loyalty when discounting;
• Promoting sustained growth to these core stores between discounts. Promotion sensitive
shoppers can be attracted with efficient smarter promotions.
Things were simpler 20 years ago. In 1997 the top grocery multiples had 64.7% of the grocery market. In those days a
Nielsen report showing that you were in X% distribution was the best guide you could get to how many shoppers could
buy your product, day in and day out. Back then promotions were designed to build sales for stores and brands alike.
In 2010, 83% of grocery sales go through the same major multiples: and if you include in this list Waitrose and the
discounters, the total adds up to 93%. And since 44% of all goods are now sold on promotion, it will soon be the
case that ‘normal’ prices are the exception, and promotion prices the norm. So centrally agreed facings that are based
on normal sales alone are increasingly out of touch with store reality.
Shoppers tell us that they really struggle to find promoted products in stores – and in particular this impacts on groups
with a high percentage of smaller stores. The industry figures do not seem to reflect this, though, recording 97.06%
availability across the period (IGD October 2010). This is, however, misleading since it focuses on the holes in the shelf,
and not on the shoppers who want to buy from these holes. Gaps appear at times of peak demand – and are typically
slow to refill. To be representative, availability checks would need to focus on what happens when shoppers want to
shop, and what they seek to buy: basically products on promotion from Friday afternoon to Sunday at close of play.
The IGD, which publishes the optimistic estimate above, says (Shoppertrack Oct 2010) that 17% of shoppers are
‘not satisfied’ with the frequency that promoted products are in stock when they want to buy them.
The Grocer has re-tailored their data collection to help take this into account. In October 2010, its figures showed only
92.9% availability. That’s a 4% difference in a £120 Billion market. IPM figures based on depth analysis of stock and
sales indicate a much worse position than this.

8

The Path to Loyalty – Step Two |

Introduction and Executive Summary

Shoppers also tell us that when they are frustrated in trying to buy product on offer, a significant proportion are left
with a bias against the product. Others, being forced to trial the competition, may leave the brand permanently.

Problems

Growing and maintaining a healthy heavy user base means making sure that promotion availability is the key priority.

Known Knowns
• Price discounts increasing rapidly;
• 44% of all goods now sold on promotions;
• Brand loyalty is dissipating;

Solutions

• Key Retailers managing discounts (and other demand generating promotions) poorly BUT insisting on
ever increasing levels of price cut, which reduces even further a store’s ability to cope;
• As the percentage of goods sold at a discount increase, the pressure on ‘normally priced’ stock has
declined markedly.

Resources

5 years from 2010 margins are predicted to be down 10%
if price discount activity continues to be managed as it is
at the moment (Billetts reported in The Grocer )

Known Unknowns
• How do we get ourselves out of this position?

Unknown Unknowns - the things we don’t know we don’t know
Promotion availability seriously impacts store ability to perform for shoppers. Typically, half of the stores that should
be running a promotion underperform by factors of 3 or 4 as a direct result of inadequate stock levels. These stores
are usually those visited by more brand enthusiasts. These are the shoppers that brands can least afford to lose, but
promotion stock management makes sure they are targeted to fail.
Promotions develop holes on the shelf when most people want to buy. This represents an opportunity for companies
to gain trial from their unaware competitors.
Less expensive promotion techniques can add value – and competitiveness to your packs between price discount
events to maintain volumes AND margins.

9

The Path to Loyalty – Step Two |

Introduction and Executive Summary

Turning the Presently Unknown into a Better Future
A promotion should do what price discounts are not doing for brands at the moment – build long term sales.
But price discounts can behave more like promotions if supported properly – and invested behind.
Solving availability issues improves promotion AND post-promotion performance at a stroke. That leaves marketers
with a choice: do much more with current levels of discount or deliver the same volumes at lower levels.
Price discounts develop gaps on the shelf. Well constructed pack promotions are very powerful - introducing
these, for example, increases pack competitiveness against empty spaces.
You can predict the demand that individual promotions bring to the facings. In this white paper, the IPM have tools
to help with price discounting, with measures for other approaches. Price Discounts have the ability to perform very
much better than they do at the moment, and understanding how much better is absolutely critical to growing your
brand without haemorrhaging your core users.
Key measures such as effective distribution – the extent to which stores are able to support their individual
customers (the product in the system and the store) – tell you how fast you can actually grow.
Key retailers have an honourable record of sharing epos data, the grist to the mill of distribution.
Marketing Departments, for whom constant availability has a very high priority, will find snapshots from this data
compelling reading.

Changing the Company Focus back to Marketing is a Must
Within the sales community it is almost universally believed that the problem with retailers lies with the store.
It is said that store managers fail to implement space and stock for promotions, and indeed, normally priced
product. This is known as compliance.
However, the large retailers run some of the most efficient and effective systems on the planet. Walk into any
store, on any given day and you can find a huge variety of produce from all around the world, at costs that
would have been unbelievable some years ago.
If Tesco ran the country, the aircraft carriers now being placed in mothballs would have been here by now, at
half the cost, and the grateful manufacturers would have thrown the planes in free.
Oh, and we would have all had Club Card points.
These systems are focused at retailer objectives – maximising the stock rate of turn, which has meant reducing
over time a store’s ability to manage rapidly changing demand on its own resources. Brands seem to believe
that, whatever demand they choose to throw at stores, stores will be able to cope. This is no more true than
expecting your production and the supply chain to cope if you treble sales overnight. Brands inform the one;
they also need to prepare the other.
While there will always be errors whenever people meet systems, they pale into insignificance with issues systems
can develop on their own. Properly-briefed systems empower their users, who do not then need to be coerced to
achieve results.

10

The Path to Loyalty – Step Two |

Introduction and Executive Summary

Stores are Markets with Individual Needs
While agreed planograms are typically built around store size, their shoppers actually determine the demand passing
making sure that the peaks in demand are smoothed to get back predictability for Just In Time systems. Delivering the
kind of smooth demand that will maximise the use of higher facings across the year is a win/win for retailers too.
Identifying the potential store impact of any investment you make is a vital first step to growth.

Problems

through the store. As a result, some stores empty their space much faster than others. Sensible brand growth means

Achieving this potential requires that price discounts be properly supported – they are not the easy option that they
seem to be if you have a care for your customers. Read the section from Gus Ormond from Simon-Kucher & Partners
on maximising the return across the store.

Solutions

A range of options exists to synchronise supply and demand once the level of additional demand is known.
These include:
1 Spread high demand impact out over a period so that stores can cope. Here we have put forward case studies on
doorstep couponing, and promotions on pack that improve shelf standout.
2 Reduce the discount to a level that allows the store to manage.

Here, as an example, additional space, with the stock to fill it would be one viable option.
The IPM has identified resources to move companies further down this road, and will continue to do so. Read the last
section on appropriate promotions, and send an email to insight@theipm.org.uk for the latest fact sheet.

Seizing New Marketing Opportunities
With 44% of product at risk of going out of stock on deep cut price promotion, adding value to the standard pack with
an on-pack promotion gives a competitive edge against the rest of the category.
The on-pack promotions featured in our last white paper provide excellent examples of the way that these activities
build demand, and in combination with social networking build awareness. Creative pack promotions provide shelf
take up and great social media opportunities – the Marmite and Kingsmill promotions show how creative executions
can deliver much more than just an incentive.
Companies using field marketing have an opportunity to use tailored on-pack promotions just where, and when, they
will do the most good (see Resources section).
Smart, demand-sensitive couponing outside the store offers a real chance to build new business. Doorstep couponing
targeted at shoppers around identified stores delivers a branding message that is a vital call to read as well as act.

11

Resources

3 Increase supply to identified stores to a level sufficient to meet demand based on in depth analysis of current sales..

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

The Anatomy of Shopper Demand – Can’t buy, Won’t buy
Summary
Retail promotions of all types are very important to shoppers. And failing to supply against an offer turns them
against the store and the product.

Problems

Price discounts are a predictable way of adding high levels of additional demand. As a result, getting the
supply in place to meet this ought to be easy. In practice, obviously, not so, since shoppers report real issues
in finding the products they search for.
Shoppers polled report that they often find shelves empty when they arrive for an advertised offer. When this
happens they are forced either to another product, or to a frustrated inability to buy. They report that under
these circumstances they blame the store but they also blame the brand. This is likely to mean that they
choose an alternative for either, or both in the future.
Shoppers who are forced to buy the competition can also be so impressed that 5% say they switch
permanently.
Understanding the level of demand that promotions deliver is critical to promotion planning.
Unless attention is paid to this, price discounts will remain a danger to brands.

Identifying Demand
There are many definitions of demand available – but the one below is useful for two reasons. The first is that it places
in context the really key element of supply. The second is that this is the definition presented to investors in companies,
and it is best practice use of this money, that companies need to be concerned with.
The amount of a particular economic good or service that a consumer or group of consumers will want to purchase
at a given price. The demand curve is usually downward sloping, since consumers will want to buy more as price
decreases. Demand for a good or service is determined by many different factors other than price, such as the price
of substitute goods and complementary goods. In extreme cases, demand may be completely unrelated to price, or
nearly infinite at a given price. Along with supply, demand is one of the two key determinants of the market price.
The Anatomy of Demand at Retail
Demand is produced by a combination of foreknowledge, experience of a product, and saliency at the point of
purchase. Is it there, and can it be seen to be there.
Demand is a desire to own, one which can draw a customer to another store, or into another area within a store.
Demand is of course, different from sales. Advertising campaigns can create demand - and if they are for a retail
product shoppers might search until they find it. At which point the demand turns into a sale.
If, however, the product cannot be found where companies say that it is, this creates a degree of frustration in
proportion to the expectation. Of course, you also lower the possible return from the investment in advertising.
Both of these are why authorities recommend a certain level of effective distribution before investing in advertising.
The Growth of the Deal
Over the last 9 years, the percentage of volume sold on deal (excluding Health and Beauty, Fresh and household
goods) has increased by 23%. Meanwhile over the same period the amount of money given away has doubled.

12

The Path to Loyalty – Step Two |



The Anatomy of Shopper Demand – Can’t buy, Won’t buy

2005

2010

% Volume on deal

35.8

38.5

44.0

% Promotional Reduction

18.5

19.5

21.0

Value sales £bn

37.9

40.8

43.3

Giveaway £bn

2.3

2.8

4.6

2001 & 2005 promotional reduction and value sales are estimated

Problems

2001

Source: IRI

It is vital to understand the very strong impact of promotions on the shopper, because it underscores why they become
so frustrated when they are disappointed at every level, not just when they make a special trip. Seeing a special offer
sign in store next to an empty shelf generates a level of frustration with the shopping experience, impacting on the
way the shopper will behave in the future. Box B reviews the way that shoppers report they respond to the frustration
brought about by lack of stock.

Solutions

But perhaps most importantly, from the brand owners’ point of view, are industry reports that if current trends continue,
margins will decline by 10% in 5 years.

Could the increasing lack of match between demand and supply in store be one of the main drivers for shopper
cynicism and the increasing impact of offers on brand values reported in our last white paper?

Working with fast.MAP and Promotional
Marketing magazine, the IPM polled 1,154
people carefully matched to the UK population
(Box B). 77% of these shoppers reported that
they had arrived at a store to buy an advertised
offer, only to find that it was out of stock
A further study with the same group (Box C)
went on to pinpoint the stores that they felt gave
them the most serious problems. Obviously, the
percentage that they reported was influenced
by the market share of the group, so while
the total figures are startling in their size, they
need to be related to the market size. When
you do this you see that the best performer for
its size is Waitrose, where shoppers actually
reported fewer issues than their market share
would indicate. In the following chart, Relative
Promotion Availability, the longer the bar to
the right, the worse a retailer delivers for their
shoppers. (The figure is based on store share
of shoppers reporting issues to store actual
market share.)

13

Resources

The Demise of Effective Distribution

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

One retailer missing from the analysis chart is Marks &
Spencer. With 11% of those consumers responding reporting
issues with promotional availability in M&S, the group would
have been another poor performer for shopper availability.
(Separate food market shares not available.)
It may, in passing, be no surprise that discounter Aldi
has been struggling, since in the first research 26% of
disappointed shoppers report that they would actively seek
to shop in another retailer – and anywhere else will deliver
a significantly better promotion result for the shopper than
Aldi. Stores that have managed promotions better on the
other hand seem to have weathered the storm better.
Sainsbury, as an example, has overtaken Asda in retailer
rankings, and Waitrose has been a growth star.
While stores obviously need to be concerned as
shoppers do report that they feel very disgruntled
when they find themselves out of stock, there are few
competitive alternatives that do any better. For brands,
however, this is a much more serious position.

Relative Promotion Availability
Waitrose
Sainsbury’s
Tesco
Asda
Morrison
The Co-operative
Iceland
Aldi
-1

0

1

2

3

4

5

6

How Important is Promotion Availability?
There is a well founded Marketing Law, that of Double Jeopardy, that places maximum effective mental and physical
availability, at all times (Box D), ahead of everything else as a marketing objective.
The Law of Double Jeopardy
This is an empirical law that says that, with few exceptions, lower market share brands have both far fewer buyers in a
time period and also lower brand loyalty.
Anything standing in the way of a purchase will not only set back the immediate sale, but also other, future, sales. (Box D.)
What this means to brands is that growing and maintaining effective distribution is absolutely vital. You get to be a big
brand by introducing your core products to more people than your competitors, and then making sure that you are
more available to them for re-purchase.
Knowing that promotions are so powerful, and that shoppers say stores are failing to keep up with this demand
requires promoters to think about the level of demand that they introduce.
What do Shoppers Actually do if they can’t find a Product they are Seeking?
Some previous research has already been done in this area, by the IGD in 2003. Clearly the impact will be different
depending on the product area. As an example, a staple product, with no alternative (such as perhaps bread or milk)
would have a different profile from a more discretionary product.
But for an average product the IGD found that 37% of shoppers would go to another store and 6% would not buy at all,
leading to a loss of 43% of intended purchases for retailers. 19% of shoppers would switch to a rival brand, which, when
added to the 6% who would not buy at all, would lead to a loss of 25% of intended purchases for manufacturers.
More recently a study commissioned by SCALA Consulting, the supply chain consultants, in 2009, found almost half
of those questioned said they would only tolerate products being out of stock two or three times before switching to
another supermarket. Nearly half of those quizzed said that if they couldn’t find their favourite brand they would simply
buy an alternative. This represents a retrograde step from 2003 for brands.

14

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

In a separate survey shoppers also report that trial for them is the most effective way of getting them to switch
brands. (Box A)

Problems

Yet many brands seem unconcerned. SCALA Consulting also commissioned a survey of some of the biggest
global brands and over a quarter of those questioned (26%) – representing a cross section from the FMCG and
grocery sector - did not view On Shelf Availability as a key success factor for their company. What is more, a third
(33%) didn’t have On Shelf Availability as a key business objective.
Box A Have any of the following promotional routes tempted you to do any of the following:
(please tick all that apply)

Switch brands
during promo

Permanently
change brand



%

%

%

Coupon or voucher (however delivered)

55

32

4

In store tasting

50

16

4

In-store money-saving promotion

48

34

4

In-store sample

47

20

5

Sample given with other purchase

41

21

5

Sample attached to other product

40

21

4

Door-dropped sample

39

20

4

Offer promoted in newspaper/magazine etc.

37

21

4

On-pack offer

37

24

2

In-store demonstration

34

15

4

Magazine cover-mount sample

29

14

3

In-store TV presentation

24

11

3

Resources

Buy product
you would not
have otherwise

Solutions




What does this all Mean?
Price Discounts have become a danger to brands as they are currently managed. If they are not properly supported
they will continue to fulfil the gloomy predictions of current forecasters.
Demand from Alternative Promotion Types
Promotions at the point of sale are undeniably powerful. Independent measures show that well produced on pack
activity has the same apparent impact on the shopper as erotic literature. Check Breakout Box B to see the impact
of a promotion on a shopper.
And of course the advantage of an on pack promotion is that it appears wherever the pack appears, but does
not make promises it can’t keep. And if the design is such that it increases shelf standout, then it also assists in
helping product to gain additional effective distribution.
Other forms of price discount, such as coupons, and in particular targeted doorstep couponing, can be phased so
that demand does not overload their local retailers.
These options are preferable alternatives to price discounts, and links and resources are available at the back of
this white paper.

15

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

Box B Why Matching Supply and Demand is so Important – for Brands
The Office of Fair Trading have published papers in support of their review of unfair pricing policies at retail.
One of the policies they have listed is bait pricing, which is the practice of advertising an offer without enough stock to support
the demand that this creates. This excerpt is from a report commissioned by them “Details of price framing experiments”
completed by London Economics with Steffen Huck and Brian Wallace.2
“They choose the store based on the deal they are being offered in the advertisement. This choice raises their willingness to
pay because they expect to get a deal and again envisage owning the good. Subjects reported that this frame enticed then to
go quickly to the shop with the best deal so as not to miss out. They reported anger and frustration if they missed out on the
offer in the experiment, however, they reported they may buy anyway.”
Few immediate downsides for the store
The first store that their testers visited benefited very strongly from the offer, selling more product. However, over time, the
research reported that shoppers learned (became cynical?) about these offers.
Taking this to the shoppers
The IPM worked with Promotional marketing magazine to commission research from fast.MAP to explore shopper reactions.
Research was conducted in July 2010 with 1154 people closely matched to the UK population.
84% of the panel regularly shopped at the same supermarket,only 35% of them do not make special trips to take advantage
of advertised offers, 26% do so often and 38per cent do so occasionally
77% of these bargain hunters arrived only to discover the item in question was out of stock.

Thinking about occasions when the product has been out of stock, please indicate how much you agree
or disagree to the statements below. Source, fast.MAP 20.7.2010
26%

I blame the retailer

38%

It will not affect which brands I buy

14%

37%

I am less likely to to that retailer’s
price promotion in the future

15%

36%

13%

It will not affect where I do my shopping
I am less likely to respond to price discount promotions
for that manufacturer’s brands in the future

7%

I will actively try to shop elsewhere

7%

I will actively try to buy rival brands 4%
I blame the manufacurer 6%
0%

36%
38%

18%

47%

9%
20%

Strongly agree

30%
Agree

2%

13%

3%
8%

27%

6%

31%

38%

8%

40%
40%

50%

60%

Neither agree or disagree

3%

14%

20%

46%

5%

10%

33%

36%

11%

8%

37%

27%

10%

22%

70%
Disagree

9%
80%

90%

100%

Strongly disagree

Bait Pricing damages both retail and manufacturer brands
As the OFT study predicts, Bait Pricing in action delivers badly for stores but also for the brands, in terms of destroying their
brand values over time
For the retailer, it is important to note that a quarter of these disappointed people said they would actively try to shop
elsewhere and half (51%) reported that they would be less likely to respond to that retailer’s price promotions in future. But
almost half, 49% say it will not affect where they do their shopping.
Manufacturers are by no means unscathed: 14% of the consumers surveyed said they would be quite or very likely to buy
the competition in future. That’s enough to take the edge off any upcoming marketing campaign. Meanwhile a third (34%) said
they will be less likely to respond to that manufacturer’s price discounts in future.
Of course, the one effect not reported at all by the above research is the impact on long term loyalty given that 77% of people
were forced to a competitive product. In the OFT research most people did not leave empty handed.

16

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

Box C Small Stores, and Inflexible Shelves give serious issues
Almost three quarters of shoppers have experienced
a retailer being out of stock of a promoted item and
it has happened to almost a third of these ‘very
often’ or ‘quite often’, new research reveals.

Consumers were asked to identify the retailers
where they had experienced promoted items being
out of stock and the big supermarkets were the
worst offenders. Worst offender is Tesco where 16%
more shoppers had experienced ‘issues’ than at
Asda where a quarter of customers had done so.

7%

Quite often

25%

Not very often

42%

Never

12%

I do not change
where I shop
because of
price promotions

15%
Source fast.MAP
1,107 responses

Solutions

Next there is a cluster at around 20% – Lidl, 21%;
Sainsbury’s and Aldi 19%; and Morrison’s 18%.

Very often

Problems

The research was carried out in October exclusively
for Promotional Marketing magazine by online
research company fast.MAP, among fast.MAP’s
Consumer Voice panel of 1,107 shoppers the profile
of which echoes the UK demographic.

How often have you made a trip to a particular
retailer purely because it has advertised a price
reduction on a particular product, only to find it has
run out of the promoted product?

Budgen’s and Waitrose were named by only 1% and
2% of shoppers respectively.
“Because they have the most customers, run the
most offers and promote them aggressively, it is
hardly surprising that the big name supermarkets
are the ones most shoppers named and shamed,”
says David Cole, MD of fast.MAP.

“Retailers would be wise to pay heed to the fact
that people do care about and remember out-ofstock disappointments. The research we carried
out for Promotional Marketing in July revealed that
more than eight out of ten shoppers blame the
retailer for out-of-stock episodes and a quarter of
disappointed consumers try to shop elsewhere
having experienced a supply issue.”

Please tick all the retailers at which this has happened.
19%

Aldi
Asda

25%

Co-op
Iceland

14%
6%

Lidl
Makro
Marks & Spencer

21%
2%
11%

Morrisons
Poundland

18%
2%

Sainsbury’s

19%

Tesco
Waitrose
Wilkinson
Other

Resources

The feedback is obviously dependent on the
market share of the stores. So the key measure
of effectiveness of their supply systems is the
difference between this and the retailer share of
the UK market. Here, the stores with the highest
percentage of small stores are the ones that suffers
the most.

You said you have made special trip(s) to particular
retailers in response to advertised promotions only to
find the promoted goods were out of stock.

39%
2%
8%
16%

Source fast.MAP

17

The Path to Loyalty – Step Two |

The Anatomy of Shopper Demand – Can’t buy, Won’t buy

Box D Why Matching Demand and Effective Availability is so Important
The Law of Double Jeopardy explained
One of the few real Laws in Marketing to be generally
accepted was formulated back in 1963 The name was
originally coined by sociologist William McPhee in 1963
and was applied first to awareness and liking scores
for Hollywood actors, and later to behaviours such as
listening to the radio.
Andrew Ehrenberg adopted these insights, and
showed that the law applied more generally to brand
purchasing [1]. Subsequently Double Jeopardy has
been shown in effect across categories as diverse
as laundry detergent and aviation fuel [2], across
countries and time [3].

Usage of Brand

Frequency of purchase
65%

Brand 1
39%

Brand 2
Brand 3

28%

2.5
1.2
0.9

Brand 4

25%

0.7

Brand 5

24%

0.7

Brand 6

17%

0.5

Top-selling brands sell to more people and have comparatively higher brand loyalty overall, while lowerselling brands sell to fewer people and have lower brand loyalty (as shown by frequency of purchase).
This is well expressed elsewhere as “For he that hath, to him shall be given, but he that hath not, from him shall be taken away
that also which he hath.”
What this means is that marketers of for lower-selling product should focus first and foremost on reaching all of the potential
buyers in a category. For larger selling product, maintenance of the position is similarly vital.
Professor Byron Sharp explains in his book ‘How Brands Grow’ (Oxford University Press) “We say that market share depends
on physical and mental availability”.
Mental availability refers to the probability that a buyer will notice, recognize and/or think of a brand in
buying situations. It depends on the quality and quantity of memory structures related to the brand. It is
also intimately affected by the brand presence at point of sale. Does it shout to be noticed.
Physical availability, means making the product as easy to buy and available as possible, to as many
shoppers/consumers, across as wide a range of potential buying situations as can be found.
There is a very positive marketing reason why promotion availability needs to be as near 100% as possible – it is only under
these circumstances that both new and existing users can buy the product, giving at least the chance of extending the
market as a result.
There are only two potential known deviations from the Double Jeopardy rule:
1 A brand with unusually low penetration and consequently higher loyalty constituting its market share (known as a niche brand);
2 Unusually high penetration and low repeat-purchase rates.
Known examples include:
• Retailer own brands – because of their restricted distribution these brands’ market share is constituted of low overall
penetration and consequently unusually high repeat buying.
• Hispanic TV networks in the USA – because most US viewers do not speak Spanish these networks have few viewers but
these fewer Spanish speaking) viewers watch for an unusually high number of hours compared to viewers of similarly

rating networks.

• Seasonal brands (e.g. chocolate Easter eggs) – for their respective market shares these brands have an unusually high
penetration and low repeat-purchase rates.
1 Ehrenberg, A.S.C. (1969) “Towards an Integrated Theory of Consumer Behaviour,” Journal of the Market Research Society,
11 (No. 4, October), 305-37.
2 Ehrenberg, Andrew S C, Gerald G Goodhardt, and T Patrick Barwise (1990), “Double Jeopardy revisited,” Journal of
Marketing, 54 (3), 82-91.
3 Ehrenberg, Andrew S C, Mark D Uncles and Gerald G Goodhardt (2004), “Understanding brand performance measures:
Using Dirichlet benchmarks,” Journal of Business Research, 57 (12), 1307-25].

18

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

Where Supply Systems Fail Shoppers
Summary
Stores dramatically under perform for many price discounted products. This is not related to store staff,
but to store systems that base their supply on historic sales and not on demand.

Problems

Problems

The opportunity exists to double or more sales during these periods (for the deepest cuts) or to reduce
the incentive, and get the same level of uplift as companies are currently getting. Conservatively of the
£14 Billion spent on price discounting, £3 Billion should be retrievable. We would recommend moving half
of this out to bolster product competitiveness outside price discount periods.
Stores are unable to support promotions better without much higher levels of stock availability than at the
moment. However, stock levels required have to relate to the demand that is going to be generated by the
offer that is being made. This applies to all types of promotions - but most particularly to price discounts.

A secondary benefit of getting promotion management right is you also get post promotion sales benefits.

Solutions

Key to product development in major retailers is performance outside of the top 200 stores.

Falling Through the Gap in the Middle

The solution – Just in Time supply (JIT) – has been steadily improving over the years. The philosophy of JIT is
simple: inventory is waste. The supply chain is geared to just delivering enough to refill shelf gaps, and no more.
Another useful feature of a JIT system is the release of storage space in shops for sales display / checkouts. You can
easily see how this impacts on store design with the growth of additional non-food ranging on the same footings.
The percentage devoted in new stores to stock as opposed to sales space has also changed over the years.
JIT faces difficulties under certain economic environments. Both Karmarkar (1989) and Aggarwal (1985) identify
that Just in Time systems cannot cope with increasing rates in demand. JIT assumes the production rate at final
assembly is even; Aggarwal (Aggarwal, S. (1985). MRP, JIT, OPT, FMS. Making sense of production operations
systems. Harvard Business Review, 63(5), pp. 8 12.) specifies that a JIT master production schedule cannot tolerate
load fluctuations of more than 10% and that it breaks down under larger deviations from average conditions.
The same considerations apply to retail shelf supply.
Economists such as Maury Harris, who heads PaineWebber’s economics unit, speaks for many in stating that for
this reason, JIT may not be fully appropriate for management in all economic environments (Bleakley, F. (1994,
October 25). Just in Time inventories fade in appeal as the recovery leads to rising demand. The Wall Street
Journal, p. A2.).
Discussions with organisations representing UK supply chain experts reveal that Just in Time supply parameters
are mainly set by retailers, and were envisaged within an environment more akin to EDLP (every day low pricing)
than the current wide swings of demand.

19

Resources

As retail businesses consolidated from the mid 1990s they tended to demand both more and less from their
suppliers. These clout-wielding customers demanded more service, more discounts. At the same time, they
demand less supplier product in their own inventory pipeline. The reason for this is simple. If you are discounting
your margin to give you a competitive edge against other retailers, the speed with which you can turn your capital
employed (stock) is what makes the difference between success and failure.

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

It is only to be expected, then, that the strains that the JIT systems are experiencing will show in sales performance.
Whether or not this is important depends on your perspective. From the point of view of the retailer, the fact that a
shopper can typically find an alternative a few feet down the facing, means, rightly or wrongly, there is much less focus.
From the point of view of the brand owner, this has a number of very worrying implications as the chapter on demand
lays out.
The free availability of sales and stock data from the major FMCG retailers offers an unparalleled opportunity for a
window on the shopper. This can be integrated with a great deal of additional data to provide a vision of opportunity to
grow, as well as the chance to maximize current distribution.
The following analyses are based on over 1,000 product/discount promotion combinations covering brand leaders,
and second brands from companies of a range of sizes, across a broad range of categories, and also multiple retailers.
Work has been done within the independent channel where issues are of the same type, but typically worse. In this
area, however, the position is complicated by the fact that many independent managers buy promotion stock not for
use in the promotion, but to make additional profit afterwards sold at the normal price. As a result the assumption that
stock levels in store are for immediate use is unsafe.
We know that JIT for the multiples means that there is very little spare space in storerooms, so stock has to find its way
to the shelf, if only to free up storage space.
The way that a store system recognizes that there has been a sudden increase in demand is by the additional amount
that has been sold – and then replacing that amount as part of an agreed replenishment cycle. Store staff, of course,
only find out about promotions at the last minute. Except for the very largest promotions, they will have only a limited
view of the extent of the volume uplift envisaged.
Store managers can override systems of course, if they know better.
The deeper the discount, the greater the demand, and the harder an individual store finds it to increase shelf supply to
match demand before the end of the promotion. The result is that the sales uplift that a level of discount delivers falls
further and further behind demand as the discount level increases.
To get to the charts in this section every included discount offer was individually analysed, taking as the comparison
period volume sales from a two week average just before the promotion. We then identified the average sales across
the promotion period, and for 3 weeks afterwards (or as many non-promoted weeks as are available) to give an uplift
multiplier. We did the same for stock.
You might expect to get something of a normal distribution around the mean, or a single distribution with a long tail.
What we find, though, is that there are two distributions - stores that perform well, and those that perform badly - with
uplift as the key criteria.
In the charts, where we refer to above and below average, we are defining these as being outside a 20% band either
side of the mean. You can see that the performance difference is vast – at the top end, the good stores perform seven
times better than the bad ones.

20

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

Just looking, then, at how the promotions
performed, there are 3 conclusions to be
drawn from Chart 1:

Problems

1 The demand curve is much steeper
than the supply curve;
2 The sales gap between the average
performance and the better performers
grows markedly as offer strength
increases;

Solutions

3 Poor performing stores show very little
ability to match supply to demand –
their profile hardly changes.

Chart 1 – Uplift Promotion Unit Sales Multiplier from
pre sales 1 is 100% additional sales (ie doubled).

The number of stores in each performance
category is also interesting. Bearing in mind
that there is a 40 point gap between top
and bottom, less than 20% of the stores
are actually in this average band, with more
stores performing badly than perform well.

Resources

Stores with Best Promotion
Response also do Better Afterwards
It is also interesting, in the light of all the
discussion on price discounts themselves
being responsible for declining brand
values, that the average and above
average performers are also typified by
sales that are better after the promotion
than before – and here we are looking
at the average sales in a 3 week period
directly after the discount period. This is
not always the case: for one or two brand
sales after sales are uniformly worse than
before. In these cases, the larder fillers,
the best performers position reverses –
we find that they are much better at filling
the larders and their post performance is
the worst of the three. Again, the average
stores are sitting in the middle.
Of course, the 40 point gap that is used
here in no way represents how well a store
could do with the right resources.

Chart 2 – % of stores in each performance category
Average volume sale before and after the activity. The blob size
represents the number of stores in the three categories.

Chart 3 – Stores with the greatest promotion uplifts also
recover better in the immediate post promotion period

21

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

What Makes the Difference?
Store stock for the first day of the promotion is critical for promotion success.. Breakout Box B shows the relationship.
Of course, the calculation of the necessary stock for an individual brand to succeed properly is complicated, since it is
dependent on the price sensitivity of the product, the retailer and the shelf space
Developing a strategy to fix this is entirely dependent on understanding of exactly where supply fails to meet demand.
We already know that any unfulfilled demand loses both immediate sales and long term loyalty - and this impacts down
to any size of store. Only if your company focus is solely on volume with no other consideration can you ignore the
smaller stores. For many companies, these smaller stores actually deliver more than half of leading product sales (see
Box A) – even if they are spread over many more stores. Typically, as well, smaller stores find it harder to cope with
rapid increases in demand, which is why overall the poor performers have a rank order on average 20% greater than
the good performers (larger rank order = smaller stores). This does not mean that there is a big size divide between
poor and good performers. But that there is a tendency for smaller stores to struggle more to satisfy shoppers
properly.
How Much is Actually Missing?
This will, of course, depend on the extent of the discount, and the subsequent uplift. But the average for a typical
BOGOF or half price offer shows that what appears to be an average uplift of 6 times is a demand uplift of 14 times
that all the stores could reach, but over half fail to.
In effect, overall sales could be 1.8 times what they currently are, with the additional benefits after the promotion for
most brands.
Or the same uplift could be delivered for much less discount. This could mean a saving of nearly half on current
budgets – against current spend of £14 Billion.
However, when estimating budget impact it needs to be borne in mind that many companies actually make a loss
on promotions, so additional volume is not an option. Moreover, in some driver categories, the alternative option of
reducing discount is also not an option.
Bearing this in mind the maximum possible saving is likely to be of the order of £3 Billion. We recommend that
companies aim to claw back half of this in less expensive discounts, and re-invest the remainder in building brands
between discounts.
Developing Solutions
There are a variety of ways of matching demand and stock better, working with store systems at store level or centrally.
They all absolutely require a foreknowledge of the level of demand, as well as the levels of store-by-store stock
available, if they are to be accurate, and produce a strategy appealing to retailers as well.
Retailers have a long-time commitment to reducing, and not increasing stock, so a balance must be reached based on
improved sales, and, critically, shopper satisfaction.
We have researched resources available to help brands and retailers to achieve this – but they are all based on
analyses of brand position based on work carried out by the University of Westminster working with the IPM, that you
can see outlined in the next chapter.

22

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

Box A Smaller Stores Hold the Key
The key retailers are expanding into smaller
formats, as well as into services. The impact of this
means that the focus that manufacturers used to
have on just the largest stores now means that they
miss out on most of the demand for many products.

£120,000
£100,000
£80,000
£60,000
£40,000
£20,000
£0
100 to 199 200 to 299 300 to 399 400 to 499 500 to 599 600 to 699

0 to 99

Bread and morning goods area
Sum of Value
£140,000
£120,000
£100,000
£80,000
£60,000
£40,000
£20,000
£0
100 to 199 200 to 299 300 to 399 400 to 499 500 to 599 600 to 699

0 to 99

Spirits sales in extended Tesco distribution.
Sum of Value
£120,000
£100,000
£80,000
£60,000
£40,000
£20,000

1,001 and above

801 to 900

901 to 1,000

701 to 800

651 to 700

601 to 650

551 to 600

501 to 550

451 to 500

401 to 450

351 to 400

301 to 350

251 to 300

201 to 250

151 to 200

£0
101 to 150

If you go on to include all the stores in a Tesco fascia, for
this major drinks brand 56% of the sales are made outside
of the top 200 stores. While the larger stores may be easier
to keep an eye on the smaller stores retain a real potential
to disappoint shoppers in extended distribution. And, of
course, distribution is the driver for growth.

£140,000

1 to 50

Between these extremes there are products that have
elements of impulse about them.

£160,000

Resources

The most extreme curve relates to products like bread or
morning goods. Here the sales are pretty close to store
footfall. And even in this case 51% of sales are made
outside of the top 200 stores, not including any sales made
in a further 1000 stores in the case of Tesco.

£180,000

51 to 100

The following charts, however, tell a similar picture for other
product areas.

Sum of Value
£200,000

Solutions

Multipacks dominate in the larger stores, and individual
packs sell well in the smaller stores. The rank order
represents store size – which ranges from 1 through to over
1000. For this range the vast majority of sales are made
outside of the top 200 stores. This pattern is common
for very many brands. While the top 200 stores might
predominate in volume sales, this is because they are the
home of the minor variants, which are competitors for
space and sales of the lead variants.

Total sales made in stores by rank order of their
total sales, all products – smallest number =
largest store in all charts in this Box.

Problems

As an example, this chart is for a major soft drink product.
In this case 61% of the sales are made outside of the top
200 stores. In the case of Tesco, with an estate running to
the thousands, the percentage of sales made in the very
largest stores is, of course significantly lower yet.

23

The Path to Loyalty – Step Two |

Where Supply Systems Fail Shoppers

Box B Relationship between Stock and Performance
How much stock and where?

Stock Cover / % Uplift

Stock cover before a promotion
presages performance during that
promotion as well as after it is over.

12

In fact the stock ratio has to
be significantly higher than the
expected uplift in order for stores
to have a chance of reaching full
potential, and the higher the stock
ratio before the activity, the higher
the levels that can be reached.

8

Chart 1

10

Stock levels (blue bar) and Promotion Sales
both as a percentage of pre-product sales.

6
4
2
0

Above average

Average

Below average

We noted in the first white paper that there was a link between stock levels and sales uplift. At the same time we also
noted that, while excellent uplifts were available from price discounts, and were linked to the amount of stock available in a
store, the general lack of stock in systems made it almost certain that the current best uplift – and the best response to the
demand – is reached in very few promotions.
Best practise means treading a line between too much stock, which is unacceptable to the retailer, and too little, equally
unacceptable to the shopper.
Of course, for the average promotion, if the first week uplift is 8 times and the stock cover is 11 times (as for the
above-average promotions) most of that stock will go in the first week. For the second week the store will depend on
replenishment to manage. Even if the forecast is 50% off, the additional stock would still have disappeared by the end of the
second week.
Get the forecast right, and the risk is low for the retailer. However, forecasting, as you will see,
is rather more than simply putting up a wetted finger to see which way the wind is blowing.
Fortunately the main reason why stores have an issue with stock relates simply to the fact
that some stores have more of the right kind of shopper than others, and a supply and
space allocation that is geared to the average struggles with better demand – but handles
worse demand easily.
This excerpt from a performance profile chart shows the difference between stores with
a high proportion of Wealthy Executives and those with Struggling Families in the store
catchment areas for an upmarket snack product. Across a range of stores on promotion,
the stores supplying Wealthy Executives either did much better – when they had good
supply – or much worse, when they did not.
Stores supplying a preponderance of homes with Struggling Families, less well off, did not
have the potential to perform so well, and, as well, did not lose so much if the stores had
an issue. However, the scale, in units per week should be extended across a typical 3 week
promotion. Moreover, it should be recognised that a bad performer should become a good
one. Meaning that the difference for a core store is actually 170 units per week, plus, of
course, the real benefits of better performance afterwards.
The performance profile for different products are very different, depending on their core
consumers. The difference depends, as well, on the stock and space cover they have
for their normal sales. So negotiating more space will improve the performance profile.
Not having enough stock in the stores, combined with high levels of additional demand
(big price cuts) will make it worse.
Some of the worst performers are wines, where the difference can be up in the region of
1,000 bottles a week or more.

24

Volume Difference
vs Average
80
60
40
20
0
-20
-40
-60
-80
-100
-120
Wealthy
Executives

Struggling
Families

Chart 2
Promotion Uplift
compared to store
potential. Blue is Good
Performer, Red is Poor
Performer and Brown
average. Though even
these could do much
better.

The Path to Loyalty – Step Two |

Developing ‘win-win’ Promotional Calendars with Retail Partners

Developing ‘win-win’ Promotional Calendars with Retail Partners
Simon-Kucher & Partners

Summary

Problems

Gus Ormond is a Director with Simon-Kucher & Partners, specialising in consumer goods and promotional
management. SKP is the world’s leading pricing consultancy and advises leading companies on a range of projects to
deliver smart profit growth. Gus spent ten years working in commercial roles at PepsiCo.

Managing promotions is one of the most important issues facing the consumer goods sector in 2011, with increasing
discount levels exerting significant downward pressure on margins. Given the sheer number of events consumer goods
companies are now running, getting promotions under control can appear a daunting prospect. However, companies
with the right strategies and a strong management process can achieve significant profit improvements.

Solutions

Solutions

Simon-Kucher identify five key steps to realising that potential value:
1 Develop a promotional strategy that gives you the right framework to build your calendar;
2 Identify which packs and promotions work best for your brands;
3 Create a strong calendar planning process that allows you to maximise your profits;
4 Look at promotions not only from an internal perspective, but also from a retailer and
category perspective;

Developing strong promotional management takes time, but each step should deliver profit upsides. The more
expertise you develop the more value you can realise, and even a pilot project can help you to start reaping the benefits.
The hardest part is often making the first step.
The promotional challenge
Every senior executive of a consumer goods company will have promotions somewhere near the top of the to-do list in
2011. Simon-Kucher works with a wide range of consumer goods companies and there is no other subject more likely
to provoke a furrowed brow. There’s no denying it’s a complex and time-consuming subject, but the rewards for getting
the promotional monster under control are enormous.
It’s no exaggeration to describe price promotion in the UK consumer goods industry as a monster. Over the last 15
years the frequency, depth and costs of promotions have grown inexorably and that growth is accelerating. In many
categories discounting has become a zero sum game or worse. The promotional calendar for an individual category is
already jam packed and ever increasing discounting levels are required to stay ‘competitive’.
Added to this, relationships with retailers are often combative and promotions have become a key bone of contention.
Promotions are central to retailers’ and suppliers’ competitive strategies, but these objectives are often not aligned.
Retailers push suppliers to fund ever deeper promotions, with suppliers pushing-back on both discount and funding
levels. Retailers also want suppliers to fund ‘market-leading’ deals linked to corporate marketing activity. Suppliers who
don’t fund these activities find themselves losing promotional slots and market share in their categories.
There is also conflict within suppliers themselves, as different account teams compete to get the best deal for their
customer. With mysupermarket.co.uk giving a real time view of in-market price to your buyer, the pressure to match or
beat deals in other retailers is unlikely to ease.

25

Resources

5 Put in place the infrastructure to sustain promotional management.

The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

1. Setting the promotional strategy
In many cases promotional strategy is owned by a wide range of stakeholders: senior management, sales, marketing,
supply chain, finance to name just the obvious candidates. It’s not unusual to have multiple objectives (e.g. drive trial, secure
listings, hit sales targets and drive incremental profit) all influencing the same promotional calendar. In this situation the sales
team has the near impossible task of trying to reconcile all these conflicting needs and still hit their targets.
Having a clear promotional strategy is the key foundation to building the ‘right’ calendar. In the real world this involves making
trade-offs and prioritising some objectives over others. We commonly work with clients at the start of projects to develop an
aligned commercial strategy for promotions. The key stages are:
1 Understand the objectives of different stakeholders ;
2 Score these objectives in a quantitative way;
3 Bring the stakeholders together to agree the priorities and make the trade-offs;
4 Stress-test the output against the broader corporate strategy.
Equally it’s important to understand how your brands react to promotions. For example is your brand expandable (i.e. if
shoppers buy more on promotion do they consume more) or do consumers simply load the pantry? How substitutable
is your product (e.g. do you steal from other categories when you promote)? What is the relative size and penetration of
your brand? Answering these questions will help determine what type of promotions you should run. For example if your
category is not highly expandable, single pack deals may be more attractive than multi-buy promotions, as they are less
likely to ‘block the pantry’.

Box A There are a number of ways to get a better understanding of how your
brand reacts to promotions:
1 Analyse volume performance over the 4-6 weeks following a promotion to identify if underlying sales fall off
and whether there is a ‘pantry-loading’ effect.
2 Simple consumer surveys to understand how promotions influence shopper behaviour during and after a
promotion.
3 Use panel data (e.g. Kantar, Dunnhumby, etc.) to understand how shopper behaviour is influenced by
promotions in your category. For example where do sales switch from, what impact is there on frequency,
what impact is there on weight of purchase, does this differ by brand?

With a clear context and strategy you can determine the objectives
and key performance indicators for your promotions.

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The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

2. Identifying the right promotional mechanics

Box B Simon-Kucher promotion post-audit methodology
1 Build detailed calendar

Solutions

There is, therefore, no substitute for post-auditing different promotions over a 1-2 year timeframe. Many companies have the
raw data already, and this database of promotions enables you to identify which promotion types perform for you, as well as
enabling you to predict how new untried promotional mechanics may perform. Box B provides a more detailed description
of how we approach promotional analysis.

Problems

Different promotional mechanics have an enormous impact on the uplift and incremental profit a promotion generates.
Consumers will react very differently to the same price discount, depending on how it is presented. For a product with an
everyday price of £1.49 a Half Price promotion can perform far more strongly than a 74p pricedown on some products.
Equally on a different product a 74p price point may appear a very attractive price point. Simply plotting percent discount or
absolute promoted price and expecting consumer demand to react in a strictly mathematical way will lead to sub-optimal
decision-making.

• Deal start and end dates, mechanic (e.g. 2 for £3) and shelf price
• Display type and other feature
• Actual in-store execution levels (display, space, etc.)

Resources

2 Volume lift analysis

• Gather sales-out data (e.g. IRI, Nielsen, retailer EPOS)
• Model base run rate before promotion and analyse incremental lift
• Identify any cannibalisation of other products

3 Promotional economics
analysis

• Calculate baseline and promotional revenues
• Add cost of goods and identify incremental profit by promotion
• Estimate retailer margins and retailer incremental profit

4 Key promotion drivers

• Analyse the multiple factors that influence promotional lift
• Store-level analysis to determine the role of display, space, etc.
• Statistical analyses to determine which are the key drivers of lift

5 Category impact of
promotions

• Analyse competitor dealing calendars and estimate trade margins
• Analyse impact of promotion on shopper panel behaviour
• Determine impact on category sales and profit of different promotions

What this methodology delivers:
• Accurate data on the incrementality of each promotion
• Full understanding of all financial metrics from a supplier and retailer perspective

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The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

In determining which type of mechanic works best for your brand there are no hard and fast rules. There are a number of
factors that influence how a mechanic performs and they tend to differ by brand and retailer. To name just a few








Consumption patterns for the brand
Shopper buying patterns for the brand
Consumer perception of the brand
Pack size/weight
Everyday price levels and price perception
Shelf space and on-shelf execution
Retailer promotional strategies and advertising

In a recent project we found that there was no consistency between the relative performance of Half Price and BOGOF
promotions across a category. Despite the promotional price and per cent discount being identical, there was a clear
difference in performance between different brands and pack size within individual retailers. However, on one pack (Brand B
large) there was a clear benefit to Half Price promotions (Box C). In order to really understand your promotional performance
you need to analyse promotions individually.

Box C Comparison of Half Price and BOGOF deals in a Simon-Kucher project
Retailer A – BOGOF generally performs better
% Uplift vs Baseline

% Uplift vs Baseline

560%

520%

485%

480%

Retailer B – Half Price generally performs better

460%
415%

275%

260%

Brand A
Small

Brand A
Large

Brand B
Large

Brand A
Large

Brand B
Medium

Half Price

BOGOF

Half Price

BOGOF

Half Price

BOGOF

Half Price

BOGOF

Half Price

BOGOF

Half Price

215%

BOGOF

305%

Brand B
Large

Source: SKP project anonymised

305%

280%

The promotional mechanic is only one of a number of factors that influence promotional performance. The level of in-store
execution is a key driver. Our analysis of promotions in different categories has found that store-level execution is often very
different from the planned or agreed execution. In practice store managers have considerable influence over what goes on
display. In a recent project we found that many stores were putting the product on display outside of head office guidelines,
driving higher uplifts than predicted.
As you have seen above, stock levels on promotion can vary widely, which can also have a significant impact on uplifts. The
amount of space allocated to a product both on and off-shelf is a critical driver of performance. Tracking actual execution
levels of promotions (display, space, stock, etc.) is an important element in accurately post-auditing performance.

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The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

Box D Knowing which execution levers to pull and where to pull them is
critical to driving maximum promotional uplifts
What you manage at store level:

1 Promotional pricing and mechanic

1 Promotional space and gondola end display

2 POS and in-store displays

2 Off-shelf displays (pallets, dump-bins, etc.)

3 Gondola End allocation

3 Promotional stock levels

Problems

What you manage at head office:

The importance of promotional stock levels is covered in the next section.

Solutions

Once you have a good understanding of which mechanics perform, you can start building a stronger
promotional calendar. Knowing which promotions generate the best returns also allows you to start
improving profitability quickly.
3. Building the right promotional calendar

The role of the calendar (Box E) is to determine the pattern of promotional activity (frequency, depth, number of brands, etc.).
This depends on the nature of the brand and the strategy you have adopted. Calendar planning should also cover all the key
retailers and channels. One of the most important objectives of the process is to ensure that promotions in one account or
channel do not have a negative cross-read impact in others.

Box E Developing a strategic promotional calendar
Key inputs into the calendar

Key elements of the calendar build

1 Rigorous understanding of previous
promotions and the key factors that
influenced performance.

1 Build individual account calendars, using
promotions that have performed well
previously and new mechanics based on
previous performance.

2 Overall commercial plan for the period,
to allow promotions to be tied-in with
marketing or other consumer activity.

2 Bring account teams together to understand
cross-read issues and supply-chain constraints.
Iterate plan to create channel calendars.

3 Overall strategy and financial targets for
the period.

3 Roll-up total plan to assess financial impact.
Gain alignment to the plan across senior
management and commercial team.

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Resources

A good promotional calendar is not just a piece of paper with a list of promotions; it’s the process to turn a strategy and a
list of mechanics into an executable plan. A promotional calendar should encompass all the commercial activity within a
particular retailer and work across retailers and channels. Price discounting is not the only option, as you have seen above,
and a good calendar should contain a variety of tactics.

The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

Determining the correct discount levels for a brand is often one of the most contentious questions. Retailers will always
push for the most attractive possible promotion, and there is often a clear trade-off for suppliers between sales and profit.
We would always advise clients to follow a balanced approach, only proposing deeper promotions where you can do so
at a reasonable return. For example in a recent project Simon-Kucher identified that a shallower more frequent promotional
strategy would deliver much greater returns for one key brand, than the current less frequent and deeper promotional
pattern. The deeper promotions performed strongly on some of their other brands, and retaining these promotions was
important in maintaining engagement with the retailer.
A calendar planning process should aim to get ahead of retailer, competitor and supply chain issues. Planning 6-9 months
ahead allows time to make trade-offs and also allows time to revise the plan. Things will inevitably change, but it’s easier to
make snap decisions when a framework and strategy already exists.
With a process in place to plan promotions you will begin to develop more informed promotional
strategies. As your stock of promotional audits increases, so will your ability to build your calendar
to maximise profit.
4. Developing a ‘win-win’ Promotional Calendar with Retailers
Understanding promotional performance from your own perspective is vital to developing an effective promotional strategy.
However, the ability to analyse promotions from the retailer and category perspective is the key to successfully implementing
that strategy. We hear frequently from clients “We know what the right strategy is, but the big supermarkets won’t listen ”.We
believe that you will not truly know what the right strategy is, unless you know whether it works for your retail partners as well.
The first step is to fully understand the retailer strategy, both at a buyer level, but also at a more senior management level. If
your buyer is focussed on margin, you should ensure that the promotions you propose are margin accretive. Similarly if the
senior management is focussed on share, your promotional strategy should support this objective.
The second and most simple step is to ensure that all the analysis and planning of promotions that you do includes retailer
margin. A good test of your promotional calendar for a subsequent quarter is whether it is margin accretive at a per cent or
absolute level vs the prior year. A buyer is much more likely to be receptive to a shallower deal if the margin upside is shared
between the retailer and supplier.
The more advanced step is to develop an understanding of how your promotions impact the category. A promotion which
has a low level of cannibalisation of your products may drive little true incrementality for the category, and be unattractive to
a retailer. Shopper panel data and consumer surveys can often give a good idea of how much volume is stolen from within
the category. Understanding how your promotions perform versus the competition can often be the most insightful data for a
retailer, and proposing a calendar that balances retailer’s and supplier’s profit is a powerful win-win.
The diagrams below show how promotions that appear the most attractive to a supplier may not be the most attractive to
a retailer. The most effective calendar from a category perspective may be the one with a mixture of promotions that drive
different results.

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The Path to Loyalty – Step Two | Developing ‘win-win’ Promotional Calendars with Retail Partners

Box F Developing an optimal calendar for the category
Example – Supplier profit vs retailer profit

100

50

Retailer makes
profit, supplier
loses money
Use tactically

Profitable for
retailer and supplier
Increase frequency
of this promotion

Loses
money for
both
Remove
Retailer loss-making,
but strong supplier profit
Re-balance
market share

-50

0

50

100

2 Use
strategically

1 Protect and
sell to retailer

4 Remove from
calendar

3 Re-balance
margin share
Supplier Profit

150

200

Supplier Profit

Solutions

0

-50
-100

Retailer Profit

Retailer Profit

150

Problems

Framework for developing a ‘win-win’
promotional calendar

A good promotional calendar will focus on building
promotions in box 1
Promotions in box 2 & 3 can be used strategically
Promotions in box 4 should be eliminated

5. Putting in the Infrastructure to Sustain Promotional Management
Getting your promotional calendar right should not be viewed as a one-off project. The commercial environment is fluid and
a promotional strategy that worked in one quarter may not be appropriate if external factors (e.g. competitor activity, retailer
strategy, etc.) change significantly. Managing promotions effectively requires buy-in across your organisation, good quality
data and an on-going process to manage calendars.
That doesn’t mean you should go out and invest significant amounts immediately. Kick-starting the process with a study
of previous promotions for a specific brand or retailer is a good place to start. The data you gather should give you the
evidence you need to justify a larger investment. Executive teams always want to see the money before making a bet on
something new and untried in the organisation. Even a limited study can identify optimisation opportunities and you will find
the account manager or brand owner becomes your most effective advocate internally.
However, in order to realise the full upside potential having a dedicated resource is vital. The analysis required is often
complex and requires experience. Managing multiple retailers and channels adds complexity and more stakeholders
to manage. In addition the individual or team needs to build links across multiple functions (Sales, marketing, finance,
supply chain, etc.).
The return on investment for a promotions team is frequently very high, as even small changes to
promotional calendars can generate significant profit impact. A planned approach to promotions can,
over time, turn them from being a challenge and a drain on your P&L to a strategic lever that enables
you to hit your objectives.

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Resources

Getting the category perspective on promotions enables you to get on the front foot with retailers and
use promotions to achieve joint ends. The results of your analysis should form the basis for your selling
story to your retailer partner.

The Path to Loyalty – Step Two | Managing Price Discounts and High Incentive Promotions

Managing Price Discounts and High Incentive Promotions
Summary
Sales and Marketing are producing diametrically opposite effects from their promotions activities.
Sales sponsored price promotions use costly incentives. These lose loyalists as a result of overincentives, and
undersupply. Marketing promotions work hard, and successfully, with much lower incentives to bring new people
into the brand.
Both sets of activities, however, working together and properly coordinated, have the potential to grow brands and
retailer traffic.

Solutions

Companies need to have a single objective – maintaining and growing core geo-demographic areas – and all the
stores (relatively size independent) that supply them. The objective is improving availability and presence in that
area for core shoppers. These areas offer the greatest growth opportunity coupled with the biggest downside if not
supported
Price Discount levels need to be reduced – recycling some of the saved budget to develop additional store support
means for many brands, subsequent volumes could be the same, or better. Stock cover at the start of promotions
needs to be increased substantially in line with demand NOT historic sales. These increased stock levels improve
promotion uplift, sales afterwards AND stock cover afterwards.
Investment in lower level, smarter promotions between discounts builds shelf sales and presence across the rest of
the year.
Brands need to develop a cross discipline target that both can independently achieve with a single core objective

Building physical and mental availability in core stores over time
This approach is a win/win with retailers since it improves stock turn at higher levels of return right across the year.
All new promotion activity needs to support brand values at the same time as incentivising sales (see the alternative
promotions section).
Basic Objectives
• Reduce the level of Price Discounting, while increasing volume sales and ROI by increasing pre-promotions stock cover
in all stores and space in core stores (those with the highest proportions of target market in their catchment area) working
with store management.
• Core stores have the greatest potential to deliver increased discounted sales, as well as normal-priced shopper uptake
and loyalty. All it takes is increased stock supply and additional space in targeted stores. (Box A, page 34.)
• At the moment core stores are a focus for lost sales and customers as a direct result of their current stock issues
(Box B, page 35.)
• Continue to increase sales in these core stores vs the competition by increasing demand between discounts using a
range of promotion techniques.
• Making sure that all activities also reinforce the brand image, are not solely price based (such as store couponing) and do
not overload store supply systems.

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The Path to Loyalty – Step Two | Managing Price Discounts and High Incentive Promotions

The Company Focus for Sustainable Growth
Cross Company Shopper Objective

Problems

Two of the biggest brands in the market, Walkers and Warburtons, have been built by establishing dominance in a
regional market before moving on. This is a really effective strategy in that it is allows both advertising and sales budget
to be very tightly focused, so they appear to dominate the market. It also makes it almost impossible for national
competitors to fight, since their strength is much more spread.
These learnings need to be re-invented for an age where the target for most brands is not regional, but geo-demographic.
Core stores are those serving areas with a much higher percentage of households with a known interest in the product –
the target market for the brand’s media and advertising.

Solutions

Media buying selects channels with a higher proportion of likely users. Stores and their catchments have a much higher
targeting potential than this. You will sell much more champagne in Canary Wharf than in Merthyr Tydfil.
Unfortunately, retailer store layouts and the store supply chain are both less flexible than they need to be. This can,
however, be easily fixed, as Warburtons have shown.
Core Shopper and Store Targeting

Resources

Put your investment behind the 20%+ of stores representing many more core shoppers. Here you can demonstrate
immediately the impact in both of the two markets (Discounted and Full price) on your core consumers. The remaining
stores can typically handle discount demand better.
In order to justify the expense this growth objective needs to be shared with the stores who will be the beneficiaries of
the investment. Store managers have significant discretion in the way that they manage local demand. Of course, if this
is not the case, the information needs to be fed back to reduce investment in this area.
Check out the resources section at the back for partner services delivering Core to Store targets for individual brands
and products.

33

The Path to Loyalty – Step Two | Managing Price Discounts and High Incentive Promotions

Simply adding additional stock makes a vast
difference as this chart shows. Drawn from
matched store data for a major household
cleaner, this shows data for stores with identical
sales in advance, some with added stock
support.

Units

Box A Improved Supply in Action

500

Gondola End
& Added Stock

450
400

No Gondola End
& Added Stock

350
300
250

Split between stores with gondola ends and
those with just shelf displays, it shows clearly
that added stock was the single most influential
deliverer of ROI (since added stock costs
nothing).

Gondola End &
No Added Stock

200
150

No Gondola End
& No Added Stock

100
50
0
01

However, in this example, if you wanted the
best results you needed to combine this with
additional display.

02

03

04

05

06

07

08

09

10

11

Weeks

Supply solutions work to solve demand problems either by dint of central negotiation OR with the cooperation of stores who
are typically keen to make sure their shoppers are not disappointed.
The next two charts document a case study for a health and beauty company where both approaches were taken. The
first to demonstrate the value of additional stock into stores was prompted by a store contact solution to half of the stores.
Nonetheless, stock support was not adequate overall, and post sales showed the difference from the second activity.
The second was a central additional allocation supporting the same promotion a few months later, based on the learnings
from the first. The last one was unsupported, and, as can be seen, the stock and uplifts have started to drop away.
The product area is one that has in the past
been very predictable, but with little advertising.

10

The results show clearly the very significant
impact that improved stock support brings
to both the immediate and the longer term
position. The last promotion was not complete
at the time of going to press.

6

Immediate
Post Sales

2
0
-2
15 / 05 / 2010

Units

For the same brand, over the same period, it
can be seen that good performance has an
additive effect. The good performing stores did
continue to grow, while the poor performers
remained static, slipping behind the good
performers in average sales, having started
above them.

Sales Uplift

4

This was an important series of promotions for
the brand since it meant that sales for the six
month period were 10% above forecast.
Improved stock over time

Pre Stock
Ratio

8

25

28 / 08 / 2010

06 / 11 / 2010

Good Promotion
Performance
over the period

22.5
20
17.5

Poor Promotion
Performance
over the period

15
12.5
10
7.5
5
2.5
0
01

34

03 05

07 09

11 13

15 17

19 21

23 25

27 29

31 33

35 37

39 41

Weeks

The Path to Loyalty – Step Two | Managing Price Discounts and High Incentive Promotions

Box B Targeting Core Stores
Supporting the right kind of people
Geo-demographics (used again later on in this white paper) identifies what people are like from where they live. Like minded
people tend to stick together by reason of house afford-ability, school access and even something as simple as having been
born in the locality.

Stores serving people with similar tastes will find that they have different demand patterns from those as little as 5 miles away
in another direction. An extreme example of this might be Canary Wharf - the home of merchant bankers, and just 5 miles
away from some really deprived areas.

Problems

All of which means that, not only do they tend to have similar tastes, and disposable income, but also to know their
neighbours.

A big sale for asparagus to the one, and no sale at all to the other.
Identifying core stores is a function of their catchment area and their past promotion performance. Since we are targeting
those with long term potential you need to exclude those that are in promotion sensitive areas.
The difference that an area can make can be shown in the following bar chart.

This is a portion of a fuller analysis. It looks at a portion of stores, where there is a very high proportion of the described people
type in the catchment area.

Solutions

Bread and Morning Goods

Taking Affluent Grey, you find the above average stores for this morning goods item sell an average of 100 units more than
promotion average uplift.

Or to put it another way, 120,000 opportunities to sell to existing or new customers were missed.
This needs to be expanded for the other core areas for this product group, (Educated Urbanites, Secure Families and Wealthy
Executives) to end up with a target stock level for the stores that will drive them forward rather than holding them back.

Lost Volumes Average

Getting the right stock and space into these stores

Lost Volumes vs Potential

Geodem Area
Below Average

Average

Above Average

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Resources

But below average stores sell 250 units LESS than they might be expected to do. To put this in perspective, at the typical
discount level (half price or BOGOF) 160 stores underperformed by an average 0f 250 units per week of the promotion (3
weeks). That is, in this case 120,000 units. At the same time, the above average stores - still had the opportunity to do better
(check out the uplift that Asian Communities had). In total, these Affluent Grey stores could have sold 30% more than they
actually did.

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Building the Core – Smart Promotion Alternatives
Introduction by Richard West University of Westminster
Richard West is a senior lecturer at Westminster Business School, The University of Westminster, London. His research interests
include customer loyalty, the impact of creativity & media on promotional marketing, and ‘place marketing’. He also teaches on the
MA Course in Marketing Communications at Westminster and is studying for a Ph.D.
Core Shoppers - those shoppers who are most likely to buy into a brand need to be retained within the store environment,
and grown sustainably, building demand and supply at the same time.
While 44% of products are sold on discount there remains 56% which are not. Building sales at a much higher margin
changes the overall return for the year, as well as making a compelling case for extended distribution.

Solutions

Shoppers have become more promotionally sensitive. The use of smarter promotions, in the way they work, their cost
structure and their presentation to the shopper is important to build the second market.
There are two key objectives that ‘smarter’ promotions can deliver for a brand, as well as a retailer;
1. Building sales on the shelf in the second market – products in ample stock, but non-price-promoted. Either by bringing in
new users to the facing, or attracting those that are already there above the competitive offerings.
2. Maintaining the shelf standout, and mental availability after price discount activity for existing as well as new users
introduced at the last price discount activity.
Smarter promotions should be designed to bring more people into a brand, and keep them there in a virtuous circle
designed to build mental availability, followed by physical, as brand sales grow on the shelf.
Above all, smarter promotions need to be measured to ensure they maintain and reflect brand values.
The Reaction to Incentive
Promotions are potentially a very data-rich environment, offering the chance to build a picture of the core shoppers, what
they react to, and what else might impact on them in store, and in the home.
Over the last 12 months the University of Westminster Business school has been working with the IPM to look at the
whole area of identifying the nature of the demand from visuals, as well as matching this up against the results that were
achieved. This is an ongoing process that will result in a white paper of real interest to any company interested in a process
of continuous improvement.
To identify this, we are looking at three areas:
• Selecting the Incentive for value
• What makes an impact on the shopper/viewer
• What happened when the promotion went into the market

36

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Selecting an Incentive for Value

Problems

A cynic is reputedly a man who knows the price of everything, and the value of nothing. By this token, many companies are
the ultimate cynics, since they use incentives very much as a club to beat the shopper into submission. Research shows that
much smaller incentives move the right person in the right direction. Of course, if you can get more people, with a greater
incentive, and make a greater level of profit, this is still entirely valid. Provided, of course, that the supply chain can deliver.
They have, however, been a number of submissions to the OFT from shoppers in a range of stores – including Amazon,
Argos and Asda – all evidencing the fact that this is not the way that life works.
Selection of an incentive level is all about getting the best reaction, for the least cost. In this regard, we are planning trials of
fresh incentives to a market, as compared to known previous successes, and a level of price discount.

Value is, as they say, in the eye of the beholder. The process we have been using is an extension of eye-tracking, iMotions,
that looks at the emotional reaction of the subject as well as where they looked and for how long. This is from a combination
of blink rate and pupil dilation. The University has an eye-tracking facility in-house, and is in an excellent position in central
London to reach a truly cosmopolitan audience

The importance of graphics in delivering success in our study showed that you can, and should, capitalise on existing
images to drive better results. As an example, studies showing couponing adding a much harder edge to a television
campaign.
What happened when the promotion went to market
Here there is a real synergy with price discounting in stores. Any promotion that includes within it collection of where the
customer lives can be compared directly to geo-demographic analysis to assess the actual reach, against the target. There
is an analysis comparing the reach of two incentives on the same product, against the same market, in successive years.
The successful promotion reached a large market of heavy product users. The failed activity, the year after, reached an
entirely different market of lighter users. Not unsurprisingly, this was a comparative failure.
The shopper now demands added value as a basic requirement. Messaging for this promotion content needs to be very
carefully tailored to deliver increased mental availability – which can be followed by increased physical availability. This then
needs to be maintained with close attention to stock levels, in particular in core stores.

37

Resources

The first research project covered the last winners of the IPM awards, since a great deal was already known about them.
The following two section use these insights to show how correctly-delivered graphics make a huge difference to how the
same offering can be viewed. They also show how strong the impact can be on the eye of the beholder. The intention is to
continue these studies using a variety of techniques to come up with underlying descriptors of the basis for demand – and
how this compares with price.

Solutions

What makes an impact on the shopper/viewer

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Packing more Punch
Summary
Pack messaging has a huge, and measurable impact on the shopper. This can be good, or bad. On pack promotion
messaging – carefully designed, well selected, and well researched – has the potential to add substantially to your
standard pack. Shelf standout with relevant messaging is a vital component in making a sale. The customer details
that pack responders bring you feeds back into a process of continuous improvement

Solutions
Old packaging

New (rejected) packaging

The Importance of the Pack
The pack is what people buy – the contents are what they get. The product in an own brand pack and a branded pack
may be absolutely identical. But the experience that people buy – and the one they expect – is governed by the wrap, so
you change it only at your peril – as Tropicana discovered in January 2009. The old pack on the left was replaced by the
new design on the right. You would have thought that they would have researched the pack exhaustively – if so, however,
the techniques used clearly needed overhauling. On launch the pack revenue declined by 20%, and by the time it was
withdrawn from the market 7 weeks later it had lost them $33 million. As the CEO, Neil Campbell reported later ‘We
underestimated the deep emotional bond customers had with the original pack’.

38

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

With shoppers attuned to promotions, it is not a surprise that an on pack offer should be high on the list of opportunities.
Our second white paper, Sustainable Promotions, listed the wide variety of incentives that can be used.

Problems

It is easy to underestimate the impact of a pack on a shopper, and the IPM has spent time with the University of Westminster
and iMotions software looking at exactly this. What we found was that in the prizewinning activity the added impact a
correctly chosen and presented promotion made was of the same order as ‘sexual images’. This was measured against
external criteria, using eye reaction, with results you can see in Box A.

Yes, packs are very powerful, and yes, you can’t make wholesale changes unless you know absolutely what you are doing.
But if you need to up the impact your pack makes on the eye the first place you need to look is a promotion.

Predicting Promotion Performance

Solutions

However, any old promotion, presented without thought can easily pass without trace. Fortunately, the promotions industry
can generate a great deal of supporting data from activity that sheds a real light on the way that shoppers react.

Core to developing success is making sure that the incentive you use on pack is
• Proportionate;
• Appealing to the target market;

Resources

• Well presented;
• Able to offer exceptional Standout.
Tools exist to identify the type of activity that is most likely to appeal to the target market, as well as understanding what
happens when the promotion hits the shelf.
The first, as ongoing insight, is reaction to the activity by tracking the type of shopper that actually responded. The second is
analysis of the reaction of shoppers to the pack. Taken together you can see the anatomy of a successful promotion.
The IPM has developed a database of geodemographic preferences across the UK. This covers many activities and
appeals, and shows what works, and, indeed, what does not.
Carried on packs, successful promotions help to hold sales from competitors while they are on discount, and build sales
between discount periods. There are many examples of successful types in white paper “Sustainable Promotions” at widely
varying levels of investment, running from competitions through to pack based discount offers.

39

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Box A Promotions as Powerful as sex?
Working with iMotions technology introduced in the first white
paper, the IPM examined the credentials of a range of award
winning promotions for their impact on the shopper. This
whole area is to be further examined in the next white paper,
where we look at measures of forecasting demand from the
messages received by the shopper – whether on the pack, in
the store, or online.
People respond to sights of interest by changing their blink
rate, as well as their pupils expanding, both of which are
externally measureable. iMotions has validated its approach
on a scale of 1-10. In August 2010 the IPM put standard
packs and promotions in front of consumers, and measured
the impact.
The incentive varied from the very strong, such as FREE, to
the weak, such as competitions.

The Kingsmill Bread promotion adds considerable “eye-appeal” to the pack as can be seen from the above pictures from
the iMotions analysis. More to the point, you can see the difference in engagement – up from 3.5 to 4.1. Demonstrating
the eye-grabbing appeal of a FREE on pack offer.

EMOTIONAL ACTIVATION

AFFECTIVITY
HIGH AFFECTIVE

EMOTIONAL ACTIVATION
19%

31%
8

2.8

0.8 ; 3.5

1.4 ; 4.1
LOW AFFECTIVE

81%
21

And the ultimate in “eye candy” from the last award winning
promotions belonged to Marmite – not perhaps the brand you would
at first have nominated for the honour. But in the eyes of the shopper
a reading of 5.8 puts it up there with pictures you would more
commonly expect in top shelf magazines.

40

HIGH AFFECTIVE

5

2.1

AFFECTIVITY

LOW AFFECTIVE

69%
18

EMOTIONAL ACTIVATION

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Choose your message well

Problems

Building sales between price discounts in a competitive environment means changing the competitive balance. On
pack messaging creates standout that tips the balance. In the last white paper even a price marked pack actually
overperformed what night have been seen as a typical promotion.

Solutions

The difference between the price marked pack and the promotion was actually 25%!
Choosing the Promotion Type – Using Geodemographics.
Standing out on the shelf and being bought for less is a question of choosing the right appeal, as well as the right design.

Resources

Promotions appeal to people – but not necessarily equally. Given the same promotions, people do perform differently.
Knowing what your customers will respond to is vital. IPM members can get profiles for the promotions that they handle,
and share this information with clients to identify benchmarks for performance from which to grow. These are based on
knowing the profile of responding customers from their postcode.
This is not, however, entirely true, since some types of promotion activity do appeal to some of these difficult to reach
people. As an example, out of the three underperformers, Multicultural areas respond better to cash incentives and
discounts. It’s not that they don’t have the money, just that they only part with it to the right incentive.
The two profiles below show the difference between getting it right, and wrong. The difference – around 40,000 claims.
The target market was brand supporting families. The successful presentation on the right did that. The unsuccessful one
targeted Blue Collar workers above all.
Since the unsuccessful one followed second, there was every opportunity to research the incentive against the correct
market, and ensure accurate targeting.

41

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Unsuccessful Promotion Profile

Successful Promotion Profile

Profiles of your customers generated by redemptions are a really effective way of understanding them better. This information
can be used with on-line research companies such as fast.MAP to compare the impact of potential incentives against the
target market.

42

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Home is where the heart is – buy your way into their affections
Summary

Problems

Modern couponing can be very tightly targeted to people in areas, around specified stores. Demand
can be delivered responsibly at a rate allowing stores to respond building stock and space. Very few
marketeers are aware of the power of coupons to incentivise reading and learning as well as sales.
Incentive levels do not have to be high to deliver understanding and action. You can use coupons to bring
back shoppers lost through discounting – but a better solution would be not to lose them in the first place
and use couponing to deliver growth.
Reward Them for Listening to You

The first objective that a coupon in a home targeted campaign delivers for the brand is to get their attention.

Solutions

Solutions

78% of households open mail that is delivered to their door. The second largest driver for opening mail is if recipients
know or believe that there is a coupon inside. The largest driver is if they know the company – and you can see the
impact of working that bit harder to establish a link to them in Box A, page 45, for Cravendale milk. So add a coupon to
strong branding and you get a must open message.

Reward Them for Trialling You
Between 60% and 70% of households reported that they often/occasionally redeemed coupons.

Coupons represent an ideal opportunity to communicate benefit and build sales outside of price discounts. Coupons
may have, in the past, received a poor press. Perhaps this is because they fell out of fashion in the middle of the 1990s
when the key retailers became the dominant force that they are today.

Did you know?
• Only 3% of Marketers know how popular household coupons are
• 40% of consumers would redeem a 20p coupon
• 47% would redeem a 50p coupon
• 52% would redeem a £1 or £5 coupon
• 47% of people open/read a mailer because they think there is a coupon in it

43

Resources

Most marketers expected this to be less, in the same way that Sales Departments underestimate the value of a
discount. And the incentive value does not have to be great to get people to redeem.

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Coupons Open Hearts and Wallets
Perhaps, as well, this is because of the bad press that mis- and mal-redemption. However, times here have definitely
changed. fast.MAP shopper research shows that 55% of shoppers don’t misredeem coupons, and a further 38%
occasionally misredeem. Meanwhile, in IPM research (Autumn 2010) 72% of stores refused to misredeem a coupon. So the
likely wastage here can be small, if properly managed. This needs to be contrasted with other forms of advertising, where –
as has been famously stated 50% – may be wasted.

Half the money I spend on advertising is wasted;
the trouble is I don’t know which half. John Wanamaker, (attributed)
Get Your Targeting Right – Get Less Waste than Advertising!
Of course, investing your money should not depend in any way on this kind of quotation – action should be measured, and
decisions taken as a result. Which is why targeted couponing should return as a key tool to build sales and penetration
around targeted stores for targeted shoppers.
Coupons Have Two Targets
Properly planned coupons add additional demand within the ability of stores to manage supply. Run this additional demand
across a few weeks and you establish additional stock in stores through the supply chain to feed the new users.
Brands need to add time as a key factor in their targeting, which would then look something like this:
• Who to target;
• Where to target (around which store and in which area);
• When to focus demand (between price discounts);
• Over what period to increase demand – remember not to overload retail outlets;
• What value coupon to use;
• What message do you want to convey.
Why is this important? We have discovered that working more effectively with retailers means making sure that you build sales
right across the year. But you must do this in such a way that the majority of stores can cope with the additional demand.
No matter how well you manage your price discount activity, by far the vast proportion rewards the existing shopper.
The one-off trial that coupons represent, as opposed to the ‘larder filling’ which is where the vast bulk of price discount
spend goes represents a real opportunity to reach new people in new ways.
However, before you do this you need to bear in mind what Box B, page 46, tells you. Coupons really move people, so
sending out a large number at the same time can have the same impact as a price discount – loyal shoppers without
coupons are left frustrated.
Managing waste in this process can be much simpler than advertising – improve your targeting, and reduce your
coupon value.

44

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Box A Don’t Underestimate the Power of the Message
EMOTIONAL ACTIVATION

AFFECTIVITY
HIGH AFFECTIVE

21%
6

2.6
1.6 ; 3.6
LOW AFFECTIVE

79%
22

Problems

In the first white paper we reviewed a
very successful coupon campaign on
behalf of Cravendale milk. The campaign
results (outlined in the last white paper)
were followed up by an identical coupon
attached to a much
less attractive message.

The larger the slice
of pie, the greater
the engagement
with the message

Solutions

It is vital to understand that the coupon is
only part of the message that you convey,
and that consumers will receive.

EMOTIONAL ACTIVATION

Resources

The result of this lack of attention to the
presentation was that, despite the fact
the second coupon was the same as
the first, the uplift experienced was very
measurably less

AFFECTIVITY
HIGH AFFECTIVE

31%
8

2.8
1.7 ; 4.0
LOW AFFECTIVE

69%
18

The iMotions approach that we use
in harness with the University of
Westminster, does not rely on what
the readers say, it focuses just on their
internal reaction, using eyeblink and pupil
dilation to record their emotional reaction.
Quite clearly this demonstrates both the
power of the advertising, and the need
to understand what really appeals to
the possibly millions of people you need
to reach.

45

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Box B Campaigning with Coupons – The Powerful Impact of a coupon on a store
This is a record of the real impact a coupon can make on store sales. The activity it tracks was a high value coupon targeted
at the right households in the catchment area of core stores. Some of these stores had additional contact making sure that
they had better stock support across the period. The remaining stores did not, even though the coupon loading was similar.
As can be seen from the results, couponing with store product support delivered much better results both during AND, more
significantly, after the promotion period.
The impact of couponing is very similar to that for discounting - not surprisingly – but with couponing you have two support
options.
1. Spread the distribution of the couponing so that the demand the store receives is in line with no more than a 20% uplift
per week
2. Increase store stock and display, by negotiation with the store, so that the shopper demand can be coped with.
Or, of course, a combination of both. Clearly, it is in the real interest of the store to support activity designed to grow the
catchment area permanently, potentially bringing in new users.
Modern field distribution can distinguish well the catchment area for individual large stores from drive time and preference
analysis of the local geography.
Total Uplifts – All Stores – Compared to Comparison Period
25,000
20,000

Stores with
Additional Stock

15,000
10,000

Stores with no
Additional Stock

5,000
0
-5,000
Pre-Couponing History

Comparison

Coupon
Distribution

Post Coupon

Coupons can deliver long term sales growth
The following chart shows the outcome of Bertolli coupon activity showing the long term impact on sales generated by a
single set of coupons targeted around key stores. The samples chosen were matched to ensure significance.
Total Sales

Exposed
(Matched)

Control

01

46

02

03

04

05

06

07

08

09

10

11

Weeks

The Path to Loyalty – Step Two | Building the Core – Smart Promotion Alternatives

Box C What you lose with one hand

Catalina Marketing 01189 027 900

Catalina Marketing is a global targeted marketing company, with operations in the US, Asia and Europe, including the UK.
It studies regularly into shopper behaviour from its vast database of household-level purchase data. Through partnerships with
more than 200 major retail grocery,mass merchant and pharmacy chains across the United States, Pointer Media Network
and Catalina Marketing continuously track the purchases of more than 150 million individual shopper IDs, with a multi-year
history of purchasing for an estimated 76% of American households.

Problems

Defining highly loyal customers as those who spend 70% or more of their category spend on a single brand, Catalina
Marketing and Pointer Media Network showed that the year on year churn of high loyals was over 52%, and also identified
that new loyals are not being added fast enough to make up for these switchers and defectors.*
In the US consumer churn and defection are becoming larger problems in today’s FMCG marketplace, even while the
economy is significantly accelerating and aggravating the problem. Catalina believes the findings of this study, which reveal
dramatic levels of defection and loyalty erosion across most FMCG brands, may surprise many seasoned marketers. This is
exactly the same effect as the UK economy is also experiencing.

It would obviously be best not to lose customers in the first place. The defection of one highly loyal customer requires multiple
new users to make up for the resultant loss in sales. While some defection is natural, price discounting, as this white paper
makes clear, actively targets regions where high value loyalists are likely to be found to deprive them of product. While some
of the these customers become wholly switched off the range, others can be persuaded to return.

Catalina conclude that ongoing, motivating communication with your existing customers is key to
maintaining their loyalty in the face of the current economic climate and some often fierce price
competition from competitors.

47

Resources

Catalina, using predictive modeling, combined with a targeted coupon offer, helped a leading brand in feminine care
significantly reduce churn rates. The predictive model identified consumers, based on category and cross-category analytics,
who were likely to switch brands. Pointer Media Network then set up a control group, to compare behavior, delivering a
single coupon to all at-risk brand buyers outside of the control group. Based on a comparison in defection rates between the
two groups, delivering that single coupon to at-risk consumers resulted in a 2% improvement in category share purchases
compared to what would have occurred without the intervention of precision marketing. This positive result continued to hold
up six months after the coupon was delivered at point of sale via the Pointer Media Network.

Solutions

Conducted by Catalina Marketing’s Pointer Media Network, in conjunction with the CMO Council, Losing Loyalty: The
Consumer Defection Dilemma, uncovers new insights into FMCG brand loyalty among US consumers. Pointer Media
Network’s unique ability to look inside the shopping baskets of consumers to see exactly which brands they are buying and
how often, provides the rich census-level data required to develop this study. Its findings have significant implications for the
way brand marketers communicate with their most valuable and loyal consumers.

The Path to Loyalty – Step Two | Resources for change

Geo-Targeting for ROI and Brand Growth



ProfitsCheck 01753 648800

No store is average. Stores with more a brands consumers shopping in them than average run out of stock
much sooner than others of the same size. These same stores also offer the chance for much better promotion,
and post-promotion performance.
Focus on these stores for:

Focus on the area for:

• Targeted additional promotion stock and space;

• Additional store ranging;

• Pre and post promotion store and area advertising
and marketing support.

• Geo-Target your brand to get the whole company
talking the same language.

Identify the stores critical to success
Similar people cluster together. They choose the same local stores. Typically stores have centrally negotiated
planograms set for the national average shopper. These planograms dictate exactly how much stock is kept in front of
the shopper, regardless of the area demand.
For brands these are not the largest stores as measured by their total turnover for you. They are the most important
stores for your target market. Yes, Hillingdon is different from Saffron Walden. And the difference is worth hundreds of
thousands of pounds to growing brands as a result of the huge additional pressure of deep discounts. Meanwhile store
systems are not bad at managing rapidly increasing demand, unless you go over the top. So focusing on just the core
stores selects automatically for the best ROI.
Know what these stores need to grow – and make sure they get it

Resources

Every brand is different, by design. This difference is sustained by the advertising and promotions budget. Brand
differences clearly show in the way that different people respond. The map below shows stores serving areas with a
very high percentage of upmarket families.
The relationship of issues to geo-demographics can be seen in the following profile based around Crawley. For this
brand, upmarket and family households are core to success. All the main Tesco stores in the area have issues with
keeping up with demand.

The area around these stores offers a much greater opportunity for couponing, sampling, radio and other local media.
It also has a much higher percentage of viewers for any targeted national media. Focusing on this area, and stores in
this area will deliver the best return from both sales and marketing investment.
Sales Departments, using store supply chains, field and telemarketing companies working together can deliver
outstanding results.
Marketing Departments can invest behind a full price brand, targeting these areas, or nationally, safe in the knowledge
that the stores will be able to respond.
Geo-Target your brand – a single, actionable, investment to benefit the whole company.
A single, immediately actionable, investment designed to benefit the
whole company.
Check the web site at www.profitscheck.co.uk for details.
IPM members get the analysis free for the first 5 products.
(Terms and conditions on the web site)

48

The Path to Loyalty – Step Two | Resources for change

About Simon-Kucher & Partners

0207 841 5750

Gus Ormond, Director, Retail & Consumer | 0207 841 5750 | London@simon-kucher.com
SKP is a private, partner-owned marketing and strategy consulting firm and the world’s leading pricing consultancy.
We focus on developing smart profit growth strategies for our clients.

Solutions

Our consulting expertise and projects concentrate on Strategy, Marketing,
Pricing and Sales.

Problems

Focus
Over the last 25 years Simon-Kucher has helped hundreds of clients around the world address their strategic and
marketing challenges. We are regarded as the world’s leading pricing advisor and thought leader. Our worldwide
practice is built on evidence-based, practical strategies for profit improvement. We focus on Smart Profit Growth by
helping clients boost their top-line instead of cutting costs. Our projects typically achieve a profitability improvement of
100 to 500 basis points.

Clients
Simon-Kucher & Partners has served more than 100 of the Global Fortune 500 companies. Our clients come from
all major industries. Often, they are leaders in their markets. We are also pleased to count numerous mid-sized
companies and Hidden Champions among our valued clients. Visit us at www.simon-kucher.com for examples of
clients and client projects.
Global Network
We are an international and multilingual team of 500 consultants
from diverse academic and professional backgrounds. We
offer extensive knowledge and experience in a wide range of
industries in both regional and multinational contexts. Our global
network spans 23 offices in 17 countries across Europe, the
USA, Asia and Australia.
Publications
Simon-Kucher & Partners experts have written extensively on
pricing and other consumer questions. Publications range from
articles in leading trade and research journals, contributions to
academic papers, through to books.

49

Resources

Industries
Simon-Kucher & Partners is active in over 20 sectors ranging from Automotive to
Travel & Hospitality. Our Retail and Consumer Packaged Goods (CPG) division
has worked with some of the world’s biggest consumer goods companies across
a broad range of issues. We specialise in consumer price-setting, promotional
management, retail price management and loyalty schemes. Recent UK projects
include promotional strategy for a global FMCG company, retail pricing strategy for
a leading fashion brand and loyalty-scheme design for a major UK brand.


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