Suppliers, or more specifically brands, used to be in the driving seat, they would dictate when a product would be on offer and the supermarkets took it or left it.
Then the power shifted, supermarkets were stronger, the lure of distribution too great for a supplier to resist, and the suppliers would create promotions to suit the supermarket’s calendar and budget.
Then the power shifted again, this time towards the customer. Many would say that is where the power should have always rested but in fact, without choice, the customer was in the hands of the retailer. However with greater choice comes more power. If the customer doesn’t like something they can complain but ultimately they can walk… to the next supermarket.
The trail of lost market share is testimony to that migration to the discounters, who don’t have the same business model as the Big 4. Their model is everyday low price. Few promotions, if any, simple low prices and special buys. There is no illusion, no mental calculations, no smoke, no mirrors, and the customer likes it.
The complaint that supermarkets are misleading customers with confusing price promotions, particularly was/now strategies, has been taken seriously by the Competition and Markets Authority, but the question remains whether the supermarkets will also be taking it seriously.
While the supermarkets have believed they hold the power in the grocery supply chain they have maintained the tried and tested promotional mechanics with good effect. But the £1billion spent on price reductions by the Big 4 in recent times is indicative of an overhaul.
Asda have a new strap line, “Save money. Live better” and the pocket tapping advert are a big indicator that perhaps their promotional strategy might be shifting, slightly. Waitrose’ Pick a Promotion is a shift away from the tried and tested model, passing the power to the customer to select the promotions most relevant to them. The signs are there that retailers are trying to think beyond the norm and move with the times.
As much as 40% of grocery spending is on items on promotion so there is a very long way to go before there is measurable movement in supermarket promotional activity, and a long way to go before customers are re-educated to not expect brands to be on promotion.
Brand loyalty is only as flexible as the amount of time between promotions. The risk for supermarkets is that the customer has been educated to expect a promotion, and if one doesn’t materialise they are likely to switch brands, or supermarkets. The only way out of this trap is to reduce prices permanently, hence the vast investment in price cuts. The effect on margin is painful, suppliers lose leverage, and the return to good old fashioned brand marketing takes precedent.
Ultimately it won’t be the CMA that changes the supermarkets promotional strategy, or the suppliers, it will be the customers. They will continue to switch their shopping choices, and supermarkets to follow price but more importantly to go where they feel they are valued and where there is trust with the retailer.
Supermarkets take heed.
If you would like to talk to us about your promotional strategy, please get in touch.