Knowledge Bank Blog, Pricing & Promotions

Breaking the Promotional Rules

Which promotional ‘rules’ can you break?

Last week we talked about the powerful role that constraints can play.  Placing restrictions on what you do can lead to different ways of thinking.  The right constraints can unlock creativity.  However, the wrong constraints can close off options.

The wrong constraints are often a result of history.  We do a lot of things because we have always done them.  They are the easiest and safest things to do.  But if you carry on doing what you have always done, you will get the results you have always got.

If you want to get different results, you have to do different things.

Sam Walton said ‘the most important rule in business is to break all the rules’.  Indeed most steps forward in human history have come from breaking the rules and establishing a new order of things.  Bill Gates changed the rules of software from open to closed source and then licensed that software for all hardware users to use.  Henry Ford famously said ‘if I’d asked people what they wanted, they would have said a faster horse’.  There are lots of examples.

So, why are we talking about this?  We think the way our industry thinks about certain activities is restricted by traditional ‘rules’.  One of the biggest examples of this is promotions.  And this has created a lot of problems – lower loyalty to stores and brands, shoppers choosing the promotion not the brand, a resetting of expectations of what a fair price for a brand is, the need to discount deeper and more frequently as companies face tough comparatives.

We think that default rules for promotions have emerged, almost without the industry realising it.  It is only when you start breaking these rules that you start coming up with different activities.  For example, Waitrose ‘Pick Your Own Offers’.

So, what are the implicit rules that FMCG promotions typically follow?

They are focused on THIS purchase.  There is little, or no, consideration of FUTURE purchases.  Most promotions give the shopper an incentive (bribe) to buy a brand on this occasion only.  This might be OK for a purchase you make once every few years, but not one you make every couple of weeks.  If you only focus on this purchase, you have to re-compete every time the shopper walks down the aisle.  Getting bought this time has little bearing on whether you are bought next time.

What if you used promotions to capture this purchase and the next purchase(s)?  You’d probably do different things.  A good example of this was the increasing scale of discounts Waitrose gave for the first 5 online shops.  Not only are you capturing future purchases, you are building a habit.

They reward PROMISCUITY not LOYALTY.  As a shopper you save the most money if you shop around.  Buy a different brand each time.  Buy different things in different stores.  There is no incentive to be loyal.  Indeed when companies chase new buyers with deep discounts, they end up selling a lot of product at a discounted price to shoppers who would have bought at full price.

What if the most loyal shoppers got the most benefits rather than the shopper who buys once or twice a year?  What if we rewarded loyalty?  This is common in other industries (e.g. airlines), but not in ours.

A PRICE DISCOUNT is usually the incentive to buy.  When we think promotion, we usually think price discount.  The question is usually not whether to discount, but by how much?  What if we didn’t offer a price discount and gave shoppers a different incentive?  There is a great example of this that has just finished in Pick n Pay, the South African supermarket.  They ran a promotion where shoppers could get a Stickeez character for every R150 they spend.  There were 24 characters available.  Kids were going crazy for them.  Shoppers are incentivised to visit more and spend more.  If only to keep the kids quiet!

They require little, or no, ACTIVE PARTICIPATION from the shopper.  Buying a product at half price is a one way arrangement.  The shopper hasn’t got to do anything but buy the brand and pocket the discount.  They can buy whatever they want next time.  Compare that to Starbucks Rewards programme.  That’s a two way arrangement.  You download the app, load it with money, spend it at Starbucks.  In return for that participation, you earn free drinks, and get exclusive benefits.

They could be run by ANY brand.  Anyone can run a third off, half price or BOGOF.  You run it this week and someone else will do it next week.  It’s just a deal it has no link to the brand itself.  But what if we ran promotions that had a strong link to our brand and what it stands for?  Something that we can do, that the competition can’t?  Heineken are currently doing this around the Rugby World Cup, offering incentives, such as tickets, that competitors can’t.

We are not saying stop running price discounts.  That would be sales suicide for many brands.  However, we are saying, think beyond price discounts for long term success.

To think beyond price discounts, you will probably have to break one or two of the traditional promotional rules.  Are you prepared to give it a try?

On a separate note, our article for The Grocer goes out tomorrow.  You can find it in the ‘Comment & Opinion’ section.  We also have a link to it on our website

Have a great weekend and speak to you next week.