Friday, April 19, 2024

$51 billion is spent on promoted sales – but do they work?

New research by Nielsen has found that retailers and manufacturers often see no return on investment from promotions.

In Australia, retailers spend $51 billion on promoted sales. But Nielsen says 48 per cent of this income would have come in anyway, whether the sales were promoted or not.

As a result, there is an $11.3 billion opportunity (considering the discounted amount) for Australian manufacturers and retailers to drive efficiency in their promotions.

Aussie shoppers highly price aware

In the past eight years, the percentage of products sold on promotion has increased from 30 per cent to 40 per cent. This makes Australia one of the most highly promoted countries in the world. Nielsen says this has given rise to Australian shoppers who are highly price aware. Some change their behaviour by picking where to shop. They also switch between promoted brands in-store and pantry stocking on promoted products.

Nielsen analysed the amount manufacturers and retailers spend on discounts across 7,000 items and across 22 categories. By looking at how sensitive shoppers were to shelf-price changes and promoted-price changes, products were split out into four pricing strategies: fewer but deeper discount strategy (Hi-Lo); highly sensitive to price; everyday low price (EDLP); and limited number of promotions (Hi-No).

According to Nielsen, 59 per cent of the most highly promoted items do not react to discounts. This is because they fit into either EDLP or to Hi-No strategies. Nielsen says limiting the promotions or changing the strategy could be more effective for these products.

In a competitive world, Nielsen says relentlessly promoting products with no regard for sales uplift is an unsustainable strategy. Nielsen argues that demand-driven price and promotional strategies are more likely to be sustainable in the long term.

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