BY JAMES BROWN
HEAD OF UK CONSUMER GOODS AND RETAIL, SIMON-KUCHER
It’s been all change in the last few days. We’ve seen Sainsbury’s announce that they are stopping multi-buys, and talk of regulatory intervention to clamp down on a whole range of promotional mechanics. James Brown from price strategy consultancy Simon-Kucher provides his view on why suppliers need to go back to basics.
Is this the end of the deal? We doubt it. The British retail environment is the most promotionally driven in Europe, and as an industry we’ve trained shoppers to look for – and wait for – a bargain.
Promotions are here to stay – but suppliers and retailers will need to be even smarter about how they are used. A de-escalation in promotions will be welcomed by many but only where an increase in the average price compensates for the loss of volume.
Suppliers have been under pressure to produce both everyday low prices as well as great offers, and have built pricing strategies around this. Given turbulence in the retail market as the multiples jostle for share, and now growing signs of a change in the regulatory framework many will have to make changes to adapt and survive.
There is a need to go back to basics on price-pack architecture, with a focus on innovation and renovating the existing portfolio.
Innovation has often been seen as the way out of the price war in terms of new product development, but finding new pack sizes and formats to hit neglected price points hasn’t always had the same focus.
In terms of renovation, it’s time to look at the range of packs and prices and how they all fit together afresh. The length and intensity of the price war and the steady growth in promotional activity that’s gone with it have left some in a sorry state.
We see flattened price ladders (is it really right to sell your “best” at the same price as your “better” and to drop your “good” that low?); broken price curves (cheaper by the gram to buy the mid-size pack, but where’s the shopper benefit?) and diluted brand differentials (wasn’t that your premium brand last year?).
As for the promo side, rolling on the same promotional calendar as last year isn’t an option. Too much has changed and many of those mechanics will not be allowed in the new, “simpler” reality. For insight, suppliers will no longer be able to rely on history-based analytics tools as the world has changed, so this provides a great “excuse” for brand marketers to re-connect with their sales teams and to jointly work out a fresh, shopper-based strategy.
Whether innovating or rennovating, we have to look at how to position our products to hit shopper needs – both at point of purchase and for usage occasions. Back to basics, but a fundamental of FMCG pricing that won’t change.
Whilst retailers will set the final price (and promos) to shoppers, we’d urge suppliers to take the time now to ensure their offerings are fit for purpose – that your price-pack architecture still works, and that you understand and are making best use of available promotional mechanics.
The FMCG market in the UK is not going to get any easier to navigate any time soon, but that doesn’t mean we should sit back and wait! Retailers face a huge task of reformulating price and promo strategies on thousands of products, and this is new for them too, so any useful insight with the shopper and category at the heart may now be appreciated more than ever.
© FoodBev Media Ltd 2018