Over the last 40 years we have seen the power in the supermarket space shift from suppliers, to retailers, to e-commerce, to shoppers and now to Influencers & social trends. Over that time there have been dramatic shifts in the promotional landscape. I remember a time when you couldn’t walk down a Tesco aisle without being bombarded with red and yellow ticker tape, or as a KAM negotiating to NOT have 100% of the Gillette portfolio on discount or at the very least at only 75% off, but today that experience is different.
Today we are seeing a downturn in the depth of discount in the FMCG space and a change in the types of promotional mechanics we see on the shelf. Volume Sold on Deal (VSOD) in the UK dropped by 12pts between 2016 and 2020 and average discount level by nearly 4pts over the same period and has continued to decline since (frequency has seen an increase).
This down trend in discount level comes at a time when we have seen significantly rising prices across the FMCG industry and we are seeing shoppers shop with their feet and shift trade channels and reduce volume. But the reduced promotional depth has not been a conscious RGM focussed choice, where suppliers are trying to claw back profitability but more a reflection of the changing shopper path to purchase and decision tree. Consumers are beginning to make choices that are not just price based but making conscious decisions based on their needs and values- particularly those of sustainability. 73% of shoppers have said they will change their shopping habits to reduce their impact on the environment.
They seek personalized, relevant offers that cater to their specific needs and preferences. This shift has prompted FMCG companies to adopt more sophisticated promotional tactics. By leveraging shopper data, companies can offer targeted discounts and promotions that resonate with individual consumers. Loyalty programs are also being revamped, with a focus on delivering personalized rewards rather than generic discounts and even subscription models are starting to gain traction (I myself am a subscriber to all things Pampers, Aptamil, Listerine and Head & Shoulders on Amazon).
Supermarkets are also experimenting with dynamic pricing models, where prices and promotions are adjusted in real-time based on demand, inventory levels, and other factors. This approach, borrowed from industries like travel and e-commerce service industries, allows retailers to optimize pricing and promotional offers on the fly, ensuring that they maximize revenue while meeting customer needs.
All of this should be great news for the profitability of suppliers and those new heads of RGM but we are still continuing to see a rise in trade spend budgets across the industry as a whole. The increased complexity of channels, promotional mechanics, SKU/ brand proliferation as well as rising costs of activation due to the more complex omni channel path to purchase shoppers now take is driving costs higher still. As a result we need to be even more purposeful, detailed and faster than ever before with our RGM strategy.
To win in this more complex omni channel space, and take advantage of the reduction in short term price elasticity at a time where volumes are rapidly declining across channels we need to take a step back and continue to look at the classic levers for growth:
RGM needs to return to its roots where its objective was to drive GROWTH above all else with volume being a key lever for that. We need to understand why we are making the spending choices as much as what we are spending on. To do that we should take a step back, review our growth lever choices with our trade, shopper and marketing colleagues, challenge our brand strategy and the translation of it into actions. We need to look at the past performance of our promotions and understand why they aren’t working- were they not targeting the right shopper, did they not serve the purpose of trial or were they in the wrong channel (the old joke about a BOGOF on Watermelons in an inner city store where 99% of shopper don’t have cars). We need to understand if our portfolio is effective at driving penetration (smaller pack sizes) or we have the right variety of flavours for the market place or if our pricing means only one product from the range can enter the monthly basket.
RGM is no longer just about Price, Volume and Mix and simple promotional ROI but needs to be critically integrated into brand activation strategy, channel segmentation, the new digital eco system in which we operate and needs to take a much more nuanced approach to reflect our new shopper who lives, breathes and shops Tiktok.
Don’t get me wrong, promotions are still critical (especially when matched perfectly with brand strategy and a purpose) but the shopper experience in a supermarket is a testament to this changing dynamic.
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