The Marketing Gap

Paul Godwin PCG Consultants

Insights Consultant at The IPM

What we ask

• Should we be optimistic?

• How important is promotional marketing?

• Price discounting and couponing still seem to dominate spend. Should they?

• Does the changing dynamic in retail relationships mean a shift in roles for promotional marketing?

• Is brand switching down to price or creativity?

Source: Mintel 2013

Consumer Expenditure at constant 2013 Prices 2007-2017 (ONS/HM Treasury) £ Billion

940

960

980

1000

1020

1040

1060

1080

1100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Market Sizing

• 1999 – Mintel published a report entitled ‘Mintel Special Report:

Sales Promotion’ in which national expenditure on sales promotions was estimated to be £8.6 billion a year.

• 1987 – Mintel used estimates of 1987 report by the Institute of

Sales Promotion (ISP) which placed expenditure at over £2 billion a year

• 2008 – ISP estimates total of £25.6 billion invested in Promotional

Marketing

University of Westminster Business School

“Accordingly, it can be concluded that the Promotional Marketing expenditure on a national level exceeds £31.35

billion and given the increasing use of price discounts across a number of sectors in the United Kingdom, the variety in Promotional Marketing (with the advent of

digital channels, particularly social media), the figure is likely to grow further”

University of Westminster Business School

Sizing the UK Promotional Market 2012

Size of UK Promotional Market Estimates 1987 – 2012 (£ Billion)

2.7

8.6

25.6

30

33

0

5

10

15

20

25

30

35

1985 1990 1995 2000 2005 2010 2015

ISP

Mintel

UWT

ISP

FSB/CIM

Size of UK Promotional Market Estimates 1987 – 2012 (£ Billion)

2.7

8.6

25.6

30

33

0

5

10

15

20

25

30

35

1985 1990 1995 2000 2005 2010 2015

ISP

Mintel

UWT

ISP

FSB/CIM

So what next?

2013 IPM Study

Development and

Management

Media and Communication

Techniques and Rewards

UK Promotional Market

Price Discounting

Grocery £14.1Bn

Other £26.3Bn

Big Numbers

• £14.1 billion on grocery discounting

• £26.3 billion on other price discounting

• £1.7 billion EU bill

• £13 billion annual payments by UK to EU

Big Numbers

• £14.1 billion on grocery discounting

• £26.3 billion on other price discounting

• Almost £10 billion on drugs and prostitutes

UK Promotional Market

Total Market £55 Billion

Price Discounting

Grocery £14.1 Bn

Other £26.3 Bn

Agencies

£2.9 Bn

Comms

£7.2 Bn

Rewards

£4.3 Bn

(inc. £2.7 Bn coupons)

Price Discounts and Couponing

• Majority of spend is going against discounting rather than adding value

• “60% of fmcg sales are through price promotion, which…is far too much of a reliance on one promotional mechanic, particularly one which erodes brand value”

Clive Humby (IPM Great Loyalty Debate)

• By definition, loyalty is long term, not short term.

So What?

• What is happening within these big numbers?

• Understanding the dynamics of the numbers in any set of data is key

• Real gap clearly exists between marketers perception and shopper attitudes and behaviours

– Marketers underestimate numbers who say would redeem at different coupon values

Is there a minimum face value below which you are not motivated to save and redeem coupons?

94%

90%

78%

59%

57%

39%

25%

17%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

£5

£1

50p

20p

Marketer Consumer

Why?

• Attitudes to value rather than specifics around price discount to individual brands

• Couponing is a valuable tool used surgically and targeted properly • Marketers

– thinking about their own brand experience – couponing is expensive and doesn’t always deliver required sales

uplift

• And shoppers may be saying “We will use them but… – …In the right place – …At the right time – …On the right brands – …In the right way

What does stability tell us?

Is this what we should be looking at?

£0.20 £0.50 £1.00

£5.00

40%

20%

10%

5%

0%

10%

20%

30%

40%

50%

£-

£0.50

£1.00

£1.50

£2.00

£2.50

£3.00

£3.50

£4.00

£4.50

£5.00

Would NOT redeem coupons

Coupon Value % Would NOT redeem

Coupons

• 95% of shoppers would redeem a £5 coupon

– makes you wonder who the 5% are who wouldn’t

Promotions used by consumers in past 12 months: Price Discounts (% used)

45 48

55

44

0

10

20

30

40

50

60

2014201320122011

Promotions used by consumers in past 12 months: Coupons (% used)

0

20

40

60

80

100

120

140

160

180

2014201320122011

Web Coupons Mobile Coupons Coupons D2D/Street

Coupons Press On Pack Coupons

Promotions used by consumers in past 12 months: Coupons

45

38

11

0 0

23

43

32 33

2014201320122011

Price Discounts

Web Coupons

MobileCoupons

CouponsD2D/Street

Coupons DM

Coupons Press

On PackCoupons

Why the dip?

• 2012 Olympics effect

• Appeal of price discounts down to 2011 level as consumer expenditure rises

• Appeal of couponing as a technique dips even further

• Alongside shift to discount retailers

• We saw this start in 2013…

Shopper apathy

“The potential danger entailed by supermarkets purely focusing on price is that consumers could develop a level of

apathy towards such pricing strategies…arguably, shoppers have come

to see the discounted price as the ‘real’ price of the products in these cases.”

Attitudes towards Pricing and Promotions in Food and Drink - UK - April 2013; Mintel

Continued into 2014

“Shoppers are questioning

whether loyalty cards, such as Clubcard, are more helpful to

the supermarket than they are to the shopper.”

January 2014

Reality bites

• Worrying for all serious data-driven enterprises and marketers

• If true – Tesco’s troubles are an unambiguous warning – Data rich loyalty programs and analytics alone don’t

cut it – Lidl and Aldi at one end are stealing clear competitive

advantage with • Slightly lower prices and • Simpler shopping experience

– Waitrose are also trying something different

Response to price cutting

• This is possibly more about retailer loyalty than brand loyalty

– Everyone needs to retain shoppers but shoppers are going elsewhere…why?

• modern shopper shopping little and often

• increased role of convenience stores, online shops and local supermarkets

– For promiscuous shoppers the value in points at a single retailer is diminishing

Waitrose response to the Loyalty question

“It is about what consumers value today, not what they

valued historically. So Green Shield Stamps, or points, were a response to what happened

post-war to people having tokens and collecting things. I just don’t think that is where

the world is now.”

Mark Price, MD, Waitrose

Loyalty is not just about using big data

• “We talk a lot about ‘big data’ but what is actually needed are those small nuggets of real consumer insight amongst all the noise.”

IPM Great Loyalty Debate

• “Giving free coffee or free newspapers is disruptive to the market, but I think that is what customers want, I don’t think they want a point. I mean, what is a point? I think it’s meaningless”

Mark Price, MD, Waitrose

IPM Great Loyalty Debate

• Loyalty isn’t something that any customer owe retailers or brands – it’s something retailers and brands owe customers. – Thank You

• At its simplest, loyalty is about saying thank you to your shoppers for supporting you and encouraging them to stick with your brand.

– New Paradigm • FMCG marketers and retailers need to

find other ways of promoting products to add value and build brand equity.

A harsher interpretation

“…today’s Tesco simply lacks the innovation and insight chops to craft promotions, campaigns and offers that allow it to even preserve share,

let alone grow it.” Michael Schrage, MIT

• Not sure that is necessarily the case with Tesco • Disenchantment is there but the biggest issue is

lack of engagement and long term decline in relationships

• For brands it has to be a worry about failure to add value

Impact of promotions

• 42% of ALL shoppers told fast.Map that they bought MORE products than they had planned to because of extra long term rewards from clubs or promotions such as these: – Club cards – Token collectors – Websites loyalty schemes – Newspaper collectibles – Other post/series offers

• Yet this doesn’t mean this was the most cost effective route

Danger in promotion becoming product

• Surprise and Delight can become Expectation – consumers conditioned to expect a certain level of

reward through points based schemes.

– marketers need to inject ‘surprise and delight’ into loyalty programmes.

– moves us away from that feeling of entitlement and expectation.

• Could other promotional techniques be used to surprise and delight?

Promotions used by consumers in past 12 months: Free Draw / Prize Competitions / GWP

15 15

18

16

28 29

31 30

37 36

43

36

0

5

10

15

20

25

30

35

40

45

50

2014201320122011

GWP

Competitions

Free Prize Draw

Brand switching techniques

• Let’s look at brand switching

• Typically we would expect strongest techniques to be: – Couponing

– Price discounts

– Anything that adds value – GWP / Guarantee

• Reality is somewhat different year on year

Marketing Gap shows appeal of promotional activity as brand switching tool

As a Brand Switching Technique: OFTEN Price discounting / Sampling / Mobile Couponing – all flat

2014

2013

As a Brand Switching Technique: OFTEN GWP / Most Coupons/ Loyalty / Events – all down

2014

2013

As a Brand Switching Technique: OFTEN FPD / Prize Comp / Web Coupons – all up

2014

2013

“You do the Maths”

2014 Consumer attitudes

2014 Marketers perception ofconsumer attitudes

7 Basic Plots

• Overcoming the monster

• Rags to riches

• The quest

• Voyage and return

• Comedy

• Tragedy

• Rebirth

Summary

• Growing and dynamic promotional marketplace - £55 Billion • More than £10 Billion on promotions WITHOUT price discounting

and couponing • Real gap remains between marketers perception & shopper

realities • Couponing is too powerful a tool to dismiss but too easy a tool to

use indiscriminately • Added value isn’t necessarily a weaker driver than money off for

brand switching and it can be more cost effective • Creative promotional marketing actually drives brand switching and

brand loyalty • Digital channels are engaging more audiences but closer

engagement with creative promotional techniques is needed

Summary

• This is not a formula business – mix of art with science, craft with technique, experience with opportunity

• No absolute truths here – just tools that help us make better informed decisions

• As ever, the Marketing Gap raise as many questions as it gives answers

• We all as promotional marketers need to consider the results of the full study in the context of our own brands

• Response is better than redemption