How Effective is Discounting your Product?

Each year, the CPG industry spends $300B a year on trade promotions.

By no means should we be surprised that between 50-90% of all promotions fail to deliver a truly compelling sales lift. This is why it is imperative to have promotions that excite and incentivize consumer for purchase with relatable rewards. Without context, relatable rewards may be vague but I will simplify it to this: give the consumer something they can consume in large quantities and something digital that they can use on their mobile devices.

That being said, running a failed promotion is costly so consumer goods manufacturers and retailers are reluctant to experiment — even more so in a fragile economy.

In order to paint this picture as effectively as possible, we should take the point of view of both the CPG manufacturer and the retailer. The CPG manufacturer has the state of mind that this new promotion is too much effort and risk, that, if it doesn’t work, they’ll miss their entire year. The retailer also believes they are already working with tight margins and the risk doesn’t warrant the promotion.

Even though all we do is focus on the consumer, we often underestimate how complicated our consumer actually is. All they see is the same, redundant promotional tactics that look to discount a product to influence a purchase behavior. Why be boring when we can offer them something valuable with their purchase, while still upholding strong margins for the brand? A professor of Marketing at Stanford Graduate School of Business suggests that promotions that solely focus on price fail because consumers are more complicated than we assume them to be.

In a study of laundry detergent, instant coffee, and butter & margarine promotions titled “Taming the Multibuy Dragon,” Bruce Hardie and Patrick Barwise, professors at London Business School, found that over the course of 3 years, escalating price-based promotions decreased category value by 8%, because only a small fraction of “deal-prone” buyers, who were neither store loyal nor brand loyal, bought the majority of promotions, while normal buyers and new customers got only a tiny percent of trade promotion dollars. “Price promotions, especially deep-discount scale programs, have hurt CPG Brands and not benefited retailers,” they wrote. “Manufacturers could be spending their promotional budgets in a more equitable, as well as a more efficient, manner.”[1]

This is a perfect study that illustrates how price discounts fail to effectively grab the consumer’s attention. Even more so, it’s a waste of budget for the CPG Brands.   So, with so much consumer insight technology available for the brands, why are they still struggling to determine what an effective promotion is? It’s great to know after the fact that the promotion wasn’t effective; but what if you could know how effective your promotion is while it’s live and use this data to plan out other campaigns?

The traditional thought process is that all consumers make static and stable purchasing decisions based on rationale. While, behavioral economics holds that consumers are driven by a variety of subconscious social, emotional, and cognitive biases. In other words, they are compelled by urges other than price.

With all this information at our fingertips, why are we so afraid to innovate to a new way of grabbing consumer’s attention? Heck, we’ve already seen successful A/B testing in digital prove that consumers who can relate to an applicable purchase vs “Buy and Save” actually buy more when they see a benefit and real-time application of the product.

So, what kind of results have CPG Brands seen from offering a value add vs discounting?   Could we ever find an answer to such a mind-boggling question? Snipp Interactive is changing the landscape and is a true Triple Win – The unicorn everyone is striving for. Even more so, they’re letting us see their success in action right here.

CPG Studies have shown consumers would rather purchase a case of beer with pizza vs buying that same beer, at a discounted price[2].

Value-Add’s are the way of the future, they are the way of incentivizing the consumer to purchase and create a tremendous amount of excitement within the promotion! Who doesn’t love to get a free Health Magazine with their purchase from Whole Foods or a free Uber credit with their case of beer?   CPG Brands must challenge themselves to think differently and appeal to consumers across the spectrum.

Snipp Interactive’s technology is able to support promotions and allows our customers to capture valuable data and make it easier for the consumer to participate in COOL promotions!

In conclusion, I BELIEVE value-added promotions help the CPG Brand see higher sales, more effective use of their budgets, and a richer understanding of their consumers. They can also improve their relationships with retailers, by transparently sharing demonstrable results through our receipt processing technology. Retailers can potentially see an increase in sales and more relevant promotions to their consumers, which effectively impacts basket size. Most importantly, consumers feel happy and rewarded when purchasing your CPG Product. They see your product as something they truly need, which is very appealing!!

Written by Igor Kolpak, Strategic Business Development at Snipp.

[1] London Business School Study
[2] Deloitte – American Pantry Study