How do promotions provide an effective response in times of inflation

Customers are concerned about their purchasing power, brands fear a drop in their margins, and consumer brands are struggling to keep up with all the orders they receive. Promotion must reinvent itself to meet the challenges of each stakeholder.

We’re not done talking about purchasing power. As Michel-Edouard Leclerc and Dominic Schilcher, presidents of Leclerc and System U, recently mentioned in the media, the inflation we are currently seeing is a consequence of the Covid crisis. The war in Ukraine, the effects of which will be felt in the coming months, risks passing like a second wave even more devastating to the cost of living.

Retailers and consumer brands are doing everything they can to keep prices low – so as not to affect their customers too much and to stay competitive – but despite their best efforts, inflation will have a strong impact on household purchasing power.

Manufacturers and distributors of consumer goods are also directly affected in their profits and losses: rising energy costs are devastating for these industries. Their margins are shrinking and therefore their ability to bring down prices is small.

The dilemma remains. How can impactful offerings be delivered to consumers even when pockets of investment are increasingly limited? How to be generous while maintaining your bottom line?

Promotion as an anti-inflation shock absorber

Because promotion, as it is more specific than price reduction, can make it possible to combine this desire to “make a gesture” to its customers while keeping prices consistent with profitability.

Finally, it is not for everyone … Some manufacturers are facing such a shortage of raw materials that it is impossible to promote them. Production concerns may lead to lower volume of products and for them, the best way is to improve the sale of units they can produce.

For others, on the other hand, offering “good deals” from time to time is a real opportunity to gain market share. Mais cela ne peut plus passer par la promotion « à l’ancienne » où une offre unique est définie pour tous les clients et dans tous les magasins de l’enseigne à travers un processus long et rigide (rappelons que lesues sont définis des mois advance). Especially since these group promotions have a more than uncertain return on investment: according to Nielsen*, 67% of promotions offered in retail have no negative or even negative impact on sales.

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Convenience, profitability, flexibility and responsiveness

Cedric Chereau, Co-Founder and CEO of UntieNots

In this context, it is essential that promotions gain relevance, profitability, flexibility and responsiveness. This is how you can have a real impact on consumers, brands and retailers. By being more effective, promotions will allow each stakeholder to find their way.

More relevant and more profitableThey could be if offers finally moved from a product-first logic to a truly customer-centric one. By offering each consumer what really matters to each consumer (not what manufacturers want to buy), brands and distributors will be able to provide the personalized promotion of the scale they deserve.

To avoid subsidizing purchases that consumers would have made anyway, everyone should be rewarded up to their potential by encouraging them to travel less. In other words: seek to compensate only virtuous behavior. It’s easy to say, and less easy, but technology, big data, and artificial intelligence can provide answers to these challenges.

More responsive and more flexible. The rise of food e-commerce, with drive-thru and home delivery, has accelerated the pace of commerce. Promotional programs must be adapted. We won’t meet everyone’s challenges and expectations by scheduling offers several months in advance. Digital, through mobile apps, websites, and in-store touch screens, provides this responsiveness and flexibility. We can now avoid heavy and incompressible production times.

The retailers and brands that will come out on top are those that will be able to adapt to deliver more effective offerings. Customers are very sensitive to the cost of their cart and those who offer them the real deals, on the products that interest them, will be the big winners in this tense period.

Author: Cedric Sheroco-founder and CEO of UntieNots

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* Source Nielsen: The Path to Effective Trade Promotion – February. 2015

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