A report from data and analytics company Nielsen has revealed local retailers’ approach of “relentlessly promoting products with no regard for sales uplift” is unsustainable and is leading to billions in unnecessary promotions every year.
The report, titled Are We Really Getting Value From Our Promotions? was released last week, and shows Australia has one of the most highly discounted retail sectors in the world, with the percentage of products sold on promotion increasing from 30% to 40% in the last eight years.
For those promotions, $51 billion is spent by retailers. However, Nielsen’s senior manager of sales and marketing effectiveness Raone Zeviani said around 48% of those sales would have happened anyway, regardless of whether the product was on sale or not.
This has led to an $11.3 billion opportunity for Australian retailers to improve promotion efficiencies, says Nielsen, based off the retail sales value of the discounts applied on promotions that create minimal sales.
“Australian manufacturers and retailers are investing an exceptional amount of time and money executing promotions on a regular basis — with the hope that both parties will benefit from a maximum return on their investment,” Zeviani said in the report.
“The reality is, however, that this outcome is rarely ever achieved.”
Drilling down further into how Australian retailers discount, Nielsen analysed the pricing strategy behind more than 7,000 products, and found four distinct discount strategies used by retailers.
These were ‘Hi-Lo’ (fewer discounts but bigger discounts when they happen); ‘Hi-No’ (limited numbers of promotions, works best for products with low sensitivity to discounts, such as canned tomatoes or bread); ‘Everyday Low Price’ (regularly low priced items, such as ice-cream or laundry products); and ‘Highly price sensitive’ (products that are sold significantly more when discounted, such as pasta or deodorant).
Assessing these products, Nielsen discovered discounts have a much lower impact on 59% of promoted items because those products are either being promoted irregularly (Hi-No) or are always low-priced (Everyday Low Price). Therefore, retailers should be switching up their strategies or limiting promotions, said Nielsen.
“In the competitive world of retail pricing and promotions, relentlessly promoting products with no regard for sales uplift is a difficult strategy to sustain,” Zeviani said.
“What’s clear is that demand-driven price and promotional strategies are more likely to be sustainable in the long term.”
Speaking to SmartCompany last year, consumer behavioural specialist Bri Williams said deep discounting and flash sales can drive a “fear of missing out” in customers, but a typical everyday low prices model might work better for retailers in the long run.
“People will always like the sense of winning and the good dopamine rush it provides, so that’s where these flash sales are a big benefit,” she said.
“Flash sales are the counterpoint to the rise of convenient retail options like Amazon, as consumers still enjoy the serendipitous ‘hunter-gatherer’ purchase events like these, so they should continue to pick up traction.”
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