The vicious circle of sales promotions
The increasing reliance on price promotions to boost sales is a frequently discussed and often lamented topic. With good reason. One thousand categories across many markets between 2012 and 2014 tell this story:
- For the average category 17% of sales value was on promotion – it is now 20%
- The average volume sold on promotion shows a similar pattern: 18% to 22%
- Categories with very limited promotion (less than 10% on promotion) are difficult to find – only 1 in 12 categories compared with 1 in 6 in 2012
- Compared with 2012, twice as many categories have more than 30% of their volume sales on promotion
- Only 8% of categories sell more than 30% of their value on promotion, compared to 16% selling more than 30% of volume on promotion. This is more evidence that promotions largely trigger switching (from non-promoted to promoted brands or SKUs), but do not substantially increase category sales
These numbers confirm the dilemma many players in FMCG (and beyond) face: A strong focus on price at the POS will educate consumers to discount other factors – like quality and past positive experience. A vicious circle that is challenging to break.