By: Todd Hale, SVP, Consumer & Shopper Insights, The Nielsen Company
CI SUMMARY: Poor people need low prices. Rich people love low prices. Either way, these are happy days for the promotion industry, as manufacturers and retailers update time-proven promotional techniques and unleash a new arsenal of Internet and wireless-based delivery systems.
Let’s make a deal! In good times or bad, everybody loves a bargain. It’s validating. It’s empowering. It can even make us spend more than planned. Given the extreme volatility in current financial and employment markets, buying on deal will increasingly become the norm for cautious shoppers trying to balance the household budget.
Promotions already represent a universally popular marketing tactic, with some $129 billion of promoted dollar sales rung up across all categories in food, drug and mass merchandise outlets (excluding coupons) according to Nielsen in the year ending July 2008. Fully 35% of dollar sales were sold on promotion—temporary price reductions (TPRs) accounted for 16%, feature ads another 10%, displays added 6% and a combination of features and displays contributed 4% to the total.
The drug channel is slightly less promotionally-driven than grocery, with 31% of items sold on deal vs. 36% at food stores. The majority of drug outlet promotional sales (15%) were stimulated by feature ads, while TPRs led the way at the more promotional-sensitive grocery channel (17%).
Products in search of a dramatic sales jolt should consider a combination of feature ads and displays, which pumped up dollar sales by 180% on average in the grocery channel and 124% at drug stores. Display-only, feature-only and TPR grocery promotions outpulled drug channel results by 21%, 14% and 9%, respectively.
Holidays are happy times for buyers and sellers alike, as base and incremental sales spike in the traditional December shopping period. Last Thanksgiving, shoppers bought nearly 40% of consumer packaged goods on some type of promotion. Easter sales were not much different, with 37% of product sales promotionally-driven. On Memorial Day and July 4 th, patriotic consumers marched through check-out with 35+% of the basket on deal.
Gainers & losers
Promotional popularity across categories can wax and wane with inflation. Nielsen reports that bottled water, frozen unprepared meat and seafood, candy, batteries/flashlights, liquor, breakfast foods, frozen novelties, teas, nuts and non-carbonated soft drinks recorded the largest increases in promotional support from July 2004–2008, most likely driven by new product introductions.
Conversely, refrigerated juices and drinks, canned seafood, eggs, diet aids, shelf stable meal starters and frozen juices and drinks fell off the promotional wagon, reporting the largest decreases in promotional support during the same time period, most likely attributable to inflationary pressure on suppliers that got passed along the food chain.
To sketch a clearer picture of the coupon constituency, some 68,000 Nielsen Homescan panelists were segmented into five groups based on annual coupon use across categories. These cohorts ranged from non-users who never presented a coupon, to super-low users who bought fewer than 5% of units on coupon, to low users who purchased 5-20% of units on coupon, to medium users in the 20-40% redemption range, to heavy users purchasing 40+% of units on coupon.
|Coupon-using consumers comprised 86% of households...|
Overall, coupon-using consumers comprised 86% of households and drove 89% of all-outlet dollar sales. However, it was the low and super-low coupon users who represent the greatest volume opportunities as they drove the majority of dollar sales. Low coupon users (26% of households) made up 28% of dollar sales and super-low users proved to be a super big segment, accounting for 50% of households and 51% of dollar sales. In contrast, heavy coupon users spend the least annually, contributing just 3% of total dollar sales, medium coupon users rang up 8% of total dollars and non-coupon users delivered 11% of sales.
Based on overall volume, marketers looking for the sweet spot among coupon users should incentivize trial by targeting the low and super-low segments, which account for three-quarters of households and 80% of non-promotional dollars. Some consumers appear to “cherry pick” scheduling purchases around special deals—such as the very promotion-sensitive heavy user (54% of product dollars on deal) and medium user (41% of product dollars on deal) groups.
Heavy coupon users shop more often, making 85 grocery and 28 drug store trips per year versus 44 grocery and just nine drug store trips for non-users. Another measure of shopping “addiction” is the total trip index, which compares the percent of trips per group with its incidence in the population. A trip index value of 100 means that a segment comprising 50% of households also accounts for 50% of shopping trips. A score >100 means the group is disproportionately active; a score <100 suggests lower than expected activity.
Heavy coupon users index at 197 for drug store shopping trips, almost double the expected frequency, and almost 50% more for the news/bookstore, grocery and home delivery channels.
|Some exceptions translate to big opportunities...|
From start-up families to senior singles to empty nester households, there is not a great deal of variation in terms of coupon usage. Nielsen found that across all categories, coupon usage has broad appeal. There are, however, some exceptions that translate to big opportunities. For example, within the heavy coupon user group, families are underdeveloped. With more mouths to feed, noses to wipe, and bodies to clothe and clean, this high-volume demographic segment represents a real volume opportunity to use more coupons and drive sales.
Manufacturers and retailers should look for ways to make it simpler for households to both receive and redeem coupons. Today, manufacturers and retailers are bypassing some direct mail efforts and offering e-mail—or in some cases, mobile-phone—coupon offers, to their shoppers. These methods still require too much action on the part of consumers. Current and future technology could be better leveraged to simplify the process and grow coupon usage.
Race for dominance
Technophiles take note—your day has come. Nielsen experts analyzed current promotional activity and made some predictions regarding the featured roles of the Internet, credit cards, frequent shopper programs, mobile phones and in-store options in the promotional world of tomorrow. Here’s what’s ahead for today’s coupon shopper:
A race for dominance is taking place with computer-based Internet applications, mobile phones, credit cards, frequent shopper cards and in-store applications. Global positioning systems (GPS), radio frequency identity tags (RFID), eye movement tracking cameras and similar devices will enable location- and interest-specific promotional offers to be delivered at actionable sites.
Instead of tagging consumers as they leave the store post-purchase, next generation systems will deliver coupons via mobile phones, via Internet or via in-store devices when shoppers enter the store or are in the mood and in the aisle, ready to buy.
What’s for dinner tonight? Visit the produce or meat department and allow your personal chef avatar to generate some electronic menu suggestions and automatically create a shopping list with aisle and item locator cues.
Look for personal shopper holograms to guide you through the store or shelf talkers activated by your cell phone to offer up special discounts. Walmart has pledged to invest $10 million and two years of testing to determine the optimal placement of in-store screens and special shopper programming.
Stores will become increasingly interactive and consumer-specific, marrying data from multiple sources to deliver an involving shopping experience that reflects individual interests and buying preferences. Social networks based on shopping proclivities will be formed to build demand and drive sales.
Shopper marketing comes of age, dominating the retail landscape, displacing product-centric marketing planning. Technology enables a holistic planning approach that puts the consumer front and center while “benefitting the brand, the consumer, the shopper and the retailer”.
The bargain hunters of today will become the treasure hunters of tomorrow, discovering all the once-buried items store-side that will be presented to them as they stroll the aisles. As envisioned, it will be an effortless and entertaining way to feed body and soul, and Nielsen has the infrastructure in place to track these multiple media touch points in order to accurately measure the return on marketing dollars.