Trade spend is increasing at an alarming rate, approximately $430 million during the past year, with promotions and discounting spinning out of control. However, only one percent of consumers believe they are receiving better value in-store, so the system is obviously broken. Promotions do not drive loyalty in the long term, so why are manufacturers currently ignoring a proven driver of purchase intent and loyalty – media spend?
Today’s market is characterised by deep discount promotions, growth in private label and increasing competition for shelf space. But despite the large focus on promotional discounting, prices in Woolworths and Coles are actually increasing, up two percent on branded products and one percent on private label – and consumers have noticed, with 78 percent of shoppers believing that prices have increased during the past year.
At the same time, media spend has dropped by six percent, equating to $150 million in lost value for FMCG manufacturers when taking into account the long and short term effects of media. Manufacturers are sacrificing long term brand health for short term gains, ignoring the fact that the right marketing mix drives sales, loyalty and brand health. Just offering low prices doesn’t alter long-term purchasing behaviour.
Currently, half of shoppers are visiting two or more retailer brands in a four week period to gain the best deal that week. Or, they are switching brands for a promotional period and returning to their ‘favourite brand’ when pricing returns to normal. Neither drives long term engagement or purchase behaviour for brands. Instead, equity needs to be developed at a range of touch points including advertising and other marketing initiatives.
There are three key ways to flip this around and achieve marketing success:
1. SWITCH STRATEGIC FOCUS TO A BALANCE OF EQUITY AND SALES
We’re currently seeing promotional discrepancies as brands are focusing too much on driving sales and not building equity in the market. Media investment within FMCG brands should be approximately one-third the size of trade investment in order to create a long term sales lift. Manufacturers need to consider the return on investment they want, and take the actions to achieve this.
2. OPTIMISE MEDIA SPEND WITH DILIGENCE AND RIGOUR
TV is still the best way to reach a mass audience, and 89% of Australians watch approximately 24 hours of TV each week. The key to successful TV execution is building efficient media strategies to maximise ROI through continuous and regular spots, a unified message, quality copy, as well as layering synergistic media channels to maximise reach and gain higher brand recognition. Couple this with efforts to drive unduplicated reach via digital advertising, and brands will realise further media spend efficiencies while building market equity.
3. REALISE VALUE FROM INCREASED EQUITY
To increase a brand’s value and therefore profits, manufacturers need to focus on building market equity. The ideal situation is to achieve a Virtuous Cycle – continuous brand-building efforts allowing well-timed price increases. However, a recent Nielsen study of 14 FMCG categories found that lower-tier brands are currently increasing prices by 8% on average while prices of high tier products are declining by 3% due to deep discounting and other price promotions; the reverse of the ideal, and an issue that needs to be addressed.
In the current retail market, manufacturers need to focus on getting the balance right and building brand equity via well-placed marketing investment. The current climate of using promotions to drive volume is unsustainable, and trade spend needs to be balanced with media spend to ensure long-term brand health.