Colin Harper, the ISP’s head of insight, says: “Deep cut value promotions have become the drug of choice for the branded-goods manufacturer. They give an immediate good feeling, but deal long-term damage to the brand.”

The ISP is strongly recommending that price promotions should only be used when appropriate, and that marketers should, wherever possible, use other promotional techniques which build brand values.

Harper adds: “Effectively, this is a tax that brand owners have to pay if they want to continue to be allowed to sell their products through retailers. Certainly, manufacturers believe that these promotions benefit retailers more than manufacturers. They also typically lead to a drop in manufacturer sales after the activity, and a permanent change for the worse in the attitude of shoppers to that brand.”

Manufacturers say promotional spend is set to increase, and, if the current rate of growth is maintained, the total spend on price promotions at retail will exceed the total amount spent on advertising in the UK within the next 12 months. 
 

Harper observes that the percentage of FMCG products sold on price promotion at retail has increased year on year from just under 30% of all FMCG products to nearly 35% 12 months later.

The Institute of Sales Promotion says that branded goods manufacturers should be managing all of their advertising and marketing spend to deliver against the same objectives. At present, however, too many companies are allowing different departments and functions to control their own sales promotion budgets to achieve their own, sometimes contradictory, budgets.

The ISP is also recommending that price cut budget charges should be identified by companies and clearly shown on the balance sheet. This will allow management and investors to look at the real return on investment they offer compared with other brand-building promotional and marketing activity.

It should then be possible to come up with a recommended ratio between price-cutting spend and price-supporting or brand-building spend in order to assist companies in managing their future marketing activities.

The ISP notes that there are many other sales promotion approaches which can achieve volume sales while still growing brand values in the long term. However, manufacturers will have to review their relationships with retailers and with shoppers if they are to create the best investment combinations for both the short-term and the long.

ISP members can get a free copy of the full report by emailing the ISP’s chief executive, Annie Swift, annies@isp.org.uk. Please specify if you want it as hard copy or as a Word document.

Non-members can obtain copies of the report at a cost of £99, including VAT.