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The danger signals in SA’s discount deluge

Consumers are being “trained” to buy only on promotion – and it can backfire on brands, warns Nielsen’s Kerith Botha.

South Africa is a nation of promotion-obsessed shoppers, according to a new Nielsen report, The Price of Promoting. It shows that 75% of the adult population say they know the prices of the grocery items they buy and notice changes in price. That’s 6% higher than in 2017.

In addition, 31% actively search for promotions and 16% go so far as changing stores if a brand they prefer is on offer elsewhere.

Nielsen Connect South Africa MD Kerith Botha says this stems from the fact that despite ongoing, relatively low inflation rates (4.4% in Q1, 2019) and stable consumer confidence. fixed expenses, like the spiralling price of petrol, taxes and utilities, have placed a massive strain on essential living costs.

“This has led to consumers seeking financial relief and the first casualty of their desire to ease their financial strain is discretionary spending, which has taken a toll on their grocery baskets. Unfortunately, this ‘money’s too tight to mention’ scenario has also seen South African shoppers prone to severe cases of Promo FOMO. The danger with this, is that for manufacturers and retailers alike, promotions can be a double edged sword.

“They bring consumers to the store and result in temporary pick-up in brand sales/ volumes but the long-term impact of promotions is more severe and can lead to loss of brand and store equity.” says Botha.

The intensity of discounting within the local retail market becomes apparent when one considers that, in 2018, 30% of the total volume of products in South Africa were sold at a discounted price. This has increased by 3% since 2017.

In addition, 22% of South Africans say that they change stores based on the best discounts on offer, while 34% say they do not change stores but actively search for discounts in store. Sixteen percent of consumers, versus 22% in 2017, also only buy products at a discount if they already like the brand.

Across the price and promotion studies performed in South Africa during 2017 and 2018, the average frequency of promotion increased by 3%. A significant relationship has also been found where more frequent promotions lead to higher consumer sensitivity to regular prices – which means in effect, cosnumers are being trained to buy on promotion.

But do promotions actually work? Says Botha: “Based on Nielsen global benchmarks, a promotion is said to break even if its ‘efficiency’ is 50% or greater. Out of the 200+ items analysed in South Africa for this report, only 33% surpassed the 50% efficiency threshold, which means that a massive 67% of promotions don’t break even.”

Botha also cautions that not all items see high uplifts when promoted, and pricing strategies need to be tailored to ensure the right categories are positioned at the right price. “Products need to be treated individually, as consumers display different sensitivities to everyday price increases and promotions on different items.“

This has created a complex environment for manufacturers and retailers, and underlines the need for key insights to understand South Africa’s preoccupation with promotions, to help create efficient promotion plans using effective pricing strategies,” says Botha.

Source: www.nielsen.com

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