IPA Bellwether reaction: brands are getting hooked on short-term discounting
This week the IPA Bellwether report raised alarm bells over retailers' over-reliance on discounts and promotions, Richard Kelly, chief solutions officer at Mindshare UK investigates.
IPA Bellwether report raises concerns over discounting / Unsplash
There’s a touch of Groundhog Day around this week’s IPA Bellwether report which tracks trends in UK ad spend. Despite some reasons to be cheerful such as an overall increase in total marketing budgets, the report paints a picture of yet another quarter where optimism is in short supply.
With consumer confidence stubbornly low and with the UK still, in the midst of an ongoing cost of living crisis, it’s perhaps not surprising that the big takeaway from this year’s report is a substantial uptick in sales promotion budgets.
The category saw the largest quarterly increase in the report’s two-decade-long history with the net balance of firms recording budget expansion rose to +13.4%.
A counter-productive exercise
In some regards, price promotion is an obvious solution. With consumers feeling the pinch, a brand can drive short-term sales while also responding to the needs of the hard-pressed consumer.
Paul Bainsfair, the IPA’s director general however sounds a note of caution. Bainsfair describes price-promotions as a “counter-productive exercise” and warns advertisers that sales promotions will almost never change how consumers think or feel about their brand because they are only interested in the lowest price point.
And he’s got a point. We all love a bargain but advertisers have many levers they can pull without resorting to a strategy that risks the long-term erosion of their brand equity. Yes, price promotions can have their place, but there will always be a point at which they stop being viable, especially as inflation drives up brands’ costs. The IPA’s analysis hits the nail on the head when it warns against price promotions becoming a trend rather than a tactic.
So, what’s the solution?
The IPA has amassed mountains of evidence to support the old adage that companies that continue to advertise through a recession emerge stronger than those that don’t. There’s also plenty of evidence in this quarter’s Bellwether report to suggest that brands continue to agree.
But there is nuance here. It’s not just a case of what you spend, but how you spend it.
In these challenging market conditions, the role of media agencies becomes more crucial than ever. Not only can they help achieve short-term growth, but they also play a pivotal role in preparing businesses for future success. The IPA report notes that budgets for market research have been cut as brands tighten their belts. Ironically, this comes at a time when the consumer landscape is more complex than ever. Agencies have a key role to play in helping brands stay customer-focused and to help them remain agile with marketing plans that respond to changing market conditions.
Suggested newsletters for you
Staying close to audiences will also help brands develop messages that flex to accommodate changing customer mindsets and use social proofing to reassure and find ways to demonstrate brand kindness and support wherever possible – which may include price promotion as part of a longer-term strategy to drive both short and long-term growth. Perhaps the most successful price promotion strategies utilize a value exchange rather than simply a lower price. If price promotion is a viable option, is there an opportunity to offer a customer a discount in exchange for zero-party data?
While price promotions can be useful as tactical tools to drive short-term sales or clear inventory, brands need to carefully evaluate the balance between promotional strategies and long-term brand-building efforts. By offering value beyond just discounts and emphasizing product quality, customer experience, and unique brand attributes, brands can differentiate themselves from competitors in the market without sacrificing margins or brand loyalty.