Promiscuity here to stay?

Discounts are great for consumers, but come at a cost to retailers of declining brand loyalty.

John Ruddy reports

Soliciting for trade: retailers need to strike a balance between attracting customers with offers, and instilling a tendency to 'promotion chase'

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Regardless of the ebb and flow of overall market share figures, what the TNS Worldpanel quarterly data highlights most keenly is the reduction in average spend. Consumers are buying cheaper products, buying more products on deal, and, worst of all (from a retailer point of view) are visiting more store formats on a more regular basis – with the net result that spend per shopping trip is down considerably.

Every mainstream retailer now faces three main issues, or the three Ps – Price, Promotion and Promiscuity.

On price, they need to create a compelling offer which convinces shoppers that they are getting value for money across the store. On promotion, they need to offer discounts and deals to tempt switchers from other retailers. And in relation to promiscuity, they need to convince consumers that they don't need to look elsewhere for value.

These concepts are far from rocket science, but cracking the right combination of these three Ps is quite a challenge.

Focusing too heavily on discounts and deals, for example, can encourage shoppers to 'promotion chase', where they simply buy whatever is cheapest.

This brings in the issue of promiscuity, where shoppers are no longer loyal to one supermarket brand, but will dip in and out of different retail formats to avail of the various promotional cycles across the retail groups. As such, the key metric lies in the combination of market penetration (namely the number of people that are shopping in a retailer's stores), frequency of visit and per-trip spend. At Tesco, for example, although shoppers are spending less every time they visit a store, they are shopping there more often.

With promiscuity so rampant, the real winners would seem to be discounters like Aldi and Lidl. Even allowing for the usual drop-off in business in December, the discount format continues to attract new shoppers and, more importantly, is persuading them to spend more per visit.

Of course, the mainstream supermarkets will hope that this is a temporary glitch, brought on by the recession. However, as PwC research presented at last week's Checkout Conference showed, consumers have now changed for good.

John Ruddy is editor of grocery retail magazine 'Checkout'