Price promotions don't benefit brands in the long-term

Brand owners must stand up to retailers or risk long-term damage to their brands, according to the IPA’s latest report .

Price promotion during the downturn: shrewd or crude? reveals that brand owners are giving in to retailer pressure by increasing their spend on price promotions in-store, despite evidence that it makes no commercial sense and can in fact cause long-term damage to the brand.

The research is based on the 14m strong Tesco ClubCard database and has been analysed for the IPA by dunnhumby, to determine the impact of price promotions in relation to advertising patterns on consumer behaviour and category pricing.

Says Lawrence Janes, dunnhumby: “Brand owners are losing out and must try to engage and work with retailers on a basis of understanding the impact of their different marketing activities – both short and long-term, on the retailers’ customers.”

Says Janet Hull, IPA Consultant Head of Marketing and Reputation Management: “Past academic theory has indicated that price promotions do not benefit brands, however this is the first time that we have real sales data to confirm the extent to which this rings true. Based on such comprehensive data it is clear that retailer pressure is dictating business and that brand owners must find a different way of negotiating with retailers, which is less damaging to their brands.”

Says Peter Field, Marketing Consultant: “Marketers everywhere are under extreme pressure to price promote their brands – not just from retailers but also from the knowledge that their competitors are doing so. In many of the categories affected, volumes are holding up well, but value is being needlessly destroyed. A spiral of profit decline is setting in:  this compelling dunnhumby data shows that marketers desperately need to hold their nerve and find alternative responses to these pressures.”

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