For the last decade, UK supermarkets have been involved in a fierce battle for market share. Along the shelves of Sainsbury’s, you will see large yellow stickers announcing which items are ‘Aldi price matched’ and posters proudly announcing their flagship meal deals. The brutal contest between the established giants and discounters, like Lidl and Aldi, has resulted in a colossal decade long campaign of slashing prices and accepting lower profit margins. However, this is a familiar story among the retail industry, with small bookshops desperately clutching onto the high streets, in the face of large chains like Waterstones and E-commerce sharks like Amazon. Once large companies like Debenhams have fallen to the swarms of busy customers nit-picking their way through the treasure chest that is TK.Max’s jumbled lines of discounted clothing. How much longer can restaurants continue to subsidise the eating habits of consumers as they march through the doors waving the white sheets of promotional offers? Yet, if the retail industry stopped the promotions would people still come? It is a problematic trade-off, persevere with meagre margins or close-up shop? On the other hand, consumers benefit the most as they continue to enjoy special deals, promotions and lower costs of living.
It isn’t surprising that price promotions have become the anchor in the retail industries marketing strategy. Since the 1980s real wages have been suppressed and was only exacerbated by the financial crisis of 2008, resulting in less purchasing power and a more competitive retail climate. Therefore, with a less disposable income, the retail industry has had to increasingly attract consumers through promotions and discounts (Check out ABM’s insights on retail financing and E-commerce). The result has been two-fold, many of the independent shops have faded from local memory, whilst large discounters or big brands with large enough scale to subsidise these promotions have swallowed up much of the highstreets. Many of our towns have morphed into uniform creatures, flashing with large supermarkets, identical chains of restaurants and familiar global brands overshadowing the few remaining independent traders banished to the periphery. The irony is that consumers enjoying low prices and high standards of living are ultimately the driving force behind reduced consumer choice and future market power to a select few firms. Concerning pricing strategy, conventional wisdom suggests that the discount of one product can stimulate the purchase of other goods set at its full price. This multiproduct strategy has long been influencing the argument for priced promotions and is still to find any strong support that there is a positive ‘relationship between the aggregate promotion and aggregate regular price sales” (Mulhern JF & Padgett TD, 1995). This is not to suggest that it hasn’t allowed firms to remain profitable when confronting discounters, only that promotions don’t seem to have the multiplier effect on regular products which has been suggested before. The result is that even with promotions on various types of goods and services, companies are feeling the squeeze and are failing to stimulate sales on regular-priced goods. So how will the highstreets survive the dual pressures of the need to offer discounts and attracting paying customers? Companies could do more in focusing on product quality, customer service, automation, social media influence and creating experiences rather than just a 30% off promotion. Despite saying this, until real wages rise and purchasing power is restored, high streets will continue to be in a precarious position. Interestingly, coronavirus has illustrated that government-backed schemes, such as help out to eat out and the US monthly cheques (Universal basic income), were able to turbo-charge consumer spending when lockdown restrictions were lifted.
Overall, retail promotions benefit large corporations and consumers the most. Although price promotions do not improve profits, it does allow firms to increase their share of the market (often at the cost of local or smaller firms). Consumers on the other hand have been enjoying a golden era of special deals and promotional bundles, yet this is largely because of the stagnation in wages. The main loser in this is the independent stores and the highstreets themselves, suffering from being crowded out by incumbent discounting firms and a hollowing out of consumer choice.
Written by Henri Willmott,
Content Manager