Discounting is only a short term option in the bid to woo the UK's increasingly price sensitive consumer, according to Jared Keen, managing director for coupon provider Couponstar.
Indeed, Keen warns that if brands and retailers want to retain the key middle-England customer, they will need to be far smarter at marketing: "It is marketing tools that enable customer engagement, and quantifiable returns that will boost brand value and deliver incremental sales."
Crisis of consumer confidence
UK families are more fearful about their financial future today than at any time in the past 26 years, according to GfK NOP figures from June 2008. The combination of falling house prices and soaring food and fuel costs has led to a dramatic drop in economic confidence which is having a very real impact on both disposable income and spending habits.
Couponstar has found that consumers are now far more price sensitive across the board, and that the current economic downturn is not affecting only so-called "sub-prime" individuals. Indeed, this segment of society has always been price sensitive, living a 'hand to mouth' existence based on limited economic stability, long before any global shift in general financial fortunes came along.
Hard times around the corner
But, as the latest research found, the lack of economic confidence is also being felt strongly throughout middle England. Recent figures show that families suffered the steepest drop in disposable income for nearly a decade during the first three months of 2008, and this drop is having a quantifiable effect on buying behaviour. According to the British Retail Consortium (BRC), in June 2008, UK retail sales value fell 0.4% on a like-for-like basis compared with June 2007, making retail sales the worst since summer 2005.
Indeed, across middle England, the response has been a significant move toward the European cut-price supermarket chains (such as Aldi and Lidl). It is this radical purse tightening and the adoption of discount rather than luxury goods that is the most telling indicator in this extraordinary transformation in economic confidence that has occurred over the past 12 months.
Opportunity or threat?
The implication of this emerging trend is significant for both FMCGs and retailers. In fact, whilst this shift in middle England's behaviour may appear to represent a real threat for brands, it also represents an opportunity for savvy marketers prepared to look deeper into how they can exploit today's economic trends.
Whilst tougher economic conditions are typically associated with decreasing sales, that is not the full picture. Consumption does not stop in a recession consumers still need to purchase essential goods, from cleaning products to butter. However, consumers are making both conscious and unconscious modifications to purchasing behaviour in a bid to reduce spending, from switching brands, to moving to own label goods, to taking advantage of promotions such as coupon offers or trade promotions.
Price conscious brand factors
In a price conscious economy, consumers also spend much longer evaluating purchasing decisions. They are also increasingly influenced by the money saving options and clever shopping hints and tips being presented daily by magazines, news programmes and information shows on television and radio.
The impact of this changing behaviour can be seen on the high street as retailers embark upon significant price based competition in a bid to win new customers or stop the steady erosion of the existing consumer base. But reactive, tactical retailer discounting alone cannot be a long term solution.
According to Keen, companies must therefore look at new ways of maximising sales and achieving strong customer engagement to boost brand value. TV and radio advertising are currently losing significant ground as organisations turn their investment toward customer marketing activity that can build far stronger and more measurable direct customer interaction.
There is already a clear trend toward sales promotion and online marketing. Figures from the latest Bellwether report reveal that sales promotion budgets have suffered less than other areas of marketing because of the need to strategically drive sales during a downturn. Furthermore, the only category to see an increase in the last quarter was the Internet one of the media channels used for sales promotion.
This suggests a continued move toward leveraging the internet as a powerful and cost effective vehicle for driving sales growth and enhancing brand value. The ability to rapidly access information, undertake product comparisons and research and assess price options has made the Internet a key tool to support cost effective buying behaviour.
Coupons on the increase
Consumer usage also continues to grow, particularly amongst middle-class women, also the primary household shopper as they search for imaginative ways to live well in a downturn, according to Financial Times research. The research revealed that middle England in particular is increasingly using the internet to search for money-off vouchers, discount groceries and cheap holidays.
There is also strong evidence that these consumers are changing the way they shop for mundane things such as groceries. According to data from Nielsen Online, discount retailers are registering increased interest from households with incomes of 50,000 a year or more. At the same time, Couponstar reported a 652% increase in redemptions for internet printable coupons.
By choosing to print coupons online, consumers are automatically engaged in the process. Having made the proactive decision to search and print, consumers are more likely to be motivated to redeem the coupon and are far more engaged in the overall "brand journey", Keen says.
Growing brand awareness
As a result, organisations such as Unilever, Mars, Colgate, Palmolive, Johnson & Johnson, GlaxoSmithKline and Ocean Spray have recently turned their attention and marketing budgets toward combining online brand experiential campaigns with internet printable coupons to help satisfy the need to improve customer retention and generate incremental sales.
This shift in strategy also reflects the growing demand for marketing activity to deliver tangible return on investment. Internet printable coupons are highly measurable, providing marketers with insights into both the number of coupons printed and the number redeemed. With typical redemption rates of 23.5% or above (according to Couponstar), the level of consumer engagement with internet-borne coupons compares well to other coupon distribution channels (which produce an average redemption rate of about 2%).