There will Never be a Better Time for Systemic Promotional Changes

Any post-crisis (or even mid-crisis) is the best time for new opportunities, offering a clean slate for growth and rebirth. For years, promotional ineptitude has been well documented – with Nielsen publishing that 2/3 of promotions fail. Confirmed by study after study that would show anywhere between 80-90% of them don’t unleash additional revenue or margin. Even with that knowledge, the allure of trade dollars, and the risk of dramatic change, compelled most to stay the course and continue to invest in bad promotions. That’s now changed.

YoY Change in Trade Promotion Costs 2019-2020

Forty percent of companies reported lower promotion costs in 2020. There’s little value in promoting when inventory is unsteady and assortments are focused on the top sellers. Consumers were not actively seeking out promotions or discounts, as much, to make their purchase decisions. It’s still important, but there were other factors that could force a decision or cause consumers to try new products. The #1 reason consumers tried a new product during 2020 was availability, beating out #2 and #3 [lower price & being on promotion] by nearly 40 & 50 percentage points!

Primary Factors for Switching to New Brand

This behavior won’t last. Sporadic shortages are going to continue, but consumers are still fickle. Despite all the reports about people being flush with pandemic cash, it is inconsistent; held by those mostly in the mid to higher income brackets. Discounts still matter, and as inflation heats up, there is only so much that every consumer can be pushed to.

Hence promotions, and prices in general, will again become driving forces in consumer purchase decisions. Yet, consumer behavior will not return to the way it was, thus making historical promotions an even less reliable indicator of the future.

Since consumers aren’t returning to normal, promotions shouldn’t either. Yet there will be two paths taken: Some will go back to the old, proven failed promotions; yet others will take advantage of the clean slate and use AI technologies to act on, and for, consumers. The pessimist in me says most will revert to option 1. Yet the optimist in me looks forward to the better outcomes of those who choose the 2nd option – with the knowledge that they will win out.