Impacts of promotion in pricing.

A brand’s promotional policy is an integral part of its price image. However, bringing pricing and promotion together is not an easy task. Beyond the promotional policy of its own brand, competitors’ promotions raise many questions.

How do I get the information? Should I react to my competitors’ moves? Should I align my price? How do I measure my price image? Do I have the right tools to measure and make these decisions?

In this article, we will discuss the impact of competitors’ promotional actions on a retailer’s pricing policy.

The multiplication of promotions in supermarkets in 2022

Since the beginning of the year, we have been experiencing the highest inflation in decades: +4.8% over one year in April in France (unseen since 1985), +7.3% in Germany, +8.4% in Spain. This period of inflation comes just after the health crisis which had already left its mark on the large-scale distribution sector. The pre-crisis level of shop traffic has still not been recovered. In the midst of inflation, promotion is a weapon of choice: it helps to limit inflation in the eyes of the consumer and increase in-store trafic, while complying with the regulation and internal rules (e.g. the Egalim law in France on below-cost selling).

In this context, managing a pricing strategy that takes into account the competition may lead to unseen side effects. Hasty decisions may be taken in reaction to competing promotional events without considering the consequences.

Promotion includes all the mechanisms that offer an advantage to the consumer:

  • A discount linked to a loyalty card
  • Fund receipts
  • Deferred discounts
  • Barred prices

The crossed-out price is a direct price discount, the other promotions mentioned are usually configured in the checkout management software. This has a direct impact on competitor price data collected: the way the promotional price is displayed on the various communication media will have an impact on competitor price reports. A simple price cut may be easily picked up by price crawlers or panelists, whereas a more complex promotion will not be easily identified. This data will not be accessible/usable by all.

An evolving legislation

It should be noted that the laws governing promotion are not the same depending on the type of promotional mechanism used. The display of a reference price implies compliance with the legal provisions. On the other hand, a % discount on a product range without prior display of the reference price leaves the retailer freer to determine its starting price, which has not been communicated. Moreover, regulations framing promotion practices differ from a country to another. In France for instance, the Egalim law provides a stronger framework for food promotions than in other retail sectors: a promotion or price reduction on a food product must never exceed 34% discount and the SRP is increased by 10%.

The advertiser must be able to prove the reality of the reference price from which the price reduction is advertised. This price reduction must not be unfair to the consumer. Following a European provision, from 28.05.2022 we will return to a stricter framework which was already applied before 2015 providing for:

  • Any announcement of a price reduction shall indicate the previous price applied by the trader for a specified period before the price reduction is applied.
  • The previous price means the lowest price applied by the trader during a period of not less than thirty days before the application of the price reduction.

Pricing will be directly impacted by this provision, and this issue is often mentioned by the retail professionals we meet. Teams will need to integrate this new time constraint into their tools in a reliable and time-efficient manner. Mercio’s native functionality makes it possible to meet these challenges in a simple and transparent way. 

Mercio allows you to configure your reference prices in advance. Blocking prices before and during your promotional operations is guaranteed to ensure compliance with the law. Marketing data, including information about upcoming promotions, is fed into the system on a continuous basis.

La promotion in the competition and the response to it

To determine whether a retailer should match a promotional price or not, you need to :

  • Understand where this is relevant given its offer, its market.
  • Determine the purpose of this alignment.
  • Whether this can be achieved with alignment and whether the company has the means to do so.
One answer will not be applicable to all sectors and each market specificity must be analyzed.
The weight of price in the purchase decision:

Beyond the chosen promotional mechanism, the promotional price will be interesting or not to activate depending on the importance of each lever triggering a purchase. The price is one lever among others. Consumers are also sensitiv