Discounting is not the only game in town. Brands can win through in recessions if promoters gain a true understanding of customers, says FRANK DILLON

WITH RETAIL sales figures falling, this is a tough time for brand managers. Supermarkets and other large retailers may be dropping prices to tempt the nervous and the northern bound back through their doors but the big losers are their suppliers – especially the smaller ones who are being squeezed to fund low-cost promotions.

In some cases, the squeeze involves pushing suppliers products off the shelves to make way for own brand pile ’em high sell ’em cheap-style promotions.

“There’s fight for inches on shelves,” says Shane Dempsey of Ibec’s Consumer Foods Council, who says that some suppliers face the threat of delisting if they do not accede to requests from multiples for aggressive price reductions. “It’s always been a tough market to service but conditions have gone well beyond normal,” he adds.

Businesses supplying the multiples are reluctant to speak openly about practices which involve them selling at unsustainable prices to stay in the game but Dempsey says that this is now the reality for many Irish firms in a grocery sector where about 60 per cent market share is concentrated among the three largest players.

However, experts agree that such an approach is short-sighted.

“Promotional discounting has rightly been described as the crack cocaine of marketing,” says Ken McIntyre-Barn of consultants Glendinning, who says there are huge dangers in getting trapped in a spiral of discounting that ultimately destroys value for both the supplier and the retailer.

McIntyre-Barn, who has extensive experience of working in the fast moving consumer goods sector, cites the example of soap powders. Where retailers sell large packs of detergents at a discount, it generally results in consumers who have bought those products avoiding the aisles that sell detergents on their subsequent visits on the basis that their needs have been satisfied. The opportunity for impulse purchase of higher margin products in those categories is then lost, he points out.

“Price-led promotions lift turnover in the short-term but ultimately they erode value. The focus instead should be on growing the category,” he says.

Damian McLaughlin of UCD’s Smurfit School agrees. “You can’t keep conceding on price, and you don’t want consumers getting used to paying a lower price for your product which destroys the equity that you have build in your brand.” A better approach, where practicable, is to blur the lines by changing pack sizes or finding ways to add value.

Another way to maintain prices yet still keep the customers keen is to look for ways to add value but at little extra cost, particularly if this added value is something that the competition would find hard to match, suggests Christine Sorensen from Newcastle Business School.

This could include better service, longer opening hours, speedier delivery, she adds. “No-one is pretending that these do not come without a cost but they can help to maintain price in the long-term rather than go down the route of cheaper is best and this differentiation from the competition means that we are not compared solely on price,” she says.

Getting consumers to part with their money in the current environment involves coming up with innovative approaches. One trend very evident at the moment is bundling a number of complimentary products in a themed offering.

A good example of this is Marks Spencers’ current deal of a meal for two with a bottle of wine for €12.50. Other recent retail promotions have included a “girls night in” where confectionary and drinks companies have come together to offer an attractive package.

The advantage of this is that it provides a compelling proposition for consumers, without the perception of naked discounting that could undermine a brand. Moreover, it reflects a move on the part of many marketers to get to understand consumer behaviour better.

You have to look at how consumers are changing in this recession and where the growth prospects are at the moment . . . people are still spending but not in the same ways,” says McLaughlin.

In the UK, for example fast-food outlets such as Dominos pizzas are thriving and cinema attendances are up, he notes, while at the same time, sales of big ticket electrical and furniture items are in sharp decline.

Gerard O’Neill of Amarach consulting, who spends a lot of his time talking to consumers in focus groups, speaks of a seismic shift in consumer thinking over the past six months with price becoming a big driver now for the first time since the early 1990s.

Nonetheless, he sees cause for optimism as he says that consumer sentiment, as measured by the ESRI, has actually been improving in recent months, from a low point last Autumn. “The recovery when it comes will be led by consumer sentiment and will happen below the radar before it is picked up by the usual economic measurements.”

The battle for marketers is in many ways, a psychological one, as they need to get people feeling good about themselves again in the midst of the torrent of bad economic news. Notwithstanding the severity of the problems, there is a degree of “pessimism porn” with some people wallowing in the bad news, he says.

By contrast, he says, the recent Coca Cola campaign, themed around “open happiness” provides a powerful, if at first apparently paradoxical, message in a time of uncertainty.

“Brand managers shouldn’t be slashing advertising budgets and going down the money-off coupon road. Consumers are feeling bad enough without the reinforcing negative that their favourite brand is in trouble.”

In reality, many consumers are now actually better off than they were this time last year, he notes, and this is something that marketers should view as an opportunity.

Falling interest rates and keen competition among retailers, means that the purchasing power of the majority of consumers has risen significantly over a short period of time.

A new phenomenon, however, is that well-heeled consumers may feel guilty about ostentatious showing of wealth at a time when others in society are feeling pain. This may partly explain, for example, why sales of new registration cars are down. “Money is still being spent but it’s being spent more discreetly. There’s still plenty of people out at the airport heading off on foreign city breaks, for example,” he says.

One serial Irish entrepreneur who is benefiting from the enduring spending power of the Irish consumer is Dave Phelan, the co-founder of Boru Vodka. Phelan is now the promoter of cream liquor Coole Swan, launched in 2007 as the Irish economy began to fade.

Phelan says that his up-market brand which is pitched at a significant price premium to the category leader Bailey’s Irish cream, has grown despite the slowdown.

His advice to marketers in the current environment is “Invest in your brand, differentiate and get to know your consumer by getting out on the street.

“Brands are built over the long-term so don’t automatically discount for short-term advantage.”