Monday, April 27, 2015

Pricing and Promotions: When Too Much Discounts Hurt Sales

The FMCG market in France is tough, as the competition is tough and the market stagnating. Therefore, the past 5 years, we have seen promotions springing up, with discounts up to 70% of the prices. Every week those kind of promotions have rythmed the market.

"The research found that over three quarters (76 per cent) of people who took part in the survey say that they find the process of bargain-shopping difficult. Furthermore, 82 per cent are sceptical of 'normal' prices, since the proliferation of cut prices has made discounts virtually omnipresent. In other words, since so much appears discounted, the 'normal' price of a given product becomes something purely notional.
Some 73 per cent of surveyed individuals feel that there is a problem with inflated prices, i.e. prices that are raised so that they can later be lowered, and thus legitimately bear the word rabais (discount)."
Even though French shoppers love discounts and are actually responding to those (with a high elasticity to sales), the fact of the multiplication of sales has a negative impact on the way customers perceive the prices. 
Indeed, how is it possible to explain to one customers that at some point of the year he may pay the product 70% off? 
In terms of pricing strategy, it is therefore difficult as customers are eager for promotions. Also, the issue with this increase in promotions, is it is difficult now to turn back. Promotions counts for 20 to 25% of the business, and is a key factor to lead traffic in a store. 
This is the reason why I don't believe that these heavy discounts will eventually fade away.