Jun 28, 2010 12:00 PM, By Don Kreski
Research data for the natural foods market applies to our own as well.
Where price promotions are effective
As in our industry, the mind-share of distributors and retailers is critically important for the success of natural and organic foods. “They will create new products with features that appeal to the retailers and their customersperhaps a gluten-free energy bar or hormone-free milk for consumers with specific health concerns,” Addona says. Thus a large part of these companies’ marketing budgets goes to merchandising within the retail store, and promotions are an important part of the marketing mix.
Yet price promotions, while useful, often have a negative effect on profits. “Many of our clients overdo promotions or time them ineffectively,” Addona says. For example, Spins did a study for a baking supplies company that ran price promotions throughout November and December each year, feeling that they needed to step up their marketing efforts for the holiday baking season. It turned out that while they got a boost at the beginning of November, by early December their actual revenue was running below what analysis showed it would have been without any promotion. Of course their profits, given the discounted pricing, were far below what they would have been. The recommendation: focus the timing of their 2010 promotions on the weeks prior to Thanksgiving to increase both revenues and profits.
Addona also says that for certain products, price promotion is questionable. As an example, he talks about a nutritional supplement costing roughly $50 for a one-month supply. The company periodically ran $10 price reductions, but Spins could find little evidence that the company was accomplishing anything other than rewarding consumers who would buy the product anyway. “I doubt that many consumers are going to trial-purchase an expensive, health-related product like this based on a discount,” he says. And of course cutting the price by 20 percent chopped the profit margin far more.
Nonetheless, a study Spins undertook last year showed that the natural food categories that grew their revenue the most during the recession were ones where producers increased the frequency of their promotions.
Promotional incentives work best, Addona says, when they are able to motivate consumers to try a new brand that they stick with after the promotion is over. As an example, he cites a number of manufacturers that enlist the services of Catalina Marketing to print a cash register coupon for consumers who bought an item that directly competes with theirs. “The idea is: ‘Here’s someone we know is buying our category. If we can get them to switch even once, some portion will hopefully like our product better and stay with us,’” he says.
Perhaps the lesson for an AV integrator here is that, if you do offer a price specialsay on a system in a box or any other type of installed systemyou need to make sure that the service you offer is fast, accurate, and absolutely first-rate. What you’re selling, of course, is not a packaged good but the experience of working with you. So if you’re going to do a special, you need to focus not on the fact that your margins are low on this project but that you have the opportunity to gain a new customer.
That’s really the point of any marketing campaign, in our industry or in natural foods. You’re either building your brand image to the point that someone will try you, or you’re offering some kind of incentive to get them to switch at least once. It’s hard to get someone new to try you, however. When you finally succeed, it’s time to pull out all the stops and provide a memorable experience.
Don Kreski is the president of Kreski Marketing Consultants, which offers marketing services to the AV industry. You can reach him at www.kreski.com/contact.html.
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