Optimizing Your Promotional Strategy for Economic Uncertainty

August 22, 2023
By Henry Li, Senior Manager, Solutions Consulting at Numerator

Investing in promotions is paramount to long-term success, particularly during times of economic uncertainty. As consumers face increasing financial pressures, they’re more willing to switch brands and retailers to seek out better deals. To drive success as the economy tightens, brands and retailers will need to optimize their strategies to improve promotional effectiveness, or they may find themselves losing valuable shoppers and share-of-voice.

Promotional Impact Growing, Loyalty Declining

Economic concern among US consumers is clear and pervasive. According to Numerator’s monthly sentiment study, 98% of consumers express a medium-to-high level of concern over the economy. This widespread unease is changing shopping behavior. A recent Numerator survey showed that promotions are playing a larger role in purchase decisions, with 47% of shoppers indicating they search for promotions more frequently in response to rising prices and 74% saying they’d buy fewer items if the product they want is not on promotion.

Promotions are influencing most consumers’ purchase decisions

Promotions are influencing most consumers' purchase decisions

What does this mean for brands and retailers? It’s becoming more and more challenging to retain shoppers. As their wallets tighten, consumers are sacrificing loyalty— and sometimes even preference— for a better deal: 45% of shoppers say they are more likely to switch brands and 38% are more likely to switch retailers to take advantage of a sale. This declining loyalty presents risk, but also opportunity for those who are willing to lean in and optimize their promotional strategies to better retain loyal shoppers and convert new buyers.

Reimagining Your Strategy for the Current Landscape

There is no one-size-fits all approach to an effective promotional strategy. Different promotional attributes resonate with different types of shoppers and inspire different buying behaviors. But one thing is clear: unless you have unlimited trade funds, you need to get granular to win. Here are three things to consider:

1. Are you targeting your promotions to shopper preference?

To win in this era of heightened price sensitivity, having a deeper understanding of who your shoppers are is vital. In general, demographic & lifestyle factors heavily influence how consumers respond to promotions. For example, reviewing Numerator Promo Insights data shows clear generational differences in promotional preferences: younger generations favor Sale Price & Save offers, while older generations respond the least to these offer types.

Leveraging our custom inflation segments, we can go deeper to view promotional preference through the lens of financial stability— which impacts how shoppers react to sustained inflation and, subsequently, promotions. Using the Oral Hygiene and Candy categories as examples, it’s apparent that promotional behaviors vary significantly across economic groups and product types.

Economic stability impacts the promo types consumers respond to

Economic stability impacts the promo types consumers respond to

Knowing who your cost-conscious consumer is can help you ensure your promotions resonate with all consumers in times of economic uncertainty, regardless of where they lie on the financial spectrum.

2. Are you leveraging— and tracking— digital promotions?

In recent years, digital ads have grown across all categories. Digital already accounts for the majority of Essentials promotional activity— comprising 71% of all ad blocks in 2022— while digital activity for Non-Essentials is accelerating (+5% in 2022 vs YA) and on pace to compose a majority in the coming year.

There’s a good reason for this growth: digital ads can have a big ROI. Reviewing Numerator Promo Insights data across various categories shows that households who use digital promotions spend on average 87% more over a 12-month period than households that don’t use digital promos, driven by increased purchase frequency.

Digital promotion redemptions drive purchase frequency, helping to increase spend by 87% over 12-month period

Economic stability impacts the promo types consumers respond to

For brands and retailers reimagining their strategies, a robust digital component is key. Those who are not currently leveraging digital formats should be, and those who are should ensure they have the right tracking tools in place to analyze performance across all digital formats— including digital TPR and 3rd party delivery services — so they can be certain they’re leveraging it to the fullest extent.

3. Are you using the right offer types?

As shopper loyalty declines, it’s more important than ever to know which offer types are most effective for engaging your existing buyers and which work best for converting new ones to your brand. Based on which goal you’re trying to achieve and what category you play in, the answer can differ. Analyzing 20 leading brands from both Essentials and Non-Essentials categories shows that Save offers are generally more effective at driving new buyer conversion within Essentials categories, while Sale Price offers are more effective within Non-Essentials.

Winning new buyers is not a one-size-fits-all approach

Economic stability impacts the promo types consumers respond to

Knowing which promotions are effective at increasing buy rate and purchase frequency can help you drive incrementality among existing shoppers, and knowing which are better for converting new ones can help you drive trial among shoppers leaking from other brands.

Measuring Success with Consumer-Centric Metrics

Finally, a vital step in optimizing any new strategy is determining how you will measure success. Traditionally, many companies are hyper-focused on measuring POS performance when their promotions take place, but there are many other forward-thinking ways to assess promotional effectiveness. Linking promotions data with consumer-centric metrics like household buy rate, purchase frequency and spend per trip allows for a deeper understanding of how your promotions are influencing purchase behavior, and is the key to making smart investments that will drive long-term results for your business.

RGM functions, promotions excellence teams and shopper & consumer insights groups should collaborate on leveraging promotions to strategically impact consumer behavior and overall market share trends. To learn how Numerator’s industry-leading Promotions Intel and Promo Insights can help, reach out for more information.