Sales promotion: a strategy for challenging times

The Cost of Living Crisis has been raging in the UK since late 2021, with inflation on the Consumer Prices Index peaking at 11.1% in October 2022. Since that time, the rate has approached its long-term 2% target, coming in at 1.7% in the 12 months to September 2024 and climbing slightly to 2.3% in October.[1]

All of this put household budgets under considerable pressure, with disposable incomes falling by 2.5% in 2022 and a similar amount in 2023. According to the Institute for Government, real-terms incomes in the UK could take until 2027 to return to their 2021 levels.[2]

While inflation has fallen from its double-digit peak, many consumers have been left wary of the turbulent rate and the looming threat of a further hike in the CPI index. These concerns were only reinforced further by the new UK government’s Autumn Budget, which was released on October 30th 2024 and delivered a hit to the bottom line of any organisation that employs people.

Short-term pain for long-term growth?

The Autumn Budget was a painful one for employers. Paul Bainsfair, director general of the Institute of Practitioners in Advertising (IPA), noted that “the economics of agencies are dominated by payroll”.[3]

He warned that increasing Employer National Insurance contributions created “a very significant increase in the cost base of agencies”, making it harder for them to deliver the economic growth the government is aiming to achieve.

“We just have to hope that this short-term pain will, as the Chancellor suggested, ultimately unlock vital long-term growth for the UK economy,” he added.

The role of Sales Promotion in UK marketing activities

The quarterly IPA Bellwether Report provides a useful indication of how economic trends are impacting advertising budgets, with marketing directors (or equivalent representatives) from a panel of 300 UK businesses providing regular updates about their promotional spending.

A key element throughout the Cost of Living Crisis has been spending on Sales Promotion campaigns, such as coupons and vouchers, contests and prize draws, and product samples.

Discounts, money-off promotions and free samples all help consumers to stretch their tightened incomes further, while generating additional sales and brand equity – a real win-win in a challenging economy.

Successive Bellwether Reports have shown that agencies have seen a rise in Sales Promotion spending, highlighting the continued value of these campaigns for brands during the downturn in disposable household incomes.

A record rise in Sales Promotion spending

A pivotal moment in recent years came in the IPA Q2 2023 Bellwether Report, which reported a net positive balance of 13.4% of respondents who saw spending growth on Sales Promotion campaigns.[4]

The barometer-style report subtracts the number of businesses that see negative growth from the number who report positive growth, to give a net balance overall. The Q2 2023 figure was the highest in the Bellwether Report’s 23-year history, while spending on main media (e.g. video, audio and online advertising) fell by 2.5%.

In a press release at the time, the IPA said: “The drop in main media and rise in Sales Promotions spending suggests a reactive change by UK businesses in response to the economic climate.”[5]

Continuing the spending trend

This record-breaking rise in Sales Promotion budgets was not a one-off, but part of a longer-term trend that would continue throughout the Cost of Living Crisis.

A year later, the Q2 2024 IPA Bellwether Report saw Sales Promotion spending growth hit a one-year high of 6.9%, the third-highest category on the list.[6] But the IPA warned that high energy and food prices, high borrowing costs and the ending of some government financial assistance schemes meant that household budgets would remain dampened for some time.

Mr Bainsfair commented at the time: “While inflation levels have come down, this hasn’t yet translated into prices, and as such strains on many household finances prevail.”[7]

He added: “Companies would benefit from being cognizant of this in terms of their communications approach and messaging to their consumers. I suspect that those brands that can bestow their sense of value, trust and reward will fare well here.”

Opportunities for growth in 2025

The most recent instalment in the series is the Q3 2024 IPA Bellwether Report[8], in which the Institute revised upwards its forecasts for advertising spending in 2024-25. Growth in Sales Promotion budgets remained positive at 3.2%.

Overall, however, marketing budgets stalled in Q3 ahead of the Autumn Budget, recording a flat 0.0%. Mr Bainsfair said: “Companies aren’t cutting their marketing budgets; they are pressing pause until they know more about the government’s economic plans.”[9]

He added: “A smooth sea never made a skilled sailor. It is in the tough times that we know that our highly skilled, experienced agencies and their trusting, brave clients can reap significant market share for brands by continuing to invest in advertising.”

Putting Sales Promotions in the mix

MRM work with brands and agencies to deliver Sales Promotion campaigns from end to end. Our capabilities include digital coupons and on-pack promotions, as well as repacking products into promotional packaging.

Our bespoke software platform, Lodestone, makes it easy to manage Sales Promotion campaigns, with support for promotions, prize draws, competitions, cashback schemes and more.

Crucially, this gives clients the detailed insight and real-time reporting needed to monitor the performance of the overall marketing mix, and of specific Sales Promotions in effect at any one time.

Promotions can be created as long-term strategic campaigns, or limited to just a few days or weeks, giving agencies and brands incredible agility in a rapidly changing economy.

Final thoughts on Sales Promotion strategies

Successive IPA Bellwether Reports have shown the value brands and agencies place in Sales Promotion strategies, increasing budgets in this area even at times when overall marketing spend is flat or declining.

The combined opportunities for short-term sales generation and long-term brand-building make Sales Promotion campaigns a win-win, allowing businesses to boom in the coming years as we emerge from the Cost of Living Crisis.

If you would like to capitalise on these opportunities, contact MRM today or give us a call on 01858 410510.

[1] https://www.ons.gov.uk/economy/inflationandpriceindices/bulletins/consumerpriceinflation/october2024

[2] https://www.instituteforgovernment.org.uk/explainer/cost-living-crisis

[3] https://ipa.co.uk/news/budget-2024/

[4] https://ipa.co.uk/knowledge/publications-reports/q2-2023-bellwether-report

[5] https://www.pmi.spglobal.com/Public/Home/PressRelease/ee06f71eccdf47a49e06a0acb0b2a204

[6] https://ipa.co.uk/knowledge/publications-reports/q2-2024-bellwether-report

[7] https://www.pmi.spglobal.com/Public/Home/PressRelease/348550dc63794a6799e6eb2e9f1f8ae9

[8] https://ipa.co.uk/knowledge/publications-reports/q3-2024-bellwether-report/

[9] https://www.pmi.spglobal.com/Public/Home/PressRelease/6f6192c97362448fa1adf2b82cea2a8f

References:

https://www.instituteforgovernment.org.uk/explainer/cost-living-crisis