22 June 2024, 13:47
By Retail Think Tank Dec 12, 2022

Progressive promotions and the cost of living crisis

The times they are a-challengin’ – which makes choosing the right approach to pricing and promotions more crucial than ever, according to the latest whitepaper from the KPMG/Ipsos Retail Think Tank

Retailers may feel that they have little choice but to slash their prices to hold onto customers as the cost of living crisis continues to hit household budgets. However, with their own inflationary pressures to contend with, this approach will only damage their margins and could even do long-term harm to their brand’s reputation.

The ongoing cost of living crisis sent consumer confidence plunging to a record low in September. While the Government’s freezing of the energy price cap at £2500 is expected to curb inflation in the near term, household bills remain high, and the early end to the utility price freeze means that from April 2023, inflation will once again be at the mercy of swings in wholesale gas prices. 

The rise in mortgage rates has left homeowners nearing the end of their fixed-rate mortgage deals facing sharp increases in their monthly repayments. This has increased the risk of mortgage arrears and repossessions and will cause a big reduction in households’ disposable income.

All of this will make for a challenging trading environment in the run-up to Christmas – where staying afloat, let alone achieving growth, will feel like an uphill struggle for some retailers. 

Profit growth in the current market might feel impossible for many retailers in Q4, especially those in the non-essential sector. Maureen Hinton, group retail research director, GlobalData, comments: “Demand is under huge pressure because of rising household expenses and falling consumer confidence, and this is hitting discretionary spend the hardest. The priority is essentials, and the biggest priority is food, as we all must eat. Non-food, on the other hand, is the most vulnerable to falling demand.”

At the latest quarterly meeting of the KPMG/Ipsos Retail Think Tank (RTT), members discussed why a data-driven approach to pricing and promotion was even more important in the current climate, and looked at the steps retailers could take.

But rather than engaging in a race to the bottom on pricing, members agreed that an intelligent pricing and promotion strategy could help retailers to both protect their margins and build longer-lasting relationships with their customers.

At the last quarterly meeting, they looked at the importance of using customer data to understand demand and deliver personalised experiences with relevant offers, deals and incentives.

Read the rest of the article in December's issue, here.

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