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NPD Column

The evolution of promotion

NPD’s Jez Fraser-Hook explores how the recession has reshaped the ways in which toy retailers attract customers.

W 16 Toyworld

oolworths’ demise back in 2008 was the catalyst for some major changes in the UK’s toy retail environment. When profi ling Woolies,

NPD reported the retailer to represent approximately 11% value share of the total toy market in 2008. 30% of purchases made at Woolies were spontaneous and 31% were driven by the convenience of the high street location. Woolworths’ product range supported its core strengths around convenience and encouraged the impulse purchase. This meant deep price promotions, which are more common today, weren’t a key driver for sales. Woolworths was one of many retail closures in 2008/2009 as the dire global economic situation impacted the UK. The “redistribution” of Woolworths’ sales across UK retailers in tandem with a challenging retail environment and squeezed disposable income for consumers meant a fundamental change in shopping patterns for many. NPD valued the total UK market in 2012 at £3b, 6.7% ahead of the 2008 value, a sign the trade had recovered from the loss of a major high street retailer. Despite lost value being recovered, the dynamics

by which products are purchased have evolved. Promotion, in particular price promotion, has become much more prevalent in the UK retail environment with this trend also impacting the toy trade. Endless pricing strategies were used to entice the toy consumer into store. ‘Buy 1 get 1 free’, ½ price and ‘3 for 2’ are just a selection of the offers that have become commonplace for mums and dads. Through 2012, NPD reported that 41% (value)

of toys purchased were bought for a reason that was price-related. This represented the largest ever impact price has had on consumer buying behaviour and was almost 5% ahead of the 2008 level. The obvious question for the trade to ponder would be, has the increase been driven by a) consumers becoming more sensitive or aware to price, or b) have retailers simply increased promotional activity when compared to fi ve years ago? A combination of both maybe….

Challenges linked to promotion are well documented. Brands can be devalued, margins lost, price points eroded and that’s even before you say “price match”. Despite this, promotions can and do

Reasons for consumers choosing a retailer

11% of purchases made were due to a retailer promotion 41% of purchases related to price

Convenient location

Has good choice of brands/products Good overall value for the price

Has the lowest prices available

Had a special offer/sale/promotion Has knowledgable/helpful staff

Other The NPD Group, Inc. | Proprietary and Confidential Source: NPD Group | NPD Consumer Panel Full Year 2012

have benefi ts for retailers and manufacturers alike. The concept of Christmas coming later was illustrated in 2012 where NPD reported a phenomenal 6% of 2012 toy sales going through the till in week 51 only. This contributed to 4% December growth in 2012 as mums and dads splashed cash late. Playing “the waiting game” is par for the course for any seasonal category, and the toy industry is no different. Promotions can be integral in driving foot traffi c earlier in the Christmas season and can take away some of the increasing reliance on December trade. No matter what your view on promotions within toys is, it’s a tool ingrained in UK retail environment and a concept that customers are well aware of. Toy manufacturers and retailers alike need to understand the dynamics which impact promotions and adjust their business to maximise revenues. Why discount 15% when 10% has the same impact? Why discount 10% when 15% could triple sales? Does a blind bag, which is generally an impulse purchase, need any discounting at all? If promotions are tailored so they happen at the right time in the right way, margins for all will be maximised and customers can still walk

away with a smile on their face with the perception of value.

Looking to the future, the development of price

promotion in the toy trade will be fascinating. Technology today has meant consumers can gain access to retailers’ pricing with a click of their mouse or touch of their phone or tablet. This has resulted in a much smaller discrepancy in shelf price (online or in store), further supported by the adoption of price matching strategies. With competitive pricing a prerequisite in today’s environment, the opportunity for promotion beyond price is more relevant than ever. Could the future see retailers putting price to one side and promoting the best product range, in- store experience, staff expertise, after sales service or delivery reliability in order to maintain current and attract new customers? NPD reported 1% value sales growth in September and with consumer confi dence showing an upward trend there’s high hopes for Q4. Price promotions or not, there’s still the big prize to play for - NPD’s participating retailers accumulated sales of £565m in December 2012. Good luck for Christmas trading.

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