New Zealand grocery shoppers are the most promotion-driven in the world. Almost six in every ten dollars spent on groceries in 2017 were sold on promotion - well ahead of other developed markets around the globe. The high level of products sold on promotion raises several questions; Why do we promote? What are manufacturers and retailers trying to achieve? Are most promotions genuinely driving incremental sales, or wiping value from categories and potentially eroding brand health? Can the sector sustain such high levels of price promotion?

Manufacturers and retailers are investing huge amounts of time and money executing these promotions on a weekly basis, so are they maximising their returns? The answer is an emphatical ‘no’. Based on an analysis of 35 key categories, making up 60% or $8B of supermarket sales, it’s estimated that the retail sales value of the discounts applied to price promotions that generate little/no incremental sales is over $470M. In other words, there are products that would sell a similar amount whether they were promoted or not, yet we continue to erode value through excessive price discounting.


Whether at a category, segment, brand or item level, products respond differently to price changes:

  1. Some products require a “fewer but deeper discount” strategy as they are more sensitive to promoted price than they are shelf price. At a category level, biscuits fits into this strategy
  2. Products in the “Highly sensitive to price” quadrant are sensitive to both shelf and promoted prices, and tend to be more expandable categories like confectionery, snack foods, alcohol and coffee.
  3. The bottom right quadrant suggests an EDLP or “Everyday low price” strategy could work. With the high levels of price promotions training consumers to look for promos in-store, it’s no surprise that few categories sit within this quadrant today.
  4. Finally, it’s best to “limit the number of promotions” for products with low sensitivity to both regular and promoted price changes e.g. haircare, bread, Mexican food. This is the quadrant where a significant amount of discounts are often ‘given away’.


This study shows that price promotions drive incremental sales for certain products, while other products would be bought regardless of price promotion. One such category is Haircare - having lower sensitivity to the price change for both regular and promoted price. For these shoppers, price promotions won’t necessarily drive incremental category sales, but may simply reward shoppers for existing behaviours. Another example can be seen with the bread category. Bread promotions don’t drive incremental consumption, especially with bread being perishable. Following the introduction of the $1 bread promotion in July 2014, $29M of dollar sales were wiped from the category within the first year of the promotion (approximately 6% of the total category).


Understanding where different segments/brands/items sit is also very important. The Ice Cream category sits between being ‘Highly sensitive to price’ and being ‘Better for EDLP’. When looking at segments within Ice Cream, 2lt Tubs can be ‘highly sensitive to price’, while ‘fewer and deeper promotions’ tend to work best for Premium Tubs. By delving deeper, brands within a segment can respond drastically differently to price promotions - highlighting again the importance of understanding the complete product portfolio when forming price and promo strategies.

In the competitive world of retail pricing and promotions, relentlessly promoting products with no regard for sales uplift is a difficult strategy to sustain. What’s clear is that demand-driven price and promotional strategies are more likely to be a sustainable long-term for both manufacturers and retailers.

While there can be other reasons to price promote products beyond driving incremental sales, for example, maintaining distribution levels, ultimately it’s about making sure retailers and suppliers get a satisfactory return on their investment whilst satisfying the needs of their customers.

Author: Brett Miller, Sales & Marketing Effectiveness Lead, Commercial Development, Nielsen