Articles

7.3.2011 Promotions damage UK brands

A majority of UK companies believe discounting policies executed in the recession have damaged brand equity, a study has found. Professional services specialist KPMG surveyed 200 executivesfrom the country's 500 largest corporations, and estimated some £20bn in profits may have been lost as a result of strategies implemented during the downturn.

"Firms reacted very quickly to the financial crisis and went in to near-panic mode, discounting prices across the board without fully understanding the impact on demand or profitability," the study said. "In many industries recession-driven discounting has fundamentally eroded the value of the market. Consumers' price expectations are lower and buying behaviour has changed." More specifically, 55% of organisations had sacrificed margins for volume sales, 54% cut the cost of almost all goods, and 49% entered "price wars" with rivals.

Just 53% of businesses focused on maintaining margins when formulating tactics, while 62% stated discounting had hit net income, and 58% said the same regarding brand equity and reputation. Elsewhere, 55% of interviewees posited that board-level staff paid insufficient attention to price, 69% described reductions made in the crisis as unsustainable, and 46% shared these views for their wider price architecture. Another 63% thought reversing the current situation presented a significant challenge, and 55% argued they were unable to pass on rising expenses to customers. Worse still, 51% of respondents did not think shoppers benefitting from discounts would be willing to meet higher prices, and 43% proved "undecided".

B.L. 7.3.2011