Ed Betts, COO at Retail Express, argues that while promotional pricing helps retailers prove value in a tough market, a poorly controlled offer can become a compliance and customer confidence problem.
Promotional pricing is one of retail’s most powerful tools. It is a way to draw customer attention, shape value perception and build retention. But a recent ruling against Australian supermarket, Coles, offers an uncomfortable lesson in how easily discounting can go wrong. The Federal Court found that the supermarket’s ‘Down Down’ promotion had misled customers, after the Australian Competition and Consumer Commission (ACCC) challenged the way price reductions had been presented.
Coles’ promotion pattern was simple enough: sell a product at one price, increase its price for a relatively short period, then later promote that product as reduced. Most retailers will immediately see the flaw, particularly as the ACCC found many ‘Down Down’ ticket prices were the same as, or higher than, the product price before the temporary increase.
While the precise rules differ slightly between the CMA in the UK, FTC and state consumer laws in the US, ACCC in Australia and the Price Indication Directive across the EU, their regulatory intent is consistent. Reference prices used in promotions need evidence, and any claim of savings must be based on a real, representative price history – not, as in Coles’ case, a convenient reference point created by the mechanics of the promotion.
The pressure of promotions
Yet Coles’ pricing misstep is also understandable. Most retailers do not set out to mislead, but the grocery sector is under enormous pressure to show value, move quickly and fight hard for customers who are more aware than ever of the contents of their baskets. Energy and freight costs are driving up prices for suppliers and making negotiations ever more fraught; commodity shifts and geopolitical movements may, in many cases, make staples more difficult to discount.
Promotional pricing is complex and dependent on a huge number of variables. Price history, promotion planning, marketing communications and store execution – and the teams responsible for them – have to move together. If a reference price is wrong, an establishment period too short, or a promotion extended beyond the point at which the original comparison becomes invalid, it is all too easy to fall foul of the rules. However unintended.
Smart systems for smart comparisons
The most exposed promotional mechanic is the comparative claim, meaning any message that uses a previous price to make the current one more attractive. Comparisons are powerful because they are easy to understand, but risky because establishing the veracity of the reference price – and the legitimacy of the saving – depends on a clear record of what a product has actually sold for, when, where and for how long.
That is not an easy timeline to reconstruct manually. If a retailer is relying on spreadsheets, email approvals and manual checks, building a clear picture of price memory may be difficult to achieve. Undocumented changes brought about by last minute actions or poor record keeping can lead to checks being ineffective.
A robust pricing process should not rely on slow methodologies or expect people to remember every exception. It should hold price history at item level, and use it when an offer is being created. Data must always come first. If a local jurisdiction expects the lowest recent price to be used as a reference point, that should be readily available and visible. If a product planned for promotion has not been established at the higher price for long enough, pricing systems should flag it. Put simply, if a ‘was’ price should not be communicated, the offer should be stopped (or have its ‘was’ price cleanly removed) before it can be executed.
The freedom to change
Retailers should still be free to promote aggressively, just not carelessly. Building rules into the pricing workflow ensures that compromised promotions do not slip through unnoticed. These rules should also reach forward, applying required price changes in a way that does not create a misleading future claim for a planned promotion. Rules-based pricing establishes a foundation on which retailers can build promotions quickly within firm guardrails. In essence, it weaves compliance into the act of pricing.
Such a system does not, however, have to mean rigidity. Plans change, and when a promotion is landing – or when it is not – retailers must be able to move in the direction that makes sense. They may wish, for example, to extend a successful offer price beyond the point where a comparison to a higher price is fair to customers. That is perfectly valid, but any reference price needs to disappear everywhere: on paper labels, electronic shelf edge labels, point of sale, online, apps, loyalty communications and so on. In a large grocery operation, there is a significant operational risk that something might be missed, so pricing systems need to connect the commercial plan with the way the offer is actually executed.
The real cost of faulty discounts
In the end, accurate, fair and compliant promotional pricing hinges on discipline, just as it always has. Retailers need to know the price they are claiming, the history that supports it, the places that claim is being made and precisely when it must change. That is possible under legacy pricing systems, but it is difficult and prone to error. With modern pricing systems that place data front and centre, mistakes become much harder to make and easier to prevent.
The public result of promotional inaccuracies for Coles – and potentially for rival Woolworths, also under investigation by the ACCC – is likely to be a significant penalty from the courts. The deeper damage may be harder to quantify, because promotional pricing depends on the belief that a discount is honest. Once that trust is weakened, every future offer has to work harder.
