Unraveling mysteries of the consumer psyche stumps the best of them, but this much seems clear: Consumers react differently to discounts versus cash back, and that’s a vital distinction in 2022.
Calling out roughly $250 billion in annual marketing expenditure by consumer packaged goods (CPG) brands alone, Inmar Intelligence General Manager Sylvain Mansier told PYMNTS that 10% to 15% of that spend takes the form of consumer promotions or price incentives, and that’s changing.
Between product shortages and inflation, how brands and merchants stoke consumer loyalty with these offers is being reshaped by those macroeconomic forces, increasingly favoring cash to price cuts, even if the end result is the same amount of value changing hands.
“With inflation going where it’s going and how quickly it’s going, soon you’re going to, I think, start seeing some real consumer behavior changes,” Mansier said.
Using his own favorite cookie — remaining unnamed — to illustrate, he said, “It’s just gotten too expensive. If the brand wants me to keep buying that product, how can they target me with a promotion that makes the purchase more appealing to me in a situation where my wallet is constrained, but still allows the brand to generate a healthy margin?” It’s a crucial challenge.
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With coupon availability declining, he said, more brands and retailers are turning to digital promotions. That can be retailers offering discounts to loyalty program members, which is fairly common, and the rising use of cash back, which he called a tool that doesn’t necessarily involve a retailer or loyalty program.
“It’s not a discount at the register — it’s basically a post-purchase price discount, and it comes in the form of cash back,” he said. “Those are being more and more commonly utilized in combination with digital coupons.”
This has nuanced effects, but some are more pronounced.
“Having the cash back, I think, changes something in the consumer psyche,” he said. “There’s a different visceral feel to, ‘Hey, thanks so much for buying my product. I’m giving you a dollar.’ From an associative effect, consumers relate to that type of offer differently than a discount on a bill.”
Who Gets the Credit?
The perceptual shift of a dollar off versus a dollar in the bank has power, and that’s important when inflation is testing the limits of loyalty as battered consumers go bargain hunting.
“The goal is really to make it instant and make it clear that it was X brand who wanted to thank you for your loyalty in buying that product,” he said. “These offers can be retailer agnostic. It’s not like you have to associate it with your specific retailer where there’s a loyalty program.”
How these incentives are paid out is part of the experience that digital brings to what was once the domain of paper coupons in newspaper inserts. In the latter case, redemption is friction-filled and it’s not always clear who’s offering the incentive, and where the benefit is.
“In cash back, because the cash or the incentive value is not going to the retailer, the retailer collects the full retail amount up front, and then the promotion value goes right to the consumer,” Mansier said.
Cash-back offers don’t require retailers to invest any working capital, he said. Instead of dealing with the vagaries of coupon settlement, the money flows directly back to the customer. If done well, the loyalty then accrues to brand or merchant behind the incentive.
“That is a key differentiator when it’s used correctly,” he said. “This is one of the things that I encourage brands to think about. How are you maximizing the value of your brand equity associated with this promotion?”
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That’s partly a function of how payment is made, and before that, how it’s discovered.
“When you’re talking about digital cash-back offers that can be done through all sorts of digital media strategies, I can find you not only wherever you shop in the physical world, I can find you wherever you browse, then target offers toward the consumers who are really looking for that type of offer,” he said. “That’s a different form of engagement than we’ve seen in the past.”
Working the Levers of Behaviors
Calling price promotions “a holistic category of a way a brand might make marketing investments,” Mansier told PYMNTS that the best approach is usually a mix.
“The most successful marketers figure out how to optimize their spending across the mix of these different tactics,” he said. “If I have a product that appeals to my grandmother, she might want it to show up in the newspaper, and we don’t want to lose her as a loyal customer. I don’t think my grandmother’s going to respond to an ad and use that to do a digital cash-back offer.”
In terms of the economics of pricing promotions in any channel, “A healthy promotion should be on the order of 20% to 30% of the typical retail value of a product,” he said. “So, on my $5 cookies, I should be saving something like 80 cents to about $1.50. That would be enticing to me.”
“You have to have a quality of offer that’s sufficient to drive behavior,” he added. “You have to also think about collaborating with your retail partners, your trade partners.”
With paper coupon redemptions last year hovering around 0.17% — “a very low utilization rate” — Mansier said “[digital offers are] more easily discoverable, and because they’re usually served up right when somebody’s in the mindset of shopping and they can be utilized so much more easily, there’s no physical process, redemption rates there are closer to 4.5%.”
Advising clients to consider redemption rate as a function of the cost of promotions, he said, “Digital publishing, depending on which avenues you’re using — if you’re competing for eye share or mind share online, you’re competing with every other company that’s bidding on eyeballs — is not always the lower cost way of getting the offer in front of somebody, even though it’s clearly a more effective way of driving redemption rates.”
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