The promotion surge has hit particularly hard in the laundry, diaper and paper categories, affecting giants such as Kimberly-Clark Corp., Procter & Gamble Co. and Unilever. P&G, along with rival Dial Corp., blamed recent earnings disappointments in part on aggressive promotional activity in Latin America. But price promotion fever has reared its head north of the border, too.
Although trade promotion has been rising generally among package-goods players, the increase has been less sharp in other categories, said Rich Palesh, a VP at promotion tracking service Leemis Marketing.
"We see higher levels [of trade promotion] and fewer items being promoted," Mr. Palesh said. "Manufacturers seem to be targeting their major [brands and products] but throwing more money at them than they have in the past."
The dealing doesn't appear to have cut into most ad budgets yet, but analysts and industry consultants believe the shift could prove difficult to reverse and ultimately could exact a toll on ad spending.
After doing away with off-invoice promotions -- essentially giving retailers no-strings-attached rebates -- in the early 1990s, P&G returned to the practice in laundry detergents this year, a departure from its everyday low price initiative.
NO SHIFT IN STRATEGY
A P&G spokesman said there's no "fundamental shift in strategy" regarding trade promotion, noting that any increases are a temporary response to competitive pressures. He said P&G hasn't increased frequency of couponing in laundry detergent, even though it may have increased coupon values.
The numbers tell a compelling story in some key P&G categories. For the 52 weeks ended Feb. 26, laundry detergent sales to retailers were made at an average 14.4% off list price, up from 11.8% a year earlier, according to Leemis. That's a 22% increase in deal levels for the year. Similarly, trade deal levels were up 13% in paper towels, 12% in bathroom tissue and 9% in diapers, Leemis found.
Retailers also report an increase in couponing activity from all P&G competitors in the first half of 2000 over traditional levels, though numbers were not available.
Trade allowances, which can take several forms, generally result in retailer-advertised temporary price reductions. In one three-week period last month, for instance, major retailers such as Target Stores, Kmart Corp., Kroger Co., Eckerd Drug Co., CVS Pharmacy and Winn-Dixie Stores advertised Tide laundry detergent at $4.99 to $5.50, as much as 40% below the regular price at some of those chains, and 15% lower than the everyday low price at mass merchandisers such as Wal-Mart Stores.
NO TEMPORARY PROMO RISE
P&G's detergent competitors have been equally aggressive and for a longer time, said Burt Flickinger, managing partner of Reach Marketing, who added that although the deals may be temporary, the rise in trade promotion likely will prove to be permanent.
Industry watchers blame the stepped-up activity on increased competition and new-product rollouts, the growing ability of consolidated supermarket retailers to extract better deals and manufacturer reaction to Wal-Mart's stronger private-label program.
Everyday low pricing favors mass merchandisers such as Wal-Mart, which doesn't take off-invoice allowances and instead negotiates for the lowest possible everyday price, lower than in supermarkets or drugstores.
But P&G may have hit a wall in its ability to build sales through EDLP and mass merchandisers, Mr. Flickinger said, especially as Wal-Mart develops strong private-label programs that in many cases aggressively compare prices of products such as its Sam's American Choice and White Cloud bathroom tissue against P&G brands such as Tide and Charmin.
Players in the categories all may be rethinking EDLP and looking for ways to counter Wal-Mart's growing influence, said Paul Kelly, a consultant with Silvermine Consulting.
"Wal-Mart has been a growth engine for a long time in businesses that don't grow much," Mr. Kelly said. "But you've got to say, `Hey, I can't be relying for 20% to 25% of my business on somebody who's going to have a strong private-label push. I'd better return to some of my traditional channels to survive."'
P&G is far from the only manufacturer playing the promotion card. K-C and Fort James Corp. have each stepped up trade deals and couponing in bathroom tissue, at least in part to fend off P&G's launch of improved Charmin bathroom tissue and gains by Georgia-Pacific Corp.'s Angel Soft.
The couponing war has been intense on all fronts in diapers, with mothers of newborns currently receiving direct-mail coupons as often as once a week from one of the brands, according to an industry executive. K-C, partly in response to P&G's launch of Pampers Rash Guard diapers last year, spent its entire 1999 consumer promotion budget for Huggies in the first six months of the year, an industry executive said.
A K-C spokesman said the company increased promotional support for Huggies diapers in response to heavy promotion by P&G behind Pampers Rash Guard, then increased support again in the second half as P&G again boosted promotion behind Pampers. In the tissue and towel categories, K-C also increased promotion behind several new-product launches and initiatives during 1999, including improved Kleenex-Cottonelle and Scott bathroom tissue and Scott towels. But promotion levels are returning to normal this year, the spokesman said.
STABLE AD SPENDING
For the most part, ad spending does appears stable despite the surge in promotion, as Dial, Fort James, Georgia-Pacific, K-C and P&G all have maintained or increased ad spending levels in the affected categories during the past year.
But Unilever -- which stepped up trade promotion, then enacted permanent price cuts on laundry detergents -- slashed ad spending almost in half in 1999 on its leading laundry detergent brands -- All and Wisk -- to $23 million, according to Competitive Media Reporting. J. Walter Thompson USA, New York, handles All; Lowe Lintas & Partners Worldwide, New York, has Wisk.
Dial appears to be caught in the crossfire. Its premium-price Purex Advanced detergent, introduced in a joint venture with Germany's Henkel, has been rolled out amid a sea of competitors' coupons and trade deals. Those deals slashed prices on P&G's and Unilever's category-leading brands $1 to $2 below Dial's new entry just as it was reaching store shelves.
"That's a sure way to kill a new entry," Mr. Kelly said.
Consultant Christopher Hoyt doesn't believe manufacturers are giving away more trade money, but rather that increasingly powerful retailers are simply taking it.
RETAILERS DICTATE TERMS
"I think over the next five years the manufacturer is going to lose control entirely of promotion [both trade and consumer] to retailers," he said, adding that retailers increasingly are dictating the timing and terms of trade deals, and are sapping funds from consumer promotion and even from advertising budgets.
The increased promotional activity is creating a squeeze that manufacturers can only escape with new product innovation, said James Dormer, analyst with Morgan Stanley Dean Witter. P&G is so focused on launching new brands and products because they're more likely to generate strong sales without as much promotional support, he said.
"That's why it's more important to have a propriety leg to stand on that differentiates your products."