Managing Discount Demand in Russia

Though Russians fell prey to “discount fever” much later than Americans, businesses in the Russian FMCG (Fast Moving Consumer Goods) industry have been facing more and more pressure to lure customers in with price-slashing promotions. The market research company Nielsen recently shared some advice for businesses that are hoping to get out from under this discount trap. While there is no exact formula to follow, your bottom line will thank you if you move in the right general direction.

  1. Don’t use a sledgehammer to crack open a walnut.

  • First, make sure your product portfolio is in great shape. You don’t need to radically change your pricing policy in order to fix the problem; it’s usually enough to make some minor adjustments.
  • Build an effective pricing architecture for your product portfolio within a given category. Think about how you would like to position your products. Then build your pricing policy and set up your promos based on this positioning.
  • You can get more out of your promotions by analyzing price elasticity. If you understand consumer demand for your products and those of your competitors, you can optimize how you manage pricing in terms of the discount amount, and the duration and timing of your promotion.
  • Release “value packs” of your product. This lets you compete with your competitor’s discounted products price-wise, but don’t leave you tangled up in the mechanics of a promotion and allow you to sidestep its negative side effects.
  1. Personalize your products

  • Use targeted pricing: when you know your customer in depth, you can properly position and target a product to a specific group of consumers. The more narrowly you can define your users, the easier it is to set the right price level.
  • Personalize your offers: data-analysis technologies have opened up new opportunities for personalizing and differentiating your pricing policy.
  • Do not forget about Customer Value Management: studying consumer data at an individual level allows you to target consumers more effectively, build up their loyalty, and improve the customer experience.
  • Focus on consumers who are ready to buy your product even if it’s not discounted. The fly-by-night consumers who exclusively seek out discounted items are not going to grow your earnings. The more customers you have of this type, the less your overall brand margin will be worth.
  1. Create benefits associated with your product that are not related to price. This will let you exit the price war you’re in with your competitors.

  • Manage your positioning and assortment and be innovative. Consumer demand is granular, and you can always find new niches. With a little imagination, you can expand your category, attract new customers, and come up with new product benefits that are not price related.
  • Create an emotional connection. If your customers feel a connection to your products, you’ll be able to distance yourself from the competition over price. The most important thing to remember is that managing pricing and promotions is a science. You must develop a deep understanding of consumer behavior. Getting out of the discount trap is not easy. Discounts have become a new standard; you must seek out alternative methods to sustain your businesses.

As the Director of Analytics and Consultancy for Nielsen Russia Konstantin Loktev explains, despite the fact that businesses in the FMCG sector have a lot of experience running promotions, they can develop a much broader view on promo strategy by studying pricing elasticity for their product(s). If you only know the sales data from before, during, and after your promotion, it’s hard to know how to improve your promotion strategy. When your information is limited, you can’t predict how consumers will react if you offer them a less significant discount, for example. If you know the product’s pricing elasticity, however, you can estimate what your sales will be at different discount levels. Unlike sales data, which relates to your product at a particular point in time, pricing-elasticity data reflects the consumer’s reaction to your product and the discount amount.