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The report, Price promotion during the downturn: shrewd or crude?, reveals that brand owners are giving in to retail pressures by increasing their spend on in-store promotional activity.

One trend noted is decreased media spend and increased price promotions activity, which has resulted in some volume growth in Tesco sales, but without equivalent real sales value uplift has resulted in an erosion in real pricing.

The research is based on the 14m-strong Tesco ClubCard database and has been analysed for the IPA by Dunnhumby, to determine the impact of price promotions in relation to advertising patterns on consumer behaviour and category pricing.

The IPA says that brands are capitulating to retailers by introducing price promotions, despite evidence that it makes no commercial sense and could cause long-term damage to the brand.

Key report findings:

- There has been explosive growth in the use of price promotions in UK retail. For example, the number of unique instore promotions in Tesco between Q4 2007 and Q4 2008 increased in every category:

Soft drinks - 209 to 380
Household – 188 to 472
Snacks – 472 to 734
Beers, wines, spirits – 1081 to 1791
Health and beauty – 526 to 2455

- In some categories where this is particularly prevalent there has been considerable erosion of brand loyalty and substantial growth in the proportion of sales made ‘on deal’.

- This will be adversely affecting profitability, particularly as the hit on margins is taken by the brand owner more than the retailer, and is likely to take some time to rectify after the downturn has ended.

- Promotions can appear superficially attractive to brand owners, but they encourage brand promiscuity (see p26-29).

- Call-to-action media near to point of sale works harder than money-off promo-tions when used appropriately e.g. for impulse purchases in convenience stores.

The report reveals an emerging pattern across five sectors of decreased media spend and increased price promotions activity, which has resulted in some volume growth in Tesco sales, but without equivalent real sales value uplift has resulted in an erosion in real pricing.

This has led to reductions in brand loyalty generally, with the exception of health and beauty which has stabilised at around a low 6%.

Brand loyals (ie 70% of purchases in the category are with that brand) between the second half of Q4 2007 to the second half of Q4 2008 have reduced from 20.8% to 19.3% in soft drinks, from 10.6% to 9.9% in beers, wines and spirits ; from 10.7% to 9.2% in household, and from 4.6% to 3.9% in snacks.

Lawrence Janes, head of media solutions and development at Dunnhumby, said: "While in percentage terms these decreases may seem small, the associated value and volume of units sold are significant. Brand owners are losing out and must try to engage and work with retailers on a basis of understanding the impact of their different marketing activities – both short and long-term, on the retailers’ customers."