There has been lots of talk in the media recently about the supermarkets’ Christmas advertising campaigns.
Sainsbury’s have employed an Oscar winning director for their campaign, although he failed to spot the Co-op’s own brand range in the background, Tesco stole a march on the others by starting their advertising campaign on a Friday, which makes a lot of sense, but Asda wanted to get maximum exposure by launching their campaign during X-Factor, the most watched program on commercial television. No doubt Morrison’s will be launching their Christmas campaign sometime in late January….
From an economic point of view, why do they do this? It makes very little sense as 90% of grocery shopping in the UK is already done in supermarkets, most of their customers will spend more at Christmas anyway, so why do they need to spend millions of pounds on extravagant marketing campaigns?
In fact, the only people they are likely to attract are their own customers, or people who shop at supermarkets anyway, there is likely to be very little extra custom from new sources, so it all seems like a bit of a waste of money.
The reasoning behind it is that the supermarket chains fear nothing more than losing a customer to their rivals during the festive season, or, indeed, at any time of the year. As most economists will have read in Freakonomics, it makes little economic sense for supermarkets to be open 24 hours a day, the extra costs involved mean they simply lose money by doing so, but they are playing a game. If, that one time, one of their customers needs to shop at 3am, and they are not open, what will the customer do? S/he will go to a rival supermarket. No big deal you might think, they will only be spending a tiny percentage of their annual supermarket spend, so it will have no real impact on market share…
BUT, what if that customer really likes this different shopping experience? What if they try a different product and like it? Where will they shop next time? That is a lot of revenue potentially lost by being closed at 3am, so they stay open, particularly in areas of high competition, just in case.
This is essentially the same reason that they spend so much on their Christmas campaigns. If Tesco decided it wasn't going to ‘waste’ money on advertising this year, as they only attract a small percentage of new customers, their customers may be tempted by the luxurious nature of Sainsbury’s campaign, and Tesco may never see that customer again.
People spend more in supermarkets in December than in any other month, regardless of advertising, so it would make sense for the supermarkets to get together and decide that none of them should advertise over the festive season. This would save each chain many millions of pounds, which they could either plough into dynamically changing the shopping environment for the better, or into price reductions for customers.
I can imagine the meeting now:
Tesco Marketing Director:
We see the benefits of not conducting a Christmas advertising campaign, and if you won’t do one, we won’t do one.
Sainsbury’s Marketing Director:
We agree that it serves us all not to spend this money in this area, we won’t do one either
Asda Marketing Director:
Yeah, it’s a pinky promise from us too.
And they each go off and spend millions developing an advertising campaign for the month of December! Classic Game Theory. The incentive to cheat is too high, because if Tesco do a campaign and the others don’t, they will be swamped with custom, whereas Sainsbury’s and Asda will be left with an awful lot of unsold stock, so whilst, in theory, it makes sense for them not to advertise, in practice they always will. As a result, we all have to see sickening Christmas images and we have to try and live up to expectations….
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