[MUSIC] So Alejandro, tell me why would companies do promotions? Why would they be interested in this? >> I mean, great question, like no one would ever discount the product, right? You created products to sell them at the right price, so why would someone decrease the price? At the end is a necessary evil to do promotions. There are two ways you can grow. Either by growing the market or a category, or by stealing from competitors. Most times the kind that you need to do is overcome some barriers. And price is a big barrier most of the times. So it's necessary to really offer some good deal to someone to really change habits. Like make him come if they're not a category user or change companies if they are buying at a competitor, right. Or another way you can think about it is, you have your current consumers and you have your new consumers, the ones that you want to capture. Either because they're not in the category or they're from the competitors. How do you make those current consumers come often and the other ones change habits and come to us, yeah? >> So you already mentioned, right? I mean like how can you make your existing customers come often and how can you steal them away from the competition? So how do we do it? How do we do it? >> So if we think, first of all, with our current consumers, right, you have the ones that you want increase the frequency. You have the ones that you want to increase the share of pocket or the share of the stomach, when you're talking about restaurants. And the ones you want to sell a different product, upsells or something more expensive, yeah? And let me tell you some examples of each of them. For example, when you think about frequency, one of the best examples that I have in mind is cinemas. Imagine last Christmas you went to the cinema to watch Star Wars, your ticket was 9 euros. And behind the ticket you get something that says, hey, next time you come, it will be 5 euros, the ticket. And you say,oh great, why not, it's Christmas. I have nothing else to do, I don't feel like seeing any other movie but there's this one here. 5 euros is not that much. So that way what they are doing is growing the market, yeah? They are taking away from whatever, the restaurant business or any other alternative that they have. And they are getting you once again into the cinema. Of course it has a trick because when you read the small font it says, only valid in the sessions before 5 PM. So they make really sure that they don't cannibalize their main revenue, that is cinemas on Friday, Saturday, Sundays from 7 PM onwards. So this is something that we need to keep always in mind. No one will do a promotion that risks your biggest source of business, yeah? That's for the cinema it's Friday, Saturday, Sunday, 7 PM. You can also think of the restaurant business, for example, let's say Burger King, McDonald's, right? Average meal is 6, 7 euros. Many people cannot afford to do that on a regular basis, yeah? So what they do most of the time is to create a slightly discounted meal, let's say 4 euros, 5 euros. So that those people that typically come three times per month can afford to come four or five times. Which at the end you're thinking, it's just one more time per month. But at the end, it's a growth of 33% or 50% in many cases, yeah? Which is the same as the restaurant in the corner bus with the Menu del Dia, right? Instead of having only a la carte dishes where you will spend 20, 25 euros, what you do is say for 12 euros now you get to have your meal everyday. So that encourages people to go instead of 2 times, 3 times, which is 50% growth rate for the business, yeah? And the other one that I mentioned is the share of pocket or share of his stomach, right? And this is not about growing the category but to stealing from competitors. Think about supermarkets, great example. Here, imagine, Martin just spent 1,000 euros per month on groceries, right? You're not going to spend 1,200 even if it's discounted or not. So you spend 200 in one place, 500 in another and 300 in the other supermarket, right? The supermarket is the only way they have to really grow, is to steal from each other, yeah? And one of their promotions, the mechanics, the tactics that they use think about Corte Ingles, right? What you do is you go there and you just see something that says, hey, spend 50 euros, and your next purchase, you'll get a discount of 5 euros. And you say great, you were planning to spend 20 euros, now you spend 30 euros. So now the check goes up and on top you have an incentive to go back to on your next purchase. Instead of going to the closest to your home, to the most convenient, right? So it's a great mechanic from those points of view. Also with the share of the pocket think, at the beginning of the month you will see lots of volume promotions in the super markets. Buy two get three, buy three get four. Why is this? Because they want to take advantage of the moment that you have cash in your pocket which is just after the paycheck. So that you spend the most possible in their place and you don't keep any money to spend in other places, right? So that's a great thing that they use also to really increase the share of the pocket. And the last one that I mentioned really was tryout, right? Get people to try your products so that you can upsell them, they're typically more expensive. So think about, let's say, Burger King, McDonald's, yeah? They launch a new burger that is 8 euros a meal instead of the 6 that regularly costs something. There is a big barrier of trial there. Because when you go to one of these places, you know you spend your 6 euros, you know you will get the burger you like, you love. And they tell you, hey spend 8 euros and you will get the burger you don't know if you will like. So it's a big investment, a big commitment that you have when you, at the end, spend money. So one way that you could lower the barrier for trial is say, hey, for 2 days, just 2 days people, I'll give you this burger at 3 euros. Just the burger, not the meal. So that you don't get it to cannibalize other things and people can add it on top etc. And you will reduce a lot the barrier for trial. So it's a great technique they use. Also let's think about the cereal business, right? Cereal is a great habit. You go there, you buy always their same cereal, the corn flakes, the same. And breaking the habit is a torture for the family. No, hey mommy, where are the cereals that I like? So you're not going to spend 4, 5 euros on a big box of a new cereal that you don't know you're going to like. So what do they do many times? They create a small box of 1 euro, yeah, that says hey, you know, try our new cereal, only 1 euro, a small box. And the cost is 1 euro, it's nothing. If you don't like it, you probably don't have any more to eat even if you won't like it. So it's a great thing they do, and by the way, just check the unitary price of those boxes, it's actually higher than the unitary price of the 4 euros box. So at the end you make a lot of money on those. It's not that the company's losing money. And the last example that I want to mention here, is imagine a company like Netflix, that now is getting into Spain. What they've done is they said, first month free. First month is on us. So what they are doing? They are lowering a lot the barrier to entry, so if you were thinking should I sign up for Netflix or not, it's 10 euros? 10 euros is not a lot, but for many people it's a stopper. So what they say? Hey, we give you the first month for free. You say okay, why not? I'll try it, I'll watch like 30 movies. And then if I like it I will stay. And the thing about that is that they are playing also the reciprocity game, right? They give you something for free at the beginning and then you feel bad if you don't give them something, your money, right? So it's a really good promotion mechanic that they are using there, yeah? >> So before, you already mentioned that timing seems to be important. You highlighted, for instance, that especially before Christmas, companies are doing promotions. Can you tell us a little bit more about the important of timing when it comes down to price promotions? >> Of course. I mean, let's put an example of this Christmas, yeah? When you say this Christmas, the Black Friday became crazy, in Spain at least. So look at all of the many of the popular retailers they're starting doing promotions as of November, when typically it was seventh of January, no before. So you have different retailers, some of them have the theory that I should start promotions, the earlier the better. I know I won't sell as many items at regular price, but I will steal all of the spend that many people want to spend in apparel and clothes. Instead of going wherever, to they will come to me, right? So, yes, my margin percentage will be lower, but my volume will be much higher. So at the end my total profit will be much higher. So that's what we have seen the last years, promotions come earlier and earlier in the year. Another thing that I mentioned is what you just said. Within the month, yeah, you will see at the beginning of the month as people just got their paycheck, you'll have lots of volume promotion, say four for three, three for two. And as the months move people are starting to get short in cash, you will see more like pure price discounts towards the end, right. Like 30% discount on this, 40% discount. Because people cannot afford to do volume promotions, so they will go on the price discount ones. >> So before you mentioned as well that promotions, to a large extent, could be targeted at gaining customers from the competition. So it seems to me a little bit like a loser's game. Could we actually win, or is everybody losing because everybody engages in price promotions? >> Of course, but before, let me tell you that this growth is the toughest to achieve, right? Because you're not talking about your regular consumers that already have a habit. Your new consumers, see, they're new to the category or coming from competitor you need to change the habit, which is really, really difficult. So it's always easier to grow from existing consumers than from new ones. Having said this, you need to give them an incentive, right, to lower the barrier. Typically some very aggressive price discount. Let me give you an example. Yesterday I was walking down the street and I passed a Taco Bell and just in front Someone gave me a flyer. 2 euros for your nachos, come and enjoy right? It was right after in front of the store, in the moment of consumption, and I felt like okay, 2 euros, this is cheap, they are not making much profit. But in the end they give you this, you are with your girlfriend, with your friends, okay let's go here. Just 2 euros, let's enjoy. You go there, give me this, please? Would you like some beers with it? Okay, why not? Would you like a burrito? Okay, let's have a burrito here to share. And at the end you're not spending 8, 10 euros, yeah? And they're making a lot of profit. So the idea of these offers is, again, what I said before, is you need to choose the right offer that does not cannibalize your source of revenue, but that is like bait for people, yeah? So that at the end they go to you this is nothing and they kept spending money and money. Either in drinks or in other food. So this is a great example that I wanted to share. Also when you think about this is price this is not as much promotion, but it's pricing as a business strategy. Think about Amazon, what they do with their tablet, right? It's 40, 50 euros. It's one-tenth of the price of an iPad. Why do they do they do this? Because their main source of revenue is not selling tablets, it's selling content, yeah? So if you don't have the tablet, they cannot sell you content. So of course you don't make much profit in selling the tablets, but they make all of profit in selling the content. So this is not the promotion but the pricing of the study. The same as gas stations, yeah? When you go to fill the tank of your car the Carrefour gas station, are they making any profit? Probably not, yeah? Because it's typically 10% cheaper than when you go to any other company. But the idea is that once you're there, you will say, why I shouldn't get groceries for the entire week here at Carrefour once I'm here. So yes they are not getting any profit in the gas station but they're getting a lot of money making the final destination Carrefour, yeah? >> Fantastic Alejandro, it was a pleasure having you today. Thank you so much. [MUSIC]
