'The summer of Smeg' - why New World's knife promotion worked so well

Wednesday, 17 February 2021

EXPLAINER: We have a national love affair with supermarket giveaways – and our two big retailers know it. Steve Kilgallon and Keith Lynch explore what drives our obsession with free glasses and knives.

For weeks, we went wild for Smeg knives. One over-enthusiastic Foodstuffs executive called it the “Summer of Smeg”.

It was a giveaway promotion run by New World supermarkets. And despite there being 1 million knives and another 50,000 knife blocks, they ran out.

New Zealand has a well-documented passion for supermarket freebies. When Countdown organised swap meets for keen collectors of its coveted Disney Dominoes, they descended into unseemly scuffles. A 10-year-old had his glasses dislodged.

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Countdown’s Dreamworks Heroes cards were banned from the playground of a Dunedin school. Scalpers offered a complete set of New World’s Little Garden on Trade Me for $115.

So why do we so love a supermarket giveaway? And perhaps more importantly, why do supermarkets love them?

How do they work and why?

Supermarkets understand what keeps their customers in store longer and makes them buy more.

They pump out fresh bread smells to make us feel hungrier. They put fresh food upfront for its visual impact and to deliver a subliminal message that supermarkets are healthy. Milk is placed at the end, and popular items in the middle of rows to ensure we visit every aisle. Bright lights, no clocks and music with a slow beat have the casino-style effect of encouraging us to dawdle.

They use similar tactics with their promotions.

It starts with the buy-in: for the Smeg knives promotion, customers picked up a little booklet and for every $20 spent at the till, they were given a little black sticker to put in their book. Twenty-five stickers and they received their first reward: an 8-centimetre vegetable knife valued at $59.90.

The stickers are tactile, visual, shareable – much better than a digital app (and easier to develop), says marketing expert Ben Goodale.

They were also a classic play on our innate drive to collect. Each sticker represented a physical trigger for a mini hit of the success chemical dopamine. They also gave customers an attainable target, which meant success was always within reach.

“The neuroscience literature tells us that if we receive a reward or a gift, special pathways in the brain are activated that not only make us feel good for getting the gift, they can also activate us to pursue more of that feeling,’' Megan Phillips​, a senior lecturer in marketing at Auckland University of Technology (AUT) who specialises in retailing, explains.

New World offered six different knives and then, to complete the set, a knife block, which required 40 stickers and $50.

Once people had collected two or three knives, many would pass a tipping point in which an effect called “set completion” drives them to pursue a full collection, Phillips says.

“Your subconscious justifies to you the aim to get the full set. I experienced it myself – I wasn’t really interested in it, then I got three knives and I wanted the whole set and the block.” She didn’t make it.

The knives were never on general sale in New Zealand (which gave them scarcity value, an extra appeal) – but all the advertising material included their recommended retail price. It was a signal to customers that here was something valuable to be coveted.

“Typically, the higher the price, the more positive people feel towards it, the more attracted they are to it,” says Phillips.

These promotions are also carefully framed to be seen by shoppers as a “gain”: they are spending the money anyway, and they don’t have to do anything extra. That means clear and plain rules, no worrying small print, and an easy handover of the gift.

Don’t feel bad that you bought into this – everyone does. These promotions aren’t just a Kiwi thing: they are quite common in Southeast Asia, while Little Shop ran initially in the Netherlands and has also run in Britain, South Africa and Australia.

“Collectible promos are fairly global. Humans aren’t that different. It’s pretty universal,” says Goodale.

As an aside, Little Shop and its sister promo, Little Garden, and Countdown's Disney Dominoes and Insect cards have a different strategy to the Smeg knives and so forth: the former are aimed at children, and squarely use “pester power” to drive sales.

When Marks & Spencer in Britain ran the Little Shop promo, it described it as being “more relevant to the family customer”. In plain speak, it means getting the children to drag their parents to shop in that store to get the free stuff.

What are the supermarkets after?

Most of us tend to shop regularly at the same supermarket. Promotions are the supermarkets’ attempts to break that behaviour.

Lisa McNeill​, associate professor of marketing at Otago University, says the promotions are essentially about changing those embedded behaviour patterns.

“Even if the promotion only runs for a short period of time, to spend at that level you have really intense frequency. Increased frequency of changed behaviour is where you make inroads into shifting people’s behaviour permanently.’’

Goodale agrees. “If you want people to drive past the nearest supermarket to get to you, you have to give them a compelling reason.”

There is data to show it works, Phillips says. In 2016, My Little Garden triggered a lot of what the experts call “switching behaviour”. New World had a 3.6 per cent sales increase (worth $14.4 million) during the promotional period. Pak ’n Save dropped 1.9 per cent and Countdown fell 0.6 per cent, Phillips says.

The experts say customers don’t instantly and automatically switch back at the end of a promotion but the chains are engaged in a constant “Cold War” to keep them. It is why, when one chain runs a promotion, the other will roll one out shortly afterwards.

Goodale is a specialist in “loyalty marketing” and has worked with Subway, Farmers, ANZ, the Warehouse and yes, Foodstuffs: he was heavily involved in New World’s Little Shop and Little Garden promotions.

He says those promotions hit their marks: they attracted new shoppers, existing shoppers bought more, more people joined their membership scheme (ClubCard) and their market share rose, which he says is considered difficult in the supermarket trade.

Why did knives work so well?

The experts say that, broadly, Pak ’n Save markets itself based on prices. It is not really interested in gift giveaways; Countdown competes with New World, but sits in the middle and aims to compete on price and quality; and New World positions itself around quality and lifestyle.

That made Smeg an ideal partner for New World’s owner Foodstuffs, says Phillips. It was a high-end, quality brand that made New World look good by association and built its “brand image”.

For some supermarket promotions, the supplier may front the entire cost, or offer discounted stock and a contribution to advertising spend because it is so attractive.

We don’t know what the Smeg deal was.

“I am sure there was a keen pricing deal,” says Goodale. “But, at the same time, it would have been a big investment from New World. You are talking about millions of dollars. Just multiply $25 [a possible unit cost] by a million – to get an idea.”

The promo could also be seen as a win for the Italian kitchenware retailer.

McNeill says she has seen more advertising of Smeg products since the promotion began, so it could be seen as a “three-way win”.

Goodale agrees: for Smeg, it was a chance to put product samples in a million Kiwis’ hands.

He says knives were a sensible choice for New World, which has a marketing drive to get shoppers to cook more: “How do you prepare food? You use a knife.'’

What is it worth to the supermarkets?

Here is the inside word from a former supermarket owner. He says, broadly, a supermarket makes a profit margin on the products they sell which ranges from about 10 per cent at Pak ’n Save, to 15 per cent at New World or Countdown, to 20 to 25 per cent at a Four Square.

When supermarkets run specials, because the ticket price drops, that margin can drop to 5 or 6 per cent.

Both chains (Countdown and New World), he says, run highly centralised promotions, with stores given an allocation of giveaways based on their average weekly sales turnover. Stores then have to ask for more once they run out. On a less coveted promotion, he says, there would be some wiggle room to give a regular customer extra tokens or stickers but the knives were clearly highly regulated.

Owners would see a clear impact on customer behaviour, and a sales bump of a couple of percentage points if it was a good promotion.

“But it has got to be a good one – if it is just a tea-towel, then it is not going to have an impact,” he says.

Neither Foodstuffs nor Progressive would agree to an interview.

In a statement, Foodstuffs’ head of corporate affairs, Antoinette Laird, described the knife and glass promotions as “runaway successes” for the brand. Intriguingly, she said 25 per cent of the 1.2 million knives claimed during the promotion went to customers who did not have a New World Clubcard, suggesting strong traction with non-loyalists.

Progressive said most of the questions Stuff asked were commercially sensitive but its “collectable campaigns” were designed as a reward to customers.

“Collectable programmes take many months of planning and we learn from each one we run. We don’t have a specific time of each year that we run them and we are not privy to other businesses’ plans or promotion timings.”

Foodstuffs was, however, more forthcoming in its 2020 annual report for the South Island division. Their Spiegelau glassware promotion, in which it reportedly gave away 700,000 sets, was credited with “driving a record sales lift and enhancing New World’s leadership position as the highest rated supermarket for customer satisfaction”. The report described “Spiegelau-mania” which drove increased sales, visits and market share.

What did it really cost?

To get the complete Smeg knives set, you actually had to spend quite a lot of money. One reader wrote to Stuff having done the calculations and decided not to bother: “I did not even start because I realised I would never get there … it is misleading to call it a giveaway.”

To collect the whole set, a customer needed 245​ stickers, which meant a grocery spend of $4900​. The promotion ran for 12 weeks, which would mean a weekly trolley of $408.33​: “We as a family of 3 adults spend on average a maximum of $200/week, we would never have got there.”

The knife block had a recommended retail price of $179. To secure one took 40 stickers ($800 of groceries) and $50, or seven times the RRP (although you did, of course, get a lot of groceries too). The entire set had a RRP of $672.30.

Some shoppers argued New World must have known it did not have enough knife blocks – if it ordered a million knives, six knives per block meant it would need 166,666 blocks. But it had only 50,000.

For one Auckland businessman who couldn’t get hold of a knife block after trying to redeem his stickers at 20 different stores, it was enough to drive him to lodge a Commerce Commission complaint alleging New World had been misleading.

“It is an unfortunate downside,” says Goodale. “No-one wants to upset customers who feel left out.’’

The blocks still seem in demand. This week, there was a range of Smeg knife blocks for sale on Trade Me from $285, up to someone offering a block plus five of the six knives for $600.

Goodale says New World could easily do glasses or knives again next year – he reckons anything like saucepans, plates or kitchen accessories would likely do well.

“We will definitely see more of this,” says Goodale. “You can be sure the Countdown team are thinking of their next one.”