As we approach Christmas and the new year comes ever closer, retailers’ attentions whilst fixed on the issues of Christmas revenue, are also looking at the changes that are due in the new year. The lower VAT rate of 15% will rise again to 17.5% little over a year after it was lowered. Will this encourage consumers to spend more money before the prices go up again, or will they even notice a difference? Sales figures have been up on the same period last year but surely has more to do with the rise in consumer confidence. The Nationwide’s Consumer Confidence Index shows that there was no improvement last month in consumer confidence but the previous months’ increases have meant that year on year the increase has been significant. There does seem to be hope on the horizon as other major economies have recently exited the recession and companies such as Sainsbury’s and many more are reporting higher profits once again.

It’s hard to tell if the VAT reduction has really drastically changed things for consumers or businesses. To consumers it seems to have been more of a gesture, as on small every day purchases the 2.5% only equates to pennies. In general consumers have been responding positively to sales promotion techniques – many not leaving the home without a voucher or their loyalty and membership programme or discount club guide in hand. From a consumers’ point of view the discounts found in in-store sales, loyalty and membership programmes or discount clubs usually offer far more value than 2.5% and so eclipse the good of the VAT reduction. These discounts can knock profits but also generate loyalty, retention and even revenue if businesses sell the loyalty and membership programmes or discount clubs to its existing customers.

It could be argued that traditional sales promotion techniques have done more in the last year to promote consumer spending than the lower VAT rate. A discount or reward is something that consumers instantly recognise as value for money and can put into context. By employing sales promotion techniques a lot of businesses have managed to stay competitive during difficult times. As the sales and discounts continue into the new year it’s debatable whether consumers or even retailers will notice a massive difference when the VAT increases to 17.5% again.

Contact Us for information on sales promotion and implementing a discount for your brand or reward for your customers. We operate a number of membership and loyalty programmes that offer members discounts, giving the brand access to a large membership base of loyal customers. This helps businesses to drive loyalty retention and revenue.