On the 1st January, the UK’s rate of VAT will rise to 20%. Research released today from affiliate network LinkShare, reveals that targeted marketing campaigns will be the most effective way to win business in the post-raise world. 30% of marketers* claim that mass marketing techniques will give way to individualised campaigns in 2011.

18% expect to see an increased emphasis on measurement and ROI, already watchwords of the post-recession environment. One in five also says that advertisers will have to look for more efficient and results-driven online marketing techniques to redress the balance of reduced marketing budgets.

For consumers this means a visible increase on the bottom line of everything from day to day purchases to white goods, cars and houses. But for retailers the impact is still to be seen, with some commentators claiming that consumer spending will be affected and that sales may suffer, either online or in-store.

LinkShare believes that the VAT rise doesn’t have to have a negative impact on retailers: in fact, for some, it will offer an opportunity to build relationships with their consumers and demonstrate a new level of value.

“One of the biggest motivating factors for online shoppers is value,” says Liane Dietrich, MD of LinkShare UK. “Whether it’s a straight price comparison or an extra bonus in terms of free shipping or gifts, there is a strong perception that online offers a better range of options than the high street. The increased VAT rate can be another string to this bow – retailers who choose to offset or absorb the VAT increase could stand to benefit not just from an increase in sales but also in greater customer loyalty.”

The research also showed that one in three (37%) consumers will show signs of curbing their spending habits once the rise kicks in. With companies like Sony already focusing on the pre-Christmas sales period with VAT-back offers and incentives, the retail community clearly feels that now is the time to start engaging over the question of imminent price increases.

January Sales
Absorbing the increase is not the only way for retailers to handle the increase. Dietrich notes: “One option is for brands to list RRPs that include the VAT increase and to then reduce the extra percentage points for the January sale period. It offers a buffer zone between the two rates and gives consumers a chance to purchase goods at last year’s prices.”

Dietrich continues, “Consumers are savvy and dedicated to the quest for the best value; they won’t go back to pre-recession habits when the economy starts to recover. They will continue to base their decisions on the research and value-driven factors that they have become accustomed to over the last eighteen months.”

For further information or to speak to Liane Dietrich about LinkShare’s advice for retailers looking to address the VAT increase, please contact Hotwire on 020 7608 2500.

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*Research conducted by LinkShare at ad:tech 2010

Published on: 2:40PM on 10th November 2010