UK retailers have intensified their battle to try to prove to consumers that they offer the best value for money. However, SymphonyIRI’s Rod Street says a strategy that focused only on price would be flawed.
The battle to demonstrate value for money of course goes back a long time and has been the anchor theme for some players – like the persistent pocket tapping of Asda. But, in recent times, spurred on by the recession and increased pressure on households, the game has moved to a completely new level.
Asda led the journey into this new battlefield with its ‘price guarantee’ (spurred on by its parent Wal-Mart Stores’ global drive to offer ‘everyday low prices in every market’). Through the initiative, the UK’s second-largest retailer promised to undercut all its main rivals by 10%. To capture the promise the shopper has to log on to Asda’s website with their till receipt and let it calculate the comparative prices. Several million shoppers have already done this, indicating that price is important in the journey to purchase.
Tesco responded with a price-check promotional campaign to enable shoppers to claim double the difference in vouchers if the retailer didn’t deliver on its offer of the cheapest price. This campaign subsequently had to be modified to avoid over generous payouts to shoppers who purchased selected products just to cash in on the promise.
Sainsbury’s has also now entered the fray. Having previously advertised its match on key items to Tesco, it is now introducing a voucher at till scheme that will automatically calculate the difference in prices of branded products between itself and Asda and Tesco in any basket worth over GBP20. Sainsbury’s claims that it will refund any difference by providing shoppers with a voucher that can be spent in the following two weeks.
It is becoming increasingly apparent that all these innovative schemes are attempts to convince the consumer that the retailer’s offer is good value and so entice or retain the shopper to the store.
However, all are slightly different in their conditions, approach and what they promise. They are also key themes for positioning the retailer’s brand in the market. Yet all present a zero-sum game which will simply level out the playing field between the current incumbents. Will shoppers see this as good for them? Will this deliver the elusive ‘value’ that retailers are pressing on for their customers? I think not.
The reasons are varied. For a start, shoppers have seen some substantial rises in the prices of basic items such as butter, chocolate and flour. These increases have drawn their attention to look at prices more closely, especially at a time when disposable income is under threat. Shouting about price could make shoppers even more price sensitive. There needs to be something more than a focus on price to create real value for consumers. Certainly as each retailer neutralises the advantage of the others, shoppers are likely to explore new avenues to pursue their own views of price and value.
Indeed there are some signs that they are already doing this including:
Competition – Other retailers are playing for the price sensitive basket. Budget retailers Aldi and LIDL have for example recently delivered an impressive sales growth of 24% and 14% respectively. Similarly the ‘pound’ stores and other cheaper channels are also cutting in – especially on household, toiletries and confectionery. If price becomes the dominant factor for consumers, there are some players expert at optimising the total cost of the shopper’s basket who could provide a compelling (and maybe equally importantly) simple offer here;
It’s not just about price for the consumer. There are other factors that shoppers’ value other than prices on packaged goods. Being assailed by promotional prices and shelf barkers everywhere in-store will reduce as much value for some shoppers as it adds. The in-store experience is also important. Similarly branded ambient grocery (on which most of the battles have centred) is not the only place that shoppers will look to find value.
Channel migration – The rise of other shopping channels such as the small store, the drive-through or even online exposes the fact that while grocery shopping maybe essential, it is not the centrepiece of most people’s leisure time. Convenience plays an important role in a busy life. The spur to online allows better budget control and management of impulse purchases. Small formats offer immediacy and save petrol and time – despite a potentially more expensive mix of product. These other factors shaping value are important considerations for retailers and brands;
Promotional fatigue – The promotional noise level in the major chains – particularly in the UK – has risen dramatically over the last 3 years (now nearly 55% of all products sold are on promotion in the UK). In fact it is so high in some categories that the idea of an everyday price that periodically gets discounted in a deal has been washed away by a set of prices that are normally charged periodically, punctuated with a premium price that few people buy into. The sheer number and range of promotional offers has made shopping much more complicated and stressful for many shoppers. So while these price schemes should help shoppers if they trust them and use them, over-use of the strategy is creating a blindness to the real value of a promotion – and suspicion that the complexity hides ways to charge higher prices.
It is possible that there a tipping point coming on the issue of pricing. After all, the real squeeze on household incomes is only just starting in most indebted Western economies. Even though the fear has been here for a long time, shopper behaviour is likely to twist again when reality proves just as bad as they thought.