March 12, 2009
How Big Are Those Price Cuts?
By Bernice Hurst, Managing Partner, Fine
Food Network
Trumpets blaring out price cuts rarely say
how much those prices have been cut. The number of items costing less per
store is advertised in total, not item by item. As long as overall shopping
baskets cost less than the same items from a competitor, the boasts are
legitimate. But are they really transparent?
The Grocer is
the oldest and most respected magazine for the U.K. grocery business. Each
week its Grocer 33 shopping basket database monitors several hundred items
across twelve categories, showing readers how prices compare across the
four main grocery retailers in the country. As price wars rage, the magazine
is seen as the place the trade can go to see how each chain measures up.
But it is a trade magazine, rarely if ever read by consumers who see little
more than banners, ads and newspaper articles about "everyday" fair
prices and bargains because "every little bit helps."
Last week, The Grocer discovered that "more
than half of the 5,000 price cuts promised by the supermarket group Asda are
only worth a penny an item." Furthermore, like
everyone else, Asda has also raised prices and,
of these, "fewer than one in 10 of those increased in price rose by
only a penny."
In announcing the price reductions on Feb.
26, Asda said with the additional 5,000 cuts
planned by Easter, prices will be reduced on 12,500 items since the year’s
start. It also pledged not to engage in any deals or promotions that were
not genuine price reductions. Chief executive Andy Bond said
at the time, "We’re engaging with our customers in a transparent way
to ensure the products we sell and the prices we charge meet their needs
in these difficult times."
Consultant Kay Staniland, of Assosia, responded
by saying that, "Having reported last week that it was dropping bogofs [buy-one-get-one-free] in favor of being transparent
in its price cuts, such small cuts could be seen as simply trying to retain
the cheapest title rather than passing on any real savings to the consumer."
Confirming Ms. Staniland’s statement while defending their policy, Asda’s spokeswoman
asserted that, "As the Grocer 33
shows, week in week out we are the undisputed price leader." Admitting
that price cuts of a penny are counted in the total, she also reaffirmed Asda’s position
that they offer good value and claimed that further cuts will include "dozens
of deep rollbacks."
Discussion questions: Are retailers doing
enough to make price cuts transparent? Do consumers trust marketing campaigns
touting price reductions?
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Price image is one of the single largest motivators for consumers as they determine where they will spend money. Price image, however, does not always equal the lowest prices overall. Given changing consumer preferences, confidence, and actual spending ability, retailers must carefully review their pricing strategies and execute with precision the very best pricing for each store.
I estimate that there are over 100 retailers who are using price optimization technology. With this technology and only with this technology, retailers can understand which items are most important to consumers from a price perspective. Further, they can set prices that will motivate consumer behavior.
With the changes in consumer spending behaviors, now more than ever, this is the time to engage with price optimization solutions and deliver the right pricing to enhance/improve price image. Selecting the right items to promote that will encourage new consumers who will buy more than the promoted items is key.
As a software class, we are long past the “does it really work?” stage, it is more about how it works within your organization. Opting to ignore these very capable solutions is a decision that will certainly leave retailers exposed to competitors who are using price optimization tools.
I’ve seen success in every class of retail and in every imaginable scenario. A great price image is critical, but it’s not achieved by adding up a collection of items and making sure you are cheaper than your competitors. Consumers are far more sophisticated than this type of simple approach.
One thing that I’ve noticed is a dramatic increase in the number of “recession-buster,” “wallet-stretching” deals from all types of retailers. While it is great to give consumers a deal when the economy is down, I think consumers are getting a bit skeptical of some of the pitches, in terms of just how big a savings they are really getting.
It would be nice if we could get back to really delivering VALUE for money spent. It takes a long time to build sales that way, but you are really building steadier, longer-term relationships with customers.
Shoppers go where the value is–price, quality, selection, service, convenience. Promoting price reductions may interest a shopper enough to check out other stores but they quickly know when price reductions are overstated–and whether it’s worth a return trip. Retailers have much to lose in terms of shopper trust and loyalty with lack of transparency on pricing issues. With so many locations and choices in North America, it’s important to stay with the retailer value proposition for core shoppers–they will keep the store in business over the long haul.
Uh, actually it’s the manufacturers and vendors in many cases that are taking the deepest cuts, but that not withstanding, price cuts alone are not the answer to stimulating the economy. Retailers and manufacturers alike need to partner up to sell ideas to consumers about how to stretch dollars in the economy, not only by saving pennies, but also by purchasing the right items in the store, that in many cases might replace other solutions to other needs formerly addressed outside the retail environment. Just as one example; everyone wants to have white teeth for networking, interviewing, meeting people, etc. Why not purchase a retail whitening product at the supermarket or drug store for under $30 instead of paying hundreds of dollars to go to a pricey whitening clinic? There are many other examples all throughout the store, as well.
Reducing the price on 5,000 items may make a good headline for an ad. It may even bring a new shopper in to the store. But, only once. Ultimately, shoppers do not care about 5,000 items. They only care about the price on the less than 100 items that they may buy. And of those 100 items there are likely no more than 20 or 25 that have a meaningful impact. One dollar off on a half gallon of milk does a lot more for me than one cent off on each of a basket full of items.
Even shoppers who do not take great care in watching precise pricing of their purchases know when their “market basket” goes up or down.
The retailers can boast what they want, but they won’t fool the shopper, at least not all the time. Does the retailer risk credibility? Absolutely. Will the shoppers change their loyalty? Not likely. There are many, many more variables that go into where a customer likes to shop than price. If cost becomes a pressure for the consumer, a trade down from brand to private label will deliver more cost savings than to go to a different retailer.
When examining this issue we need to be sensitive to the other side of the coin…what about the price increases after the ad or the price “cut”? These frequently negate or equate the price cuts (which are all too often temporary) which is why these savings appear to be so minor. The key for any consumer who is sensitive to price adjustments, is that they know what they are purchasing and at what price. All too often, consumers are not aware of the actual price of a product, and frequently end up paying more.
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Price image is one of the single largest motivators for consumers as they determine where they will spend money. Price image, however, does not always equal the lowest prices overall. Given changing consumer preferences, confidence, and actual spending ability, retailers must carefully review their pricing strategies and execute with precision the very best pricing for each store.
I estimate that there are over 100 retailers who are using price optimization technology. With this technology and only with this technology, retailers can understand which items are most important to consumers from a price perspective. Further, they can set prices that will motivate consumer behavior.
With the changes in consumer spending behaviors, now more than ever, this is the time to engage with price optimization solutions and deliver the right pricing to enhance/improve price image. Selecting the right items to promote that will encourage new consumers who will buy more than the promoted items is key.
As a software class, we are long past the “does it really work?” stage, it is more about how it works within your organization. Opting to ignore these very capable solutions is a decision that will certainly leave retailers exposed to competitors who are using price optimization tools.
I’ve seen success in every class of retail and in every imaginable scenario. A great price image is critical, but it’s not achieved by adding up a collection of items and making sure you are cheaper than your competitors. Consumers are far more sophisticated than this type of simple approach.
One thing that I’ve noticed is a dramatic increase in the number of “recession-buster,” “wallet-stretching” deals from all types of retailers. While it is great to give consumers a deal when the economy is down, I think consumers are getting a bit skeptical of some of the pitches, in terms of just how big a savings they are really getting.
It would be nice if we could get back to really delivering VALUE for money spent. It takes a long time to build sales that way, but you are really building steadier, longer-term relationships with customers.
Shoppers go where the value is–price, quality, selection, service, convenience. Promoting price reductions may interest a shopper enough to check out other stores but they quickly know when price reductions are overstated–and whether it’s worth a return trip. Retailers have much to lose in terms of shopper trust and loyalty with lack of transparency on pricing issues. With so many locations and choices in North America, it’s important to stay with the retailer value proposition for core shoppers–they will keep the store in business over the long haul.
Uh, actually it’s the manufacturers and vendors in many cases that are taking the deepest cuts, but that not withstanding, price cuts alone are not the answer to stimulating the economy. Retailers and manufacturers alike need to partner up to sell ideas to consumers about how to stretch dollars in the economy, not only by saving pennies, but also by purchasing the right items in the store, that in many cases might replace other solutions to other needs formerly addressed outside the retail environment. Just as one example; everyone wants to have white teeth for networking, interviewing, meeting people, etc. Why not purchase a retail whitening product at the supermarket or drug store for under $30 instead of paying hundreds of dollars to go to a pricey whitening clinic? There are many other examples all throughout the store, as well.
Reducing the price on 5,000 items may make a good headline for an ad. It may even bring a new shopper in to the store. But, only once. Ultimately, shoppers do not care about 5,000 items. They only care about the price on the less than 100 items that they may buy. And of those 100 items there are likely no more than 20 or 25 that have a meaningful impact. One dollar off on a half gallon of milk does a lot more for me than one cent off on each of a basket full of items.
Even shoppers who do not take great care in watching precise pricing of their purchases know when their “market basket” goes up or down.
The retailers can boast what they want, but they won’t fool the shopper, at least not all the time. Does the retailer risk credibility? Absolutely. Will the shoppers change their loyalty? Not likely. There are many, many more variables that go into where a customer likes to shop than price. If cost becomes a pressure for the consumer, a trade down from brand to private label will deliver more cost savings than to go to a different retailer.
When examining this issue we need to be sensitive to the other side of the coin…what about the price increases after the ad or the price “cut”? These frequently negate or equate the price cuts (which are all too often temporary) which is why these savings appear to be so minor. The key for any consumer who is sensitive to price adjustments, is that they know what they are purchasing and at what price. All too often, consumers are not aware of the actual price of a product, and frequently end up paying more.