Previous Article
Bill Hanifin
view more articles
One mantra of Loyalty Marketing practitioners is that discounting is not a sustainable strategy. While it does create temporary impact to boost sales and adjust inventory levels, it is not a differentiating tactic and does not serve as the foundation for creation of competitive advantage through a strategic marketing plan.
That said, discounting is one of the preferred tools of retailers and grocers. The Wall Street Journal reported that leading UK grocers have taken to slashing prices, offering discounts, and launching new private label brands to vie for basket share.
The approach is short of subtle as Asda, Morrisons, Sainsbury’s & Tesco are creating advertising campaigns highlighting price advantages and a slew of discounts.
The price wars were triggered by the economic meltdown started one year ago and each brand that formerly differentiated itself by a unique characteristic (Asda “low prices”, Morrison’s “low priced deli”, Sainsbury’s “good food”, Tesco “broad choice”) now seem to be merging at a rapid pace.
As example, Sainsbury’s renamed a familiar advertising campaign from “Taste the Difference” to “Spot the Difference” and has a celebrity chef instructing on how to “feed your family for a fiver”.
The introduction of new privately branded products is driven by gross margins typically 10% higher than regular brands. The chain that can convince the public that they offer highest quality and best price while looking out for the families’ interest will presumably break from the pack. Waitrose, a traditionally up-market retail grocery chain, have also introduced an ‘own label’ range to retain consumers’ loyalty.
There is an element of Consumer Fatigue in all of this ‘price-war’ activity with each Supermarket claiming to have many prices lower that its competitor. Consumers are confused and research indicates that all retailers are doing well during this ‘credit-crunch’ as many families are eating at home more often.
Fascinating here is that ALL of the competitors seem to be benefiting from price wars. Of those reporting, Morrison’s led with an 8.2% same store sale increase in the latest quarter while Sainsbury’s chalked up a 7.8% gain and Tesco’s 4.3%. In the US, Kroger posted a 13% increase in the most recent period. Tesco, however, has seen a decline in its share value (down 7.4p to 364.5p) and remains bottom of the UK supermarket league table in terms of underlying sales.
Kroger is of interest as they are the second largest food retailer in the U.S. following Walmart and are using DunnHumby, a data analytics firm owned by Tesco to leverage its loyalty program data and enable discounts and special offers choreographed by historical purchase data and customer preference.
Where the current price war will end is uncertain and experts including Darrell Rigby, Head of Global Retail Practice at Bain & Co. are sounding early alarms by saying “price cuts are management heroin“. He notes “they’re addictive …. customers develop a craving for big discounts and an aversion to full prices. Companies get used to the boost in volume and risk a backlash when they try to raise prices later.”
For Asda, its almost business as usual. A subsidiary of Walmart, the company subscribes to the “Always Lowest Prices” motto. For market leaders Tescos (30.8% market share) and Sainsbury’s (16%), pure price competition is new ground.
The question, particularly for Tesco is whether they are progressively eroding the equity they have built into the Club Card over the past decade and how they can change course in time to ensure that this will not, in fact, be the case.
STOP PRESS !!!
Tesco is determined to get back onto the front foot and is doubling Clubcard Reward Points. Members will now receive 2 points for every £1 spent, meaning that a family spending £100 a week will receive £104 a year in rewards. This is the biggest change made to Clubcard since its launch 14 years ago.
Analysts suggest that, on one level, this strategy could be put down to the fact that Tesco has performed well for a decade, whereas others are recovery plays or have much more patchy records. Also, with a Tesco on almost every corner, there is an element of saturation and some stores are bound to cannibalise sales of others.
The increase in points funding will cost Tesco £400m but their track record suggests this move has been properly planned and is not a knee-jerk reaction to rivals.
Mike Atkin is President MJA Associates a UK based Loyalty Consultancy. We welcome him as the kickoff contributor to the “Loyalty in Any Language” series. A highly respected industry expert with twenty plus years experience within the Loyalty/CRM Solutions Market, Mike Atkin has broad knowledge of all aspects of Loyalty Programmes, including strategy and operations.
Mike has reviewed and benchmarked over 40 global Loyalty Software Platforms and completed evaluation studies of capabilities on behalf of programme operators in the USA, UK, South Africa and Russia.
Mike has worked with many notable brands including Premier Points, Amex Membership Rewards, Shell Smart, Boots Advantage, Marriott Rewards, as well as Tesco, Sainsburys, Somerfield, LloydsTSB, Asda, ExxonMobil, GE Capital, American Airlines, Visa EMEA, House of Fraser and Microsoft.
