There was apparently an Easter skirmish in the ongoing grocery price war in the UK: and hands up anyone who couldn’t buy rhubarb for love or money thanks to British chef Delia Smith’s rhubarb brulee recipe at Waitrose?
The BRC (British Retail Consortium) yesterday announced the lowest food inflation for 3 years with competition ‘even fiercer than usual’. But apart from competition on known-value items, how do retailers determine where to apply cuts and promotions, and how do they measure the effectiveness of their tactics?
Price competition is of course a long-term campaign, with immediate price cuts playing second fiddle to consumer price perception. And consumers are easily mistaken on price perception: The 2008 OC&C Price Perception report showed consumers consistently underestimate store pricing by 11.8% - although only about 4% for grocery, compared with 23.5% in fashion.
The long-term winners in ‘Price Wars’ – everyone is fighting on several fronts – will have a set of attitudes and technologies distinct from those who eventually lose out. I was reminded of Accenture’s (the global management consulting, technology services and outsourcing company) excellent report of the distinction between what they politely call ‘conventional’ retailers versus the leading-edge:
The losers:
Typically they consider that price is not a strategic focus: price decisions are fragmented across the business hampered by poor communication. These retailers have their price planning and tactics driven by the competition and tend to have little data available to support fact-based price recommendations. And worst of all there is limited or no visibility of the overall effects of their pricing decision and a culture of repeating past practices.
The winners:
Leading-edge retailers do see pricing as strategic and one of the key marketplace differentiators (along with positioning, promotion, place, planning…). To drive this, the price decision is owned by a centralised group, with significant involvement from cross-functional groups, and with scientific/academic credentials. Importantly these retailers segment their estate by behaviours and pricing power – giving them price zones. This enables them to evolve (and that’s the key word) pricing strategies supported by end-to-end planning and impact analysis: their smart guys may well wander around using terms like ‘heuristic models’. Sales data is analysed at a granular level to provide insight into how consumer demand changes due to movements in price - and other factors: maybe external factors such as weather & events, or internal factors such as other category activities. Price change impacts are continuously monitored and their tendency to deliver the retailer’s business objectives is continuously gauged.
Which side are you on? If you’re not using or evaluating price optimisation technologies and electronic shelf-edge displays the chances are you may not have the tools to win.
Jann Naef
Director of Product Marketing
jann.naef@zbdsolutions.com
