Tesco's Price Promise revamp: simple, immediate, and a fair–share pointer for retail and supply?

Deep down, Tesco’s 5-point Brand Guarantee breaks some new ground for all stakeholders:

• Instant discount at checkout – eliminates frustration of delay, next time memory-lapse, sense of lock-in
• Own Label exclusion – eliminates difficulties of true like-with-like comparison of brand and ‘equivalent’ own label
• Minimum 10 item basket: attempt to re-encourage ‘bulk’ shop?
• Large stores + online only: Fine for once/week+ shoppers, but is it enough to re-attract daily, closer, smaller shoppers?
• Only Big 4 match: Eliminates price as a differentiator vs. other mults in large space, but still at a price disadvantage to the discounters

The Big Issue will be the extent to which other mults target large space as a separate market, competing via other parts of the retail marketing mix (see slide for options), but maintaining price parity….  However, if other mults break ranks and drive down prices, the appeal of large space retail may grow, at the expense of the discounters.

Meanwhile, Tesco’s move demonstrates a major step forward in transparency at point-of-purchase, the beginnings of a fair-share dialogue with the savvy consumer that will hopefully encourage other mults to follow suit, with branded suppliers perhaps adding a little more than expected to the tin to cement the process…

…and fair-share supplier-retailer dealings an added bonus? 

On-shelf like-for-like price comparison – what’s the problem?

News that four retailers are moving to £/100g onshelf pricing is only surprising in terms of the apparent reluctance of other retailers to make no-brainer decisions…

Aldi, The Co-operative, Waitrose and Morrisons have made a quantum leap that will result in other retailers playing catch-up…

The savvy shopper
Consumer-shoppers are now better-informed than ever before…and they ‘walk’ when confused or suspicious. For anyone trying to sell them anything, this should be sufficient to encourage the seller to make the proposition and its comparison with available alternatives as easy as possible i.e. £/100g or £/100ml. The shopper is thus presented with a logical way of comparing Product, Price, Presentation and Place on a like-with-like basis, with emotion and other qualitative elements of the proposition playing their part in justifying any price premium vs. the competition.

Difficulties with multi-buys?
One excuse appears to be difficulties in expressing multi-buy offers on a £/100g basis…

When I buy a jar of my favourite coffee at the regular price, I occasionally check jar size for possible reductions i.e. ‘disguised’ price increases (people are counting pennies out there, can anyone still believe they are not checking value-for-money, 24/7, and are totally insensitive to pack-reduction 'short-changing'?).

At the same time, a quick check of the on-shelf price per 100g allows me to compare with other coffees. Incidentally, if there appears to be a uniform price increase across the category ‘to reflect ingredient cost-increases arising from a rainy night in Georgia, or Sao Paulo’, then I switch to tea-bags until the craving becomes unmanageable…

If I succumb to a 3-for-2 offer on a 200g jar that normally retails @ £5.80, I am getting three jars for the price of two 200g jars i.e. 600g for £11.60 = £1.93/100g, compared with the regular  rate of £2.90/100g, so I load up…

Simple, unless the retailer – or supplier – does not want me to make that comparison…
And if I even half suspect that this is the case, I am tempted to revert to tea-bags, at another retailer, along with the rest of my average £70/week basket…

The ‘farce’ of airline pricing

Given the Irish government’s decision not to sell their 25% share of Aer Lingus, and the probable EU demand that Ryanair reduce its 29% shareholding in the national airline, it is possible that Ryanair will intensify its pricing competition in an attempt to get the stakeholders back to the negotiating table. This means that airfare pricing could become even more of an unfunny ‘farce’ for even savvy consumers.

Moreover, with even business class flyers resorting to budget airlines in these austere times, it is perhaps useful that NAMs familiarise themselves with the airline pricing process in order to optimise limited travel budgets.

How the pricing model works in practice
To start, new BBC research suggests we may need to reassess some of the things we think we know about air fares. For instance, many of us assume that prices only go up as the date of departure nears.

Prices on routes from London to major European cities including Rome, Barcelona and Berlin were monitored by the BBC every day for six weeks. The aim was to track how fares moved, rather than to compare prices.

The findings show that fares can actually fall and then rise a number of times during the period leading up to a flight. For instance, the price of a Ryanair flight from London to Rome in the middle of April fell on six separate occasions in the six weeks before departure.
Full details of the Ryanair and Easyjet business models and the history of the peanut airlines are available here and here.

A way forward?
Whilst current budget pricing no doubt make sense to the discount airlines, it patently confuses their consumers. In fact a cursory glance at our ‘what if airlines sold paint' example might clarify the issue from a consumer point-of-view.

However, the airfare business models are simply classic examples of demand-based pricing.

If the shopping experience counts for anything, and with price being ‘just part of the total offer package’ we should not be too surprised at the same product being priced differently in convenience/corner-shops and supercentres. The confusion arises from the fact that if selection and ease of shopping are the drivers in an enhanced shopping experience then why are comprehensive selection supercentre prices lower than limited-choice corner-shops?

Moreover, if the price differential becomes too great, an opportunity for arbitrage arises, in that it becomes more advantageous for a Mom ‘n Pop owner to buy from a nearby supermarket than from a wholesaler…, in the same way that a third party van owner can capitalise on even a 2% cross-border price difference.

These unprecedented times will eventually cause us to clarify our approach to pricing from the point-of-view of all stakeholders, or suffer the loss of our business to competitors that have the courage to be fully price-transparent…

Incidentally, the new leather seats on Ryanair are a nice addition in terms of comfort, and not yet reflected in their pricing…  Michael?

Tesco Bank - a double-edged sword for retailers?

News that Tesco is only months away from breaking into mainstream banking with current accounts signals the arrival of real competition in the banking sector.

This is a real opportunity to heighten savvy consumers' awareness of value-for-money applied to banking services, helping  consumers to understand that voting with their feet can be an option in banking as well as all other aspects of their consumption.

Tesco tactics
The introduction of 'grocery tactics' like multi-buys, bogofs, money-off offers and, heaven forbid, loyalty points on debit cards, will all help to break down what remains of traditional banking 'mystique'.
Moreover, the inclusion of user-friendly like-with-like comparisons will encourage consumers to develop and use a basic level of numerical skills in choosing financial products, without having to second-guess the provider.

Traditional banks that do not follow suit will lose business to those that are not afraid to clarify their offerings.

The opportunity
There are 15 million Tesco Clubcard holders of whom 6.5 million are loyal and regular users. Tesco needs to converts only a fraction of them to make a sizeable dent in the other banks’ business.

All Tesco have to do is run an efficient, value-for-money service that delivers no-quibble financial products that just exceed expectation, at fractionally less than what it  costs elsewhere...

In the process, Tesco might usefully benchmark itself against the Coop Bank, a competitor that is perceived to have emerged from the global financial crisis with its reputation untarnished.

But...

The sting in the tail is that having sharpened their ability to assess value-for-money and gained more confidence with the numbers, the savvy consumers will then apply this incremental savvy to their regular shopping, and thereby raise the retail game in the high street.

A really incremental gain for Tesco, if they play their cards right...

reEpricing while you wait?

The fast-moving Internet pricing games used by airlines and hotels are now moving to online retailing via a new generation of algorithms that are re-pricing products on an hour-by-hour and sometimes minute-by-minute basis.

A goal is to maintain the lowest price-even if only by a penny-so that their products will show up at the top of the search results by shoppers doing price comparisons.  The most frequent changes are for consumer electronics, clothing, shoes, jewellery and household staples like detergent and razor blades.

Retailers find that changing prices more frequently can boost sales dramatically, but requires a lot of attention. First they set the software to beat their competitors by a certain percentage. Then they set a floor price below which they will not go.

For consumers, the result is more volatile pricing. Once the low-price vendor for a particular item sells out, rivals selling the same product can immediately lift their prices without fear of being undercut.

In effect, retailer Epricing is making the world's most modern market into the most old-fashioned, taking us all back to the laws of supply and demand, with lessons in pricing that can optimise our more traditional routes to market.....24/7.

If Airlines Sold Paint…

Given Ryanair’s imminent bid for Aer Lingus, coupled with many homeowner’s desire to avoid some painting chores by flying away for the weekend, we felt it might be interesting to link airlines and paint with a lesson in pricing for those NAMs that never like to forget the ‘day-job’

Customer: Hi. How much is your paint?

Clerk: Well sir, that depends on a lot of things.

Customer: Can’t you give me an approximate price?

Clerk: Our lowest price is our introductory special at $12 a gallon. After that we have dozens of different prices up to $199.

Customer: What’s the difference in the quality of the paint?

Clerk: Oh, there’s no difference. It’s all exactly the same stuff.

Customer: Well, in that case I’ll take your $12 paint.

Clerk: Well actually the $12 variety is only available on our website. If you want to buy it here at the store you’ll be charged an additional $20 Customer Convenience Fee

Customer: So if I go home and get it off the website, its only $12?

Clerk: That’s correct sir – plus a Credit Card Usage Fee of $6 and then there’s standard Shipping and Handling of $15.

Customer: What? So in other words buying online would cost me almost exactly the same as what I’d have to pay here in the store?

Clerk: I suppose so, but if you buy it here you get to use it immediately. Online purchases take ten business days to get to you – unless you pay the optional $25 Express My Paint Fee.

Customer: You’ve got to be kidding me!

Clerk: Well no sir, but it’s academic anyway as right now the $12 paint is completely sold out in both places.

Customer: That’s BS. I’m looking at shelves full of the stuff!

Clerk: Ah, but that doesn’t mean it’s available for sale. We sell only a certain number of introductory priced cans on any given day. Oops, look at that! It just became available again – at $17.50.

Customer: C’mon! You mean to say it went up while I’m standing here?!

Clerk: ‘Fraid so. Inventory control changes our prices all the time.

I strongly recommend you purchase your paint as soon as possible as it could go up again. How many gallons do you want?

Customer: Well, maybe three gallons. No, make that four, I don’t want to run out. I assume I can return anything I don’t open?

Clerk: Certainly sir. The $12 paint is non-refundable, but if you return it within 48 hours you will be entitled to a $5 credit towards the future purchase of another gallon of the same color at the same or higher price.

Customer: That’s crazy. In that case I’ll just give any unopened cans to my brother as he’s planning to repaint his home soon.

Clerk: Sorry sir, no-can-do! Our terms and CANditions – that’s a little in-house joke – prohibit paint transfer. It is strictly for the use of the original purchaser.

Customer: But wait a minute, I hadn’t spotted those “Paint Sale – $9.99* a Can” signs over there? That sounds like a much better deal.

Clerk: Ah yes, that’s from our low cost paint division. The asterisk denotes that the cans are actually half-gallons and the price is based on a minimum purchase of two. There is also an additional Environmental Fee of $5 per can, a non-refundable Can Deposit of $3.50, a Paint Facility Charge of $5 and if you want more than one color, the second has a $25 surcharge and the third is $50 extra.

Customer: This is utterly ridiculous. To hell with this! I’ll buy what I need somewhere else!

Clerk: Well sir, you may be able to buy paint for some rooms from another store, but you won’t be able to find paint for your connecting hall and stairway anywhere but here. And I should also point out that if you want Uni-Directional paint it is priced at $249 a gallon.

Customer: I thought your most expensive paint was $199!

Clerk: That’s only if you paint non-stop all the way around the room and back to the point at which you started. Stairways and hallways are considered one-way exceptions to the rule.

Customer: So, if I buy the $199 paint and use it in my hallway what are you going to do about it – send some goons in to paint over it?

Clerk: Wow, I believe you’re getting it now sir. But no, please, that would be plain silly. We’ll simply charge you a Direction Adjustment Fee plus the difference to $249 on your next purchase.

Customer: Next purchase? No way! I’m out ‘a here

Clerk: At Skyhigh Paints we never forget you have a choice, so thanks for shopping with us. Have a nice day!

Have a price-sensitive weekend, from the NamNews Team!

Credits: latest version found here
Appears to have originated in Travel Weekly, October 1998, by Alan H. Hess

Supermarkets eroding their brand equity?

Almost three-quarters of consumers believe supermarkets are trying to mislead them with confusing pricing practices, Which? has found.

Their survey of 2,100 shoppers revealed that 74 per cent think supermarkets are trying to dupe them.
Current legislation requires retailers to provide both a selling price and a unit price for products, but a spot-check of branches of each of the 10 leading supermarkets found none met the watchdog's best practice criteria developed with Trading Standards and the Royal National Institute of Blind People for size and legibility of unit pricing.

Deliberate or not?
The key issue is whether retailers are doing it deliberately, in which case nothing will change…
However, if retailers want true like-with-like comparison they need simplify the process for shoppers….

Making price comparison easier
Expressing the shelf-price per 100g/100ml along with the SKU price would surely add clarity to the (deliberate?) confusion caused by random use of Kg/g in shelf-label unit pricing, BOGOFs, extra-value packs, products sold in ‘standard packs & loose’ and especially the use of shrinking-packs to disguise price-rises….

Instead, stores routinely sell fresh fruit and vegetables in standard packs for a fixed price without providing a clear price comparison with the same items sold loose.

Call for legal enforcement
Consumer champions Which? are calling for a change in the law that would require retailers to provide clear unit prices, including shelf labels in large print against a clear background, showing a price based on a standard formula such as pence per item.

Morrisons Act first 
A week ago we advocated this approach in KamBlog
Now Morrisons have announced it will introduce standard large labels showing the unit price and price per kilo or per litre across all its products by the end of next year. A pity if other retailers wait that long to follow suit…

Evaluating the real brand of supplier or retailer
Shoppers use price as the final ‘decider’, but we should remember that this is on the assumption  that all other things are equal. In other words, by making it clear what the shopper is getting for the money, the ‘per 100’ comparison forces the brand to rely upon Performance, Presentation and Place in a like-with-like Price evaluation with the available competition, causing the shopper-consumer to fall back on the brand equity we have taken so much trouble to build and sustain over the years.

In the old days it used to be called trust…the most precious commodity in any business!