Home > Andi, Strategy > Supermarket wars, it’s a mugs game

Supermarket wars, it’s a mugs game

Tesco, one of the big 4 supermarkets in the UK, is going through a bit of a tough time presently. Over the last few years the fight for supermarket sales has been intense. There’s a myriad of promotions, discounts, and sales going on all the time. And you’d be forgiven if you were a little confused with it all.

Whenever I go to Tesco or any other supermarket (which I prefer to avoid like the plague), the extent to which they use subtle and mystifying tactics to confuse and seduce customers never surprises me.

Take Asda for example. Firstly, they promote their price matching ‘offer’ heavily (more recently followed by Sainsbury’s) – which basically states that they guarantee to be at least 10% cheaper than any other rival on any product, and if you find your shopping cheaper anywhere else, they give you your money back. “Wow, that’s not too bad!” I hear you say. Well, if you think you’ll get it back easily, you may need to read the small print…

First of all you don’t actually get your money back, as Asda only provides vouchers as a reimbursement. You also have to keep the receipts from both purchases, and then you obviously have to queue at the customer service points (have you ever seen anyone working in one of those?). Asda consider all of these hurdles in their marketing strategy, which only expects a minimal number of customers (likely to be significantly less than 1%) to actually go through all this effort to get the vouchers at the end of the day anyway. Clever eh.

Now my second case, Tesco, and their big price drop flop. In late 2011, Tesco announced their £500m ‘big price drop’ investment which aims to support the majority of the English population being squeezed by the despairing economic conditions. The fact they promoted this campaign as a ‘cost-cutting initiative’ is quite ironic, as it offers a price discount both for the customer and the supermarket itself. Tesco decided to reduce the number of Clubcard points customers can receive, conveniently at the same time the big price drop was launched. This basically nullified any overall gain a Tesco customer would receive, if they paid in cash and used their Clubcard.

Storm Troopers Shopping

As you can see, the supermarkets do play some dirty tricks. But in these challenging times, there has to be some creativeness applied in order to survive. From my point of view, the problem with the supermarkets’ strategies is that they do not seem to be balancing their priorities correctly.

Supermarkets sit in a mature industry where all the players are vying for market share. This has obviously led to the increased levels of competitive rivalry over the years. Within these grocery store wars, all supermarkets are fighting for market share and there appears to be a lack of focus on profitability. They are all focusing on their volume objectives, but how much of the gain they are making on profits is being eaten away by the continued discounting?

There’s no doubt that pricing is a key issue for the supermarket sector, but how do supermarkets expect to sustain themselves in the long-term by continually lowering prices? Have you got any ideas?

Categories: Andi, Strategy
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