Supermarket Giants’ Pricing Strategies and their Price War

 

sale tags hanging
[Photo: Mark Hayes ׀ Shopify]

Price is the amount of money paid by consumers in exchange of a product or service, or the benefits of having the product or using the service. It takes many forms including, but not limited to, rent, interest, professional fee, commission, tuition, salary, toll, and tax. Price, the single element in the marketing mix that generates revenue, is also the most flexible element (Valenzuela 2012).

There are a number of factors affecting the price decision of the company. The internal factors are the marketing objectives, strategy of the marketing mix, costs, and organizational considerations. The external factors are the market nature and its demand, competition, and other environmental factors like the economy, resellers, and the government (Valenzuela 2012). However, one of the most difficult tasks of a business operator is developing a pricing strategy because there is no book of rules to guide them (Canada Business Network 2015). The price should cover the cost of the product or service in addition to the profit.

For a retailer or a wholesaler, the prices of their products depend on their manufacturers. The price reflects the suppliers’ pay, the desired profit, and the overhead cost or the operating expenses (Canada Business Network 2015).

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Photo: Louie Douvis

For Australia’s largest supermarket chain, Woolworths, it uses a low-pricing strategy,specifically the Everyday Low Price (EDLP) strategy. Due to reported declining sales of Woolworths, started a new campaign “Always at Woolworths,” which implies“low prices, always” (Mitchell 2015). This attracts customers by having a range of products that can be bought at the same low prices. A close competitor of Woolworths, which is Coles, had first use this strategy in their Every Day Value campaign launched in 2014.

Another pricing strategy that supermarkets use is the multiple-unit pricing. This strategy offers the customers an attractive price for buying a specified quantity of the product (2 for $6.00 instead of $3.99 each). This tempts the customers to buy more than what they intend to. This also increases sales and reduce the inventory, at the same time. However, just like me, this type of strategy, when used too often, encourages the customers to wait for this deal (Canada Business Network 2016).

The two pricing strategies mentioned above are widely used as the competitors easily imitate them both. Thus, price war occurred. According to the Merriam-Webster Dictionary, price war is “a situation I which companies or stores compete with each other by lowering their prices on goods or services in order to attract more customers.” In Australia, there has been a price between Woolworths and Coles, and now Aldi. To prevent customers from switching to Aldi, in January, both Woolworths and Coles have cut their price of roast chicken. However, Coles has pushed its boundaries as recently, it has also cut their prices for rice, tissues, and toothpaste (Low 2016).

Nevertheless, the suppliers suffer from this price war. These two supermarket giants have been forcing their suppliers to cut prices so they can cut theirs too. In addition, their switching to house brands, deeply wound the small suppliers, and even the big ones like Coca-Cola (Mccrann 2013).

Not just the suppliers are affected, but also the consumers, in a positive way. In the past three years, Woolworths’ prices are 11 per cent lower and Coles’ 6 per cent lower (Mccrann 2013).  So, whatever the pricing strategy for a supermarket is, the consumers are still the winners.


Deakin e-mail: areglos@deakin.edu.au

Student Number: 215222436

 

References

Canada Business Network 2015, Pricing considerations based on your type of business, Canada Business Network, retrieved 27 April 2016, <http://www.entreprisescanada.ca/eng/page/4060/&gt;.

Canada Business Network 2016, Pricing strategies, Canada Business Network, retrieved 28 April 2016, <http://www.entreprisescanada.ca/eng/page/4080/&gt;.

Low, C 2016, Coles, Woolworths, Aldi price war gets personal with cut-price tissues and toothpaste, The Sydney Morning Herald, retrieved 30 April 2016, <http://www.smh.com.au/business/retail/coles-woolworths-aldi-price-war-gets-personal-with-cutprice-tissues-and-toothpaste-20160303-gn9m2e.html&gt;.

Mccrann, T 2013, Who pays for the Coles and Woolworths price war?, Herald Sun, retrieved 30 April 2016, < http://www.heraldsun.com.au/business/terry-mccrann/who-pays-for-the-coles-and-woolworths-price-war/story-fni0d8gi-1226708164906&gt;.

Mitchell, S 2015, Woolworths kicks off new campaign, The Sydney Morning Herald, retrieved 28 April 2016, <http://www.smh.com.au/business/retail/woolworths-kicks-off-new-marketing-campaign-20151019-gkd4dl.html&gt;.

Valenzuela, G 2012, Pricing products: Pricing considerations and strategies, LinkedIn Corporation, retrieved 27 April 2016, <http://www.slideshare.net/GhilaValenzuela/pricing-products-pricing-considerations-and-strategies&gt;.

 

 

 

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