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Supermarket pricing – and why we don’t really save money

June 22, 2010
An image of Traitors Gate, Tower of London

Traitors Gate - are consumers being betrayed by supermarket slogans claiming to help them reduce their cost of living?

Here at A Brand Day Out we have often commented on the ethics of supermarket pricing. I thought I’d take a deeper look into the pricing methodology undertaken by supermarkets to see if I could understand why “everyday low prices” are often anything but.

Supermarkets around the world like to adopt a position of “low price”, “value” and “service”. This is a key part of their positioning in the mind of their consumers. However, the reality is that low price and value often only relate to a small percentage of items in store. These items are those which the consumer identifies as critical to basic living.

Overall, the consumer can probably only have a view on the acceptable price of say 80-100 basic products. Even these price perceptions will be vague but they might think, say, that a bottle of beer should cost £1.50-ish a pint, or olive oil should cost £4-5 per metric litre. If the supermarket can manage the consumer’s perception of their pricing on these basic products, then the rest of pricing becomes considerably less constrained and more fanciful.

Competitively priced cereals, bread, milk, pasta, dairy produce are all par for the course. In creating a price position based on those items (be they private label products, certain established brands, or fresh produce), flexibility of pricing can then be applied to other products in the store. So it is that the price of children’s smoothie drinks vary from £5 for two 4-packs one week to £2.30 for one 4-pack a week later.

In keeping core products keenly priced, supermarkets play havoc with our purses on those items of which we have no (or limited) price perception.

Supermarkets use the same tactics as car garages – the marked price of salient products becomes the consumer reference point. No-one believes the dealer’s price but that reference point becomes the point of negotiation. The dealer throws in add-ons in the process (3 year tyre insurance, thief-proof glass coating, servicing deals etc) so that any headway you make into the notional price of the car is then offset by the profit made on products about which you have no value perception at all.

The question is: is such an approach ethical? It depends. Of course, supermarkets take risks. Many of the products they sell actually don’t sell in sufficient volume to be profitable in their own right – prices are hiked to offset the poor demand. This is a form of value-based pricing – imposing a high price on products which are only valued by a few people.

Yet a significant proportion of a supermarket’s products will be sold at a disproportionate price. The vast majority of its products needs to be sold at a price high enough to offset both its low price staples and those slow-selling items. So the price of its profitable mainstream  (non-price-referenced) ranges will be higher than they should be. These are the products where marketing methods are employed to move and drive demand.

This group of products – most of the products you buy – is the “Middle England” of the supermarket range. And like Middle England, supermarkets keep screwing  it until it doesn’t respond any more.

So, if you look at it from the supermarkets’ point of view, their pricing needs to be flexible to subsidise commodities (e.g. cheddar cheese) and to ensure the provision of obscurity (e.g. hulled Kalamata olives in anchovy and sun-dried tomato sauce).

But from the consumer’s point of view, things are different. Because many people when they shop are in a state of blissful ignorance, motivated by brand message and a sense of personal “reward”. Happily batted between gondola-end promotions and the pick and mix while dancing to the tune of a low-budget Pickwick orchestral Barry Manilow compilation.

From the point of view of ethical marketing, supermarkets need to move away from spin. Slogans such as “every little helps” (the Tesco slogan in the UK) is misleading. It employs a phrase used by thrift-conscious elderly people to imply a cosy blitz mentality – “we’re all in this together”. Except, in Tesco’s case, we’re not – they are the UK’s biggest and most profitable supermarket chain.

Here are some other slogans used by supermarkets. Which do you think best meets the demands of both the supermarket and the customer:

  • Try Something New Today (Sainsbury)
  • Quality Food, Honestly Priced (Waitrose)
  • Fresh Choice for You (Morrisons)
  •  There for You (Spar)
  • We go further, so you don’t have to (Co-op)
  • Saving you money every day (Asda)

At a time when governments are being slammed for cutting costs and increasing taxes, supermarkets will continue, via profit, to tax purchase through consumer ignorance of true value. In these straitened times, it is the supermarkets’ ethical duty to match promise with delivery.

Image of Traitors Gate, Tower of London, courtesy of Janson Woodall

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