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Sue
Kilner
Communications Manager
ACNielsen
The Morrison’s
take over of Safeway is complete and on one hand they are
proudly boasting about the number of prices they’ve
cut via a major television advertising campaign, yet on the
other they are justifying significant profits warnings to
investors.
The situation was always going to be one of major interest,
given that Morrison’s have traditionally been an Every
Day Low Price retailer and Safeway have attracted consumers
into store through powerful promotions. Given that Safeway
shoppers are now benefiting from lower prices why are Safeway
sales struggling? The major draw of Safeway was its offers,
but as many promotions were cancelled in advance of the implementation
of the price cuts it seems that this interim period may have
had a major impact on sales.
Let us examine the merits of both strategies from the perspectives
of retailer, consumer and supplier.
The
Retailer
When looking at ACNielsen’s share of trade figures generated
through our household panel it is clear that Asda & Tesco,
who have built their businesses on EDLP, are performing consistently
well. They are building their business through getting more
households to purchase more, more often. We can look at the
key measures below:
Retail
Share of Trade
Source:
ACNielsen Homescan Panel Total Till
12
weeks to 12th June 2003 versus June 2004
The size of the
basket is key to building business and the EDLP stores have
certainly achieved this more effectively than those retailers
pursuing a Hi/Lo strategy.
The Consumer
Consumers have a very diverse range of needs: quality, price,
service, range and convenience are assessed differently by
each of us.
ACNielsen Homescan Panel categorises UK households into 7
groups of consumers in terms of how consumers respond to promotional
activity. Understanding which consumers respond to EDLP will
help to understand which consumer group is benefiting from
it.
EDLP on its own
is not in itself sufficiently motivating for many consumers.
However, the feeling of a getting a bargain is enhanced with
in store support leading to the view that EDLP itself is marketed
more as an event such as Rollback rather than an ongoing invisible
strategy.
So what we may call EDLP is considered by consumers as a combination
of both promotion and EDLP – and it works.
The Supplier
Suppliers need to understand the price sensitivity of their
products in order to make the right decisions when working
with the retailer on their pricing strategy. This helps them
understand whether to fund an ongoing price decrease or whether
the retailer should fund it because it is for their advantage
only.
Price sensitivity can be considered in terms of both changes
in regular ongoing price – such as EDLP and also changes
in short term pricing or promotion. The chart below compares
different categories and their response to each.
Supplier
Knowledge - know where you sit on the map
Average
item regular price and promotional price sensitivity
Source:
ACNielsen Results Database of 400+ modelling projects
Brands with a higher
regular price elasticity such as cooking sauces are better
suited to EDLP, they tend to be less elastic and therefore
benefit less from promotional activity.
Lager, on the other hand, is very promotionally driven - the
more that is purchased the more that is drunk, hence the category
is elastic. Promotions are key here to drive sales.
For expandable categories an EDLP strategy introduces big
risks for the retailer through potential lost sales.
Conclusion
As a final thought, and to muddy the waters yet further, health
concerns are increasingly moving the integrity of our food
to the top of the agenda – continually prompted by government
pressure and more food scares. Are we prepared to pay more
for healthy food … and should we? This will become an
increasingly important challenge whilst retailers and suppliers
continue to balance their pricing positions.
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