Pricing strategies implemented by supermarket retailers

In this section the backdrop of this issue and the talk about research problems of the thesis are launched as well as the reason and delimitations of the study. They'll be described and analyzed in order to improve the knowledge of our motive for the research and its boundaries.

1. 1 Background

Pricing is an exercise, rather an integral part of monetary decision making regarding what owner or the maker can expect to obtain in exchange for the created products or the intangible services.

In economical sense, a great deal of micro and macro factors go into bearing their implications for price willpower vis a vis the amount of demand in the particular market. Rates theory, since its inception has investigated the utter and evolving mother nature of prices decisions to be produced and carried out by various stake holders in the monetary system.

In business enterprises, the costs decisions are no doubt the most important decisions which not just have outcomes for marketability, ability to meet or not to meet the current degrees of demand, the level of competition, the sustenance and success of the entity, but also subsequently determines the cash inflows, business viability and the economic source chains, value chains and practically the entire financial system and its own performance over intervals as well. Invention cannot stop, regardless of the conditions may be.

The financial modeling in financial research as well as the marketing blend, all insists on the ideal pricing to capture consumer's surplus and subsequently generate the economic resources for venture to preserve and evolve. The costing is the only real decision which earns money, the rest is merely cost.

The English Super Markets

A supermarket, a form of grocery store, is a self-service store offering a wide variety of food and home merchandise, sorted out into departments. It is larger in proportions and has a wider selection when compared to a traditional supermarket and it is smaller than a hypermarket or superstore.

Supermarkets have their origins in the 19th century Co-operative movements through which sets of local stores would get together to sell affordable food under the control of consumer users. The first co-operative was founded in Rochdale, Lancashire in the 1840s. Subsequently co-operatives across the North of England came up together to create the Co-operative Culture in order to allow the purchasing goods in mass.

In the United Kingdom, first supermarket emerged under the new Premier Supermarkets brand in 1951, taking ten times just as much weekly as the common British general store of the time. Other chains trapped on, and after Galvani lost out to Tesco's Jack Cohen in 1960 to buy the 212 Irwin's string, the sector underwent a large amount of consolidation, leading to 'the big four' dominant UK suppliers of today: Tesco, Asda (had by Wal-Mart), Sainsbury's and Morrisons.

The major chains have been starting ever-larger format stores, with Asda and Tesco specifically beginning hypermarkets. The major food suppliers have diversified into non-food retail, online shopping, and other activities unrelated to shopping. The industry structure has now advanced. The on going consolidation and mergers and acquisitions as well as development of monopoly is making a new shape to the industry. The larger the supermarket string, the more capability it has to misuse its market position and put pressure on other areas of the food chain.

The Leading supermarkets

Tesco - Tesco became the market innovator in 1995 and has sustained to increase its market talk about ever since, attaining a staggering 31. 5% market show in 2006

Asda - Asda's business is more focused on hypermarkets and out-of-town stores than the other UK chains, in the style of Wal-Mart, which bought it in 1999.

Sainsbury's - neck of the guitar and neck on market share with Asda, Sainsbury's slipped since being the most notable retailer in the united kingdom but is currently successful.

Morrisons - Morrisons became the fourth supermarket string when it attained the majority of Safeway stores in 2005.

Marks & Spencer - M&S has 450 stores in the UK, and a further 150 worldwide.

The Co-operative Group - The Co-op has a complete market share of around 5%.

Retailers today face many problems: keeping costs low and offer string efficiencies high; protecting their brand and reputation; responding swiftly to changing consumer tastes; expanding their reach to permeate new market segments and be competitive from a posture of durability; and greening their operations.

Approaches to pricing

Change is among the most universal constant. There have been times in British isles prepared retail industry, when the monetary dominance over global economic systems was unchallengeable. Inside the post-recession period because the 2008, the economical realities have undergone transition. Precisely the same pricing decisions now needs re interpretation in wake of emerging economic complexities and financial meltdown.

The economic questions stay the same yet environment differs. The most basic question is regarding the quantum of allocation of created product or the service or the possible creation of value for consumer. Then comes the objectives and the motives before cornering on a particular price. Revenue maximization or cost-plus rates or demand centered or value-based rates or rate of come back pricing, or competition indexing.

The intentions to provide local flavor-different prices at different locations can be another strategy. The productive market mix demands market show development, incorporating the info and demand centered asymmetries as well as cornering the competition. Marketing time and dependency of consumers herald yet another dimension in costs. Oligopolistic makes an attempt to hold on to market talk about can be obvious in form of price maintenance, price collusion, or price discrimination. More than that the microeconomic factors like development costs, amount of competition, role of state and demand elasticities do creep in. The worthiness string costs and ways of payments as well as associated lateral costs can also amount up.

After all, a well-designed charges strategy needs to help the business achieve the financial targets and financial goals. Additionally it should make the business motives achievable. In addition to this it needs to aid a product's placement and be constant with the other variables in the marketing mixture.

Evolution and Prevalence

The capitalistic - socialistic economical divide is no longer feasible. The marketplace structure is alone much more complicated than ever before. The makes an attempt to select one strategy no more seems to be practical. Thinkers and philosophers are coming up with new theoretical inputs to the change.

The law of 1 price (hereafter LoP), one of the very most basic regulations of economics and yet this is a law observed in the breach. Challenging two prices for same product in one market for a similar good-is so simple concerning invite complication.

Changes in ways to approach the problem do happen. Economists come up with new theoretical rationale behind the existing problems. LoP has been through restatement. As information in regards to a commodity elevates, its price variability will drop. The dynamics of information availability or non-availability appears to be the under current behind price variability.

The viewpoint of price deviation appears to have revolutionized after the Barzel's development. Most item exchange agreements contain an explicit, objectively measured contractual aspect enforced by the state, and an implicit, subjective aspect enforced by reputations.

Becoming educated about the ex - is relatively easy, but becoming prepared about the second option is not. Buyers do not totally adjust for differences in the reputational element of similar commodities. This gives retailers discretion in placing prices, and we expect prices to diverge even at equilibrium. Costless information, along with competition, produces the LOP.

LoP is dependant on greed, homogeneity of goods and acceleration to equilibrium. The next conditions are necessary for the LoP to be plausible

A. Multiple vendors at one place to ensure competition at each location.

B. Standardized, bulk sale commodities with particular traders, that ready credit is available.

C. Super fast attainment of equilibrium.

Yet the functional observation clearly suggests that, even if all goods were goods, the sheer level of goods makes the collection, compilation, storage and transmission of data so costly that people won't get individual data, only indexes and aggregates.

Then the craze of modern consumerism is toward more personalized products, which not only escalates the amount of goods to be considered but also makes price discrimination much more likely.

Further, all modern economies are moving away from mass produced made goods and toward services. This plainly complicates the pricing tactics.

it appears to be in the interest of retailers to acquire one degree of information beyond that purchased by consumers--hence there will be some room for the vendors to control consumers and violate the LoP in the process

1. 2 Problem Definition

The grasp thesis covers the topic of how same product-. being coming in at three different retail chains(), in. . area in. . In the current environment customers are becoming more challenging in terms of better service, including reliability and faster delivery.

Pricing alone is being seen with competitive edge aspect. The supply and non-availability of information can bring about the LoP. There appears to be no validity for the debate that increasing information handling capacities will bring about the end to price variance over the considered retail chains in. . area in.

An underlying reason behind the value of the chosen theme lies in analyzing the reason why behind the price variations over the as well as providing superior costing strategy inputs which is the primary groundwork for a ecological competitive benefits.

1. 3. Research Methodology

In this paper, the researcher will check out into product differentiation employed by the merchants to fee different prices for same products to different customers, using the situation of supermarkets. in. Area across. . city.

The review will choose triangulation solution to carry out the study. Given the time and resource limitation, a convenience sampling method will be used. Observations regarding the prices of different products sold by the three leading supermarkets - Tesco, Sainsbury and Waitrose will be produced and analyzed. The final result will be achieved by combining the existing qualitative ideas with the observation and analyses of the data collected.

1. 4 Research Objectives

The paper intends to handle an examination of product differentiation used by different supermarkets in order to ask for different prices for the same products. The basic research objectives of the study are

To understand the explanation behind pricing

To know very well what affects pricing in the chosen supermarkets in the designated area of study

To discover different charges strategies

To understand what theories retails utilization in commercial decision making

To understand the degree to which sellers use product differentiation to impose different prices from different customers.

However, the key objective of the study will be to understand the costing theories which exist on paper and the observation made about the charges theories utilized by the supermarkets in reality.

1. 5. Thesis Organisation

The chapter one is an introduction to the study document, describing on the backdrop as well as the explanation behind choice of subject. It zeroes on the definition of problem at hand, discusses the objectives before the research and the overall method of research work. Second section discusses the general nature of prepared retail, especially the supermarket in and over the Britain, the inherent problems and problems. The next chapter will be the overview of existing academic books with concentrate on various pricing theories, techniques and similar research carried out at various academic organizations. The fourth chapter will feature about the methodology utilized for seeking this research activity, determination of test, resources of data and data analysis method definition. Another chapter is an examination of data. The sixth chapter reveals the results from the research work. The seventh chapter revolves around the discussions of the studies and their general implications for future consumer relations, your competition in market and like sensible. The next section summarizes the observations and results and concludes the research. The appendix bears the bibliography, the questionnaire, press clippings and the information about the marketing schemes of the chosen very markets.

Chapter 2 Organized Retail Industry : A Profile

2. 1 Introduction

Retailing is the business where a business directly sells its products and services to an end consumer which is for his personal use. By description whenever an organization whether it is a production or a whole seller sells right to the finish consumer it is actually working in the Retail space. This industry has journeyed a long way from a humble beginning to a situation where worldwide Retail sales is more than $ 7 Trillion.

Retailing has enjoyed a vital role worldwide in increasing output across a variety of consumer goods and services. It really is a changing Industry and old traditional means of doing business has lost relevance nowadays. It really is a business which is heavily reliant on consumer spending. On this ecosystem consumers play the most crucial role. As a result of this, Retailers are consistently challenging themselves to discover ways and means of identifying customers need. They can be occupied in devising new strategies to own an atomic level knowledge of consumer demand.

2. 2 Global Retailing

The top 200 Suppliers alone add for 30% of worldwide demand. Retail sales is normally powered by people's capacity (disposable income) and willingness (consumer assurance) to buy goods and services. Money spent on household utilization worldwide has increased by 68% between 1980 and 2003. The leader has undoubtedly been the united states where some two-thirds or $ 6. 6 trillions out of the $ 10 trillions American current economic climate is consumer spending. Individuals are spending around $ 3 trillions on discretionary products and services. Retail turnover in europe is just about Euros 2000 billion and the average development in this sector appears to be following an upwards development. The Asian economies (excluding Japan) are anticipated to expand at 6% consistently till 2005-06. Positive pushes at work in Retail consumer markets today include high rates of personal expenses, low interest, low unemployment and very low inflation. Negative factors that impact retail sales involve weakening consumer self-confidence.

2. 3 Type of Retailers

Retail Organizations have shown great variety and various format of stores are coming up quite quickly. Generally Stores can be of six types.

Specialty Store

This stores are characterized by narrow product lines but with profound assortments such as Attire Stores, Sporting goods store, Furniture store, Florist and Book store. Under this also there could be specializations like limited lines store ( eg. Men's clothing store) and Super area of expertise store (eg. Men's custom shirt store ). Example of such stores are Athlete's ft. , Tall men.

Departmental Store

Several Product Lines -typically clothing, home furnishing and home goods with each collection operated as a separate department monitored by specialist clients and merchandisers Instances Sears, JC Penny, Nordstrom.


Relatively large, low priced, low margin high level, self-service operation which was created to cater total needs for food, laundry, home maintenance products. Supermarkets earn the average profit of only 1 1 percent on sales. Example : Safeway, Kroger.

Convenience Store

These will be the stores that are relatively small in size and they are located near home area, normally remains open seven days a week and carrying a limited type of high turnover convenience products at just a bit high prices. Many have added take away sandwiches, coffee and pastries. Example : 7-Eleven, Group K

Discount Stores

Standard products sold at lower prices with lower margin but higher amounts. Actual discount stores regularly sell goods at lower prices and provide mostly national brands. In Discount retailing, Discount niche retailing is also present eg. discount electronic store or discount reserve store. Example : Wal- Mart (all goal discount store), Kmart. Niche : Crown Bookstore.

Off Price Merchants.

Merchandise bought at less than regular low cost prices and sold at less than retail prices. Often left goods, irregulars obtained at reduced prices from manufacturers and other stores.

Factory outlet stores are owned and handled by manufacturers plus they normally take manufacturer's surplus, discontinued and unusual goods. Example : Mikasa (Dinnerware ) and Dexter(Shoes).

2. 4 Characteristics of Retail Industry

The spectrum of Retail Industry is quite huge in nature. Retail serves consumers through a tiny grocery store to an enormous departmental store. Retail Industry is heavily dependent on consumer spending. In fact 2/3 of US GDP is coming from Retail business. Retail is the next greatest industry in US. It has employed 23 Million people. During economical decelerate consumer spending lowers and it poses risk to the Retail industry. Consumers self-confidence is one of the main element drivers of the industry.

Decline in Small Stores

It is discovered that small separately had stores are slowly but surely loosing their foothold in the market place. These stores are generally called "Mom and Pop" stores and they give limited products to the consumer. These store are facing stiff competition from the top departmental stores or superstores and in this technique they are concluding down their shutters. In many locations the entrance of the superstore has obligated near by independents out of business. In the book selling business Barnes & Noble superstore or Borders Books and music usually places smaller bookstores out of business. This is a major feature prevailing worldwide. But it is also true that lots of small independent stores still thrive by knowing their customers better and providing them with an increase of personalized service.

Internet and E-Commerce

Internet the ubiquitous medium has opened a fresh avenue before the Retailers. It includes offered an opportunity to the consumers to look from the house. Since it stands today overall Retail sales through internet may not be that significant but steadily it is gaining popularity amongst consumers. Amazon. com is the business which is very successful in this E commerce domain.

Repositioning of Departmental Stores

The appeal of big departmental store is in the wane and they're wanting to reposition themselves. They can be repositioning their products to endure in this highly competitive market eg. A departmental stores which is providing general products to the consumer is changing themselves to a giant outfits store.

Rise in Discount stores

Supremacy of Discount store is also one of the distinctive characteristics of Retail Industry today. Discount stores offer money back guarantee, every day low price etc to lure customers. In addition they provide floor help and quick access to the item to facilitate the consumer. Wal- Mart the worlds major Merchant comes under this group of Shop.

Category Killers

There are Suppliers who actually concentrate on one particular product category and pick up a lion's show of that market and outperform their opponents. They are simply called Category Killers. Toys R Us (Toy market ), Home Depot (Home Improvement), Staples (Office Products) will be the examples of such Retailers who have grabbed a significant market share for the reason that product category plus they have forced a decrease in the amount of players in that product segment. That is also a distinct trend seen in the existing Retail market. Ten years back there were range of players in the toy market and no person was handling more than 5% of market show but now the number of players has come down to six and Playthings R Us is enjoying 20% market show.

Direct Marketing

With the improvement of technology Suppliers have found another sales channel through which they can reach the buyer which is direct marketing. Direct marketing has their root in direct email and catalog marketing (Land's End and LL Bean). It offers telemarketing, television immediate response marketing. (Home shopping network, QVC). Although an mind-boggling majority of goods and services comes through stores, non-store. Retailing is also growing at a faster rate. Direct selling is $9 Billion industry with around 600 companies selling door to door. Avon, Electrolux, Southwestern company, Tupperware and Mary key cosmetics are the samples who have adopted this strategy efficiently.

Demographic Changes

Retail industry is impacted by the demographic changes. As a result of this change style of the buyer is undergoing an alteration and it generates a demand for several products. World wide Merchants are keeping a detailed watch upon this change and they are endeavoring to realign themselves with this change.

Mergers and Acquisitions

Retailers who wish to dominate the marketplace place have adopted the strategy of mergers and acquisitions. That is also one of the distinctive tendencies in Global Retail Industry today. Instead of achieving an organic growth Merchants can increase significantly by using mergers and acquisitions. This can help these to occupy more shelf space on the market place. As the volume increases these are building better control over their suppliers and they're lowering the procurement cost and in that way they are enhancing their success.

This is powered by the financial expansion factors, size, earnings pattern and the client demand. Sears and Land's End merger is one of the significant mergers which has happened in recent times. Another important example would be Nikes acquisition of Hurley, a well known surfing brand. It has helped Nike to type in to a new market section.

2. 5 Operational Issues

In order to survive in this Industry, which is powered by the consumer demand Retailers need to successfully counter the operational issues. If the Retailers neglect to diagnose and dwelling address those functional issues their existence will be jeopardized.

Supply Chain Management and Logistics

The procedure for getting goods to the client has been traditionally known as Physical Syndication. Physical Distribution starts at the manufacturer and it ends at the store. Nowadays the definition of Physical circulation is expanded and a broader principle has come which is Source String Management.

Ideally Supply Chain Management encompasses the material flow from supplier's suppliers to the final destination. Retailers need to have a grip on that entire chain in order to regulate the procurement and delivery cost. This can help them to find the right company for the merchandise. Vendors need to come out of the constricted view about the resource chain which is viewing the market as a point to point destination, instead they need to consider the all natural picture which really is a part of Market Logistics. Market Logistics includes physical flow of materials from point of origin to the main point where it meets the clients requirement.

This Demand Chain orientation can help them to decrease the procurement cost to a great degree. IKEA the global furniture retailing giant has successfully resolved this issue and they're in a position to sell quality furniture at a lower cost than his competition.


In Retailing environment rates has turned into a burning concern to the suppliers. Customer's expectation from a Shop has become high and customers want for increasingly more bargain prices. This situation can be referenced as Price drought. Price deflation is taking keep in the Retail environment and any decrease in size is complicating the scenario further. This trend is quite apparent in Outfits and Consumer goods market.

Pricing seems to be a key positioning factor and must be decided with regards to the target market, Assortment combine and competition. Strategic pricing is becoming an important strategic tool to the retailers. Airlines Industry began this strategic prices technique where in fact the underlying philosophy is not all consumers want a specific product at exactly the same time and the degree of demand will also change. With this idea in mind different individuals are charged different charges for the same product or service.

Retailers need to adopt the right pricing techniques in this environment of fierce competition. Shops markdown the price for some what to appeal to people, this is called traffic building. In addition they run storewide reduction sell.

It is observed that a footwear Retail outlet sells 50% of the product at normal tag up, 25% of the product at 40% mark up and left over 25% at cost. Some Stores have done away with sales prices and they're resorting to every day good deal (EDLP). It leads to lower advertising cost, increased pricing stableness and higher Retail earnings. Wal- Mart uses this type of costs strategy.

Sales Channels

Design of sales channel is also an integral operational issue in the current Retail industry. Technology is becoming one indispensable business aspect and Stores need to employ this successfully. Dealer needs to turn out from the frame of mind of traditional store retailing plus they need to utilize all available stations to attain a wider consumer community.

Amongst Non store Retail programs Internet and Ecommerce is gradually gathering popularity. Consumers do not need to come to store for buying goods or service they can do that more than a click of a button off their drawing room. Vendors need to derive benefit from that. Marketing through call centre or catalogue marketing is also an trend.

Retailers need to choose sales channels carefully and need to utilize all those stations effectively to acquire more customer centricity. Ultimate aim here is to offer a consumer a customized shopping experience also to provide simpler access to his product and service offering.

2. 6 Strategies in Retail

A business firm cannot travel in an unplanned way. To encounter the business issues in an extremely competitive environment and find out a ecological growth street map Suppliers need to realize the importance of proper planning. Proper planning may very well be a stream of decisions and activities which lead to Effective business strategies which help the organization to satisfy its goals.

Retail scenery is changing rapidly and in this changing economic environment Vendors need to discover the right strategy which can only help them to deal up with this environment and empowers them to take right decisions for the future. Adopting appropriate strategy can help the Merchants to optimize their resources and and yes it will give an edge over its rivals. Margin and Turnover will be the two important parameters of Retail Industry and the Retail procedures can be grouped into four groups/quadrants.

High Margin and High Turnover eg. a convenience food store

Low Margin and High Turnover eg. a discount store

Low Margin Low Turnover i. e. a dying business

High Margin Low Turnover eg. an up market niche store.

Retail business needs to formulate the best strategy after considering its advantages and weaknesses. Hence SWOT evaluation will be an effective tool in determining the correct technique for the particular category of retail business. A number of the strengths and weaknesses of the Retail industry are defined below.

Strengths :

These will be the areas on which success stories have been built and for that reason retailers need to capitalize on that.

Supremacy of Discount store

Advancement in the region of Information Technology

New sales stations like E-commerce and direct marketing.

Availability of credit. Explosion of financial institutions


Slow performance of String Stores

Advent of Category Killers.

Opportunities :

Brick and click : A blend of traditional store retailing along with non store retailing like Internet and Ecommerce.

Premium Priced Store : High grade listed stores are targeting the high income group customers and gaining healthy income. Tiffany and Co can be an example of such premium priced store.

Entertainment in Retail : Entertainment Industry and Retail Industry will work hand in hand to attract much larger portion of consumers. Sony Copr has exposed some huge entertainment complexes in USA and so many retail outlets are also housed in the same building and they're complementing each other and both are doing quite nicely.


Demise of Individual small stores

Demographic Changes

Value Chains in Retail Sector

Chapter 3 Books Review

3. 1 Price Variation

Real economies are at the mercy of a succession of exogenous shocks. The discovery of new products, new techniques, new sources of recycleables, new requirements, and new ways of organizing development are, as emphasized by J. Schumpeter (1911), the driving forces of economical development and expansion. It really is unreasonable to suppose that such Schumpeterian shocks are all foreseen and can be included within equilibrium.

3. 3 Theoretical framework

Knowing one's customer is obviously a vital component of business, but never way more than in a recession, when spending habits lurch dramatically from normal trends and become tough even for the savviest businesses to read. Finding out which product categories individuals are likely to concentrate on as they close their wallets is a vital part of market brains. Another is to understand the tactics consumers use as they try to cope with the assault on their spending electricity. McKinsey research reveals that as many as 40 percent of customers remain available to persuasion once they type in a store, 1 despite starting extensive product research, reading online reviews, and evaluating prices independently. Retailers that fail to have knowledgeable personnel readily available to help customers make decisions, or to create arresting in-store visible marketing materials, are getting rid of sale after potential deal. More than ever, retailers need a sales-driven mind-set centered on getting the right range of sales staff; making sure those personnel are proficient, well-trained, and encouraged to market; and providing the right in-store experience for customers.

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