Price and pricing strategies have gained importance in today’s world due to a slow economy and competitive market and hence to obtain an advantage careful approaches are needed in order to attract the customers but at the same time make profit (Bretcu 2014). The main governing aspect of a retail company is price of a product as it is the most flexible element and which generate revenue (Rahinel & Ahluwalia 2015).
A consumer’s purchasing choice depends on price perceptions rather than the actual price and retailers adopt pricing strategies hoping to influence these perceptions hoping they impact the choice (Danziger, Hadar & Morwitz 2014). The three main pricing strategy mechanism opted by the retailers are (Hoch, Dreze & Purk 1994) ,
- frequency discounting, where retailers offer frequent but small discounts
- depth discounting, where retailers offer infrequent large discounts
- Everyday low pricing (EDLP), where retailers offer products at a constant low regular price.
Consumers tend to choose retailers most prone to offering products at lower prices than those which are cheaper on average. Coles recently announced that it will reduce the price of nearly 145 private label grocery lines by about 25 per cent as the supermarket war heats up on home brand. Coles is an Australian supermarket-chain owned by Westfarmers and along with Woolworth’s accounts for 80% of the Australian market. (Zappone 2009).
Coles is synonymous with everyday pricing scheme which locks in for at least six months, which according to Coles managing director John Durkan is the promise they try keep with customers. This strategy results in more predictable consumer demands thereby reducing excess inventory levels etc. (Neff 2011). Another pricing strategy adopted by Coles is selling different products at half price per week. But an obvious disadvantage of this method for Coles is that most customers including me will just wait until the offer comes along. Coles everyday pricing scheme has its skeptics who say that the model has not been able to drive sales as expected (Sue 2015).
Coles strategy of lowering their home band prices is aimed at calling out private label and a pre-emptive strike on Woolworths while it is still in a transition phase over private label and telling them that they need a bigger arsenal in order to compete with Coles (Catie 2016). This foray is likely due to the fact that most Australians preference for buying private label groceries over big brand products has grown from 44% to 65% so the big supermarket chains like Coles instead of paying a premium for big brands can source these goods more cheaply and offer them to their customers at a cheaper price. (Murphy 2016). This approach is also likely to cause Aldi to look over their shoulders as well. Coles supermarket boss, John Durkan says Coles brand products is a sure way of offering their customers low price products t every aisle.
Coles pricing strategy is governed by their control over the market which allows them to price their products at a reasonable price to attract the customers and at the same time they offer lower prices to the suppliers thus allowing them to balance their books (Keith 2012).
The pricing strategy employed by Coles and its biggest competitor mainly Woolworths are similar thus resulting in a price war among them. The measures adopted by Coles will not be allowed by Woolworths and as such sooner or later there will arise a price war as they tend to underprice products compared to their competitors (Thayer 2009). The main cause of price wars are
- Product differentiation – as most products will be similar price will be distinguishing feature
- Penetration pricing – offer lower prices to capture new targets
- Oligopoly – when there few competitors each one closely monitors the price of others and act accordingly.
- Process optimization – lower prices rather than disposing them
- Predatory pricing – retailer with a healthy bank balance lower prices to drive their less accomplished competitors out.
Coles being a public listed company faces certain restrictions on their ability to reduce prices as they are concerned with current financial year which is not applicable in the case of Aldi a private based company which has more freedom financially to plan into the future (Gorecki 2016).
So a price war while advantageous to customers like us will allow other players like Aldi to catch and pass them.
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username – svasude
Bretcu, A 2014, ‘MARKETING CONTROLLING AND PRICE POLICY FOR SMEs’, Analele Universitatii ‘Eftimie Murgu’ Resita. Fascicola II. Studii Economice, pp. 34-41.
Catie, L 2016, Coles slashes private-label prices, Age, The (Melbourne), 03126307, <http://ezproxy.deakin.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=n5h&AN=SYD-6QK3DWRBJ541AG85VN8F&site=eds-live&scope=site>.
Danziger, S, Hadar, L & Morwitz, VG 2014, ‘Retailer Pricing Strategy and Consumer Choice under Price Uncertainty’, Journal of Consumer Research, vol. 41, no. 3, pp. 761-74.
Gorecki, A 2016, ‘Another nail in the coffin for independent supermarkets ’.
Hoch, SJ, Dreze, X & Purk, ME 1994, ‘EDLP, Hi-Lo, and margin arithmetic’, no. 4, p. 16.
Keith, Sarah 2012, ‘Coles, Woolworths and Locale’.
Murphy, J 2016, ‘Best home brand products winning supermarket war’.
Neff, J 2011, ‘Why promotion may end up a bad deal for packaged goods; Everyday low prices are moving merchandise better than coupons, short-term pricing pacts’, no. 5.
Rahinel, R & Ahluwalia, R 2015, ‘Attention Modes and Price Importance: How Experiencing and Mind-Wandering Influence the Prioritization of Changeable Stimuli’, Journal of Consumer Research, vol. 42, no. 2, pp. 214-34.
Sue, M 2015, Coles’ everyday discount ploy faces scrutiny, Sydney Morning Herald, The, 03126315, <http://ezproxy.deakin.edu.au/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=n5h&AN=SYD-6K8HFDVVGZ4WR8ENLQR&site=eds-live&scope=site>.
Thayer, W 2009, ‘Pricing for profit: how to deal with price wars, private label price gaps and promos that plop instead of pop’, no. 2, p. 14.
Zappone, Chris 2009, ‘Supermarket duopoly blamed for soaring food prices’