Why price promotion may not buy loyalty


Yesterday, I came across a 2010 article published on the US retail blog 'The Shelf Edge' which struck a chord in me. It quoted an Interbrand Design Forum report, listing the most valuable retail brands in the U.S. It noted that well known brands such as Barnes & Noble, Gymboree, and Men’s Wearhouse had all dropped out of the top 50. According to the article, the reason was too much focus on price promotion. In particular, it suggested that retailers have a bad habit of “running home to price, when we’re not sure what else to do." Fast forward to 2012 in the UK, and grocery giant Tesco's results, showing a year of declining sales, market share erosion and its first profits warning in 20 years. Its boss Philip Clarke could not quite bring himself to acknowledge that its much trumpeted £500m Big Price Drop had been a failure, in part due to Sainsbury's Brand Match program simply matching the deals. But he did recognise that staffing level reductions, lowered store investment and "the less potent force" of out-of-town hypermarkets had meant that Tesco had lost touch with its customers.

So - has price promotion really lost its allure, even in a recession economy? Shelf Edge contributor Jeff Weidauer suggested we use an analogy of choosing a restaurant to help understand why price alone simply doesn't tell the whole story: ".. imagine if we all chose restaurants on the basis of price alone. Presumably we are all looking for an enjoyable food experience, but if we create a comparison of eating out with eating in, then the shopping trip itself should include some elements of the restaurant experience: service, selection, quality, etc. It’s time for retailers to start thinking about what they offer—or can offer—to their shoppers. It’s not price, because price ownership lies elsewhere. That leaves the experience; the excellent customer service, or the outstanding selection, or the quality, or whatever the store sees as its point of difference."


It's a sentiment that Tesco used to embrace, with its "Every Little Helps" pledge to open more tills if more than two people were queuing, and the pioneering of longer trading hours and convenience led, in-store dry cleaners and pharmacies. But just as street artist Banksy (see image) parodied Tesco by portraying an imperialist attitude that expected allegiance (called 'loyalty' in retail), so UK shoppers have begun turning elsewhere to save money. Where? Well, most notably, Sainsbury's and latterly Morrisons, whose store refurbishments and focus on specialist fishmongers, bakers and butchers has lifted the atmosphere towards an up-scale market, whilst keeping prices keen.

It's a lesson that should not have been lost on Tesco. Any marketer who has read their Michael Porter will know that seeking competitive advantage via lowest cost carries risks - it's a lever that often sparks a price war, and can become unsustainable. Plus the rise of Aldi, Lidl and pound shops are testament that holding on to price dominance is hard to control. As an alternative, Porter suggests distinctiveness - exemplified by the customer experience-based strategies of successful restaurant chains such as Carluccios, Wagamamas, and more recently Jamie's. These eateries look first and foremost to creating a style, selection and dining environment that marks out a signature that offers something unique and worth paying for.

As Tesco found out, price alone is no guarantee of an everlasting route to profit growth. Today's retailers will need to continually create and update its overall customer experience if they want to appeal to more shoppers.....

Further Viewing: Michael Porter - 5 Forces Interview