UK Market Pricing Strategy: Multiple Food Retailing

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Introduction

The rapid escalation of the retailing segment has been one of the most imperative transformations to have happened within the UK economy in the post-war era. It is not merely that the shopping practice has transformed afar recognition. The radical effect upon business organization, of transformations taking place within the retailing segment is a usual subject within the literature (Birchall 1994 p.142). At the same time, we are also made to accept that post-war transformation in spending and retailing have had a massive antirevolutionary social impact, neutralizing class anxieties in a custom of consolidation (Benson 1994 p.227).

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This paper attempts to investigate the sources of the competitive edge in multiple foods retailing and highlight the forces resulting in the development of a competitive atmosphere distinguished by a trend to adjustment, despite the industry’s inventive account. The attention of the paper is the creation of strategies supporting the increase in ascendancy of multiple food retailers emphasizing the analysis of multiple retailers as active agents forming and reforming their competitive atmosphere. The paper holds that company’s vibrant and inventive strategy to supply chain, utilizing of advanced technology, and investment approaches resulting from the appreciation that competitive edge comes from in their own capacity to extract rents through organizing of their market atmosphere. The cost of doing this is that multiple retailers have increasingly faced an atmosphere described by adjustment and homogeneity divergent from inventive and heterogeneity.

Business historians have until previously had little to say concerning contemporary retailing. Literature attention has been upon dominance of small scale, family-owned and runs operations, and in most cases roaming, self-determining shopkeepers in the 19th century. However, these have been progressively more diluted by the surfacing of the multiple retailing by mid 20th century (Morelli, 1997 p. 170). Nevertheless, more currently business historians’ importance in organizational capacities and the type of rivalry have led to attention upon the development of retailers’ own brands, logistic and circulation, market configuration, and the post-war test to producers obligatory resale price upholding.

One subject of agreement within literature is on the capability of large-scale retailing organizations to swiftly build up inventive solutions to the mounting convolution of contemporary retailing (Jeffreys, 1991 p. 54). The big multiple foods retail in particular have shown to be greatly inventive in their reaction to transforming patterns of shopper requirement. The elimination of resale price continuation saw several food retailers try to redraw the balance between price and non-price rivalry in the 1960s. This model was merged with the broadening of companies’ product variety. Multiple foods retailing budged into non-food goods and reacted to the succeeding disintegration of merchandise markets by developing position marketing in quarters including health products, vegetarian commodities and still more lately ready-made food items (Morelli, 1997:771).

Food retails have also shown to be likewise vibrant and inventive over issues associated with their own structural approach to retailing. From the implementation of the self-services in the nineteen fifties and supermarkets retailing in the sixties to the growth of bigger superstores, automation, stock control structure and sub-delegating out of warehousing and delivery in the eighties, the contemporary supermarket retails have been organized to swiftly create new structural approaches. Compound food retailing has in total shown ability to enlarge their capacities, practices, and distinctive acquaintance both onward into retailing features of the grocery business and backward into the food production and wholesaling business altogether (Langlois & Robertson, 1995:41). Nevertheless, such inventive model has developed important problems for large companies as they try to uphold their competitive edge within the business. Whereas they have corresponded one another’s prices on day-to-day basis for a long time, currently they are gradually turning to correspond one other’s services as well. Loyalty cards and banking service, crèches, one-stop shopping has become the trademark of contemporary compound food retailing.

As distinctive know-how has become implied and moveable, companies’ capacities have become contestable leading to compound food retailing becoming ever more typified by a notable scale of resemblance between companies. In fact, the beginning point for companies’ intentional dialogues on attaining a competitive edge is the very threat of homogeneity. Hence the debate of the competitive atmosphere at Tesco started with the appreciation that they could not afford to be contented, seemingly, all superstores were looking alike and an exceptional differentiation was a cost that could only be won by persistently being at the lead (Lazonick, 1991 p. 97. Business historians distinguish these attitudes instantaneously as in compliance with Lazonick’s approach of a developing competitive balance in which adjustment instead of novelty becomes the form of competition. Inventive investment approaches focus on developing competitive edge on the premise of shifting the high permanent cost into low unit cost and at the same time increasing the company’s cost of adaptation as a blockade to new entrants (Lazonick, 1991 p. 101). Nonetheless, in a swiftly growing and inventive segment, for instance retailing, the threat for the inventive company is that permanent costs for such companies (adaptive companies) usually decline instead of increase. This undercuts the blockade to new entrants and brings about the subject of the capacity of the company to continually invent (Morelli, 1997 p. 771).

In food retailers, this approach can easily be recognized. Sainsbury Plc has conventionally been the market giant and in perspective of transactions per square foot of sales coverage maintains to be the same, whereas Tesco’s approach of volume-led development has surpassed Sainsbury’s status as UK’s biggest food retailer in terms of market share. However, Tesco’s inventive effort to make a distinction of itself from another multiple by introducing loyalty cards and banking services has been quickly emulated by all other major multiple retailers (Morelli, 1997 p. 771).

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Characteristic of Multiple Food Retailing

Whereas contemporary multiple food retailers seem at present to be very analogous with one another, emphasis must be put in the comparatively latest episode of this likeness. Even though Sainsbury has a history of approximately a hundred and forty years, with its initial shop starting in 1869, the same cannot be told of the other market giant Tesco who initially started its shop in 1931 nor the 6th biggest food retailer Kwik Save whose first shop was opened in 1959 (Powel, 1991 p. 33). In fact, though the term multiple retailers is a general term for retailers with shops exceeding ten, the diversity between the two biggest multiple food retailers approaches seem enormously bleak until well after 1945. Sainsbury’s materialization as multiple retailers resulted from its sources as a provisions merchant, a retailer of fresh unpackaged commodities. Sainsbury’s achievement was found in its capacity to buy wholesale, fresh unpackaged commodities and package them into Sainsbury’s own-made product. Hence Sainsbury from the start was a firm that dealt almost exclusively with own-make groceries and provision (McClellan, 1966 p.86).

Sainsbury could develop capacities in both wholesales, manufacturing, and retailing that gave it the capacity to underpin maintaining price of branded commodities, defend against wholesalers’ efforts at cartelization, and significantly win the standing among clients for value before 1914. Therefore, the achievement of Sainsbury was in developing capacities through the incorporation of processing, wholesaling and retailing purposes. Own branding gave the firm the ability to ascertain supremacy in both quality and supply. In comparison, Tesco was a shop which from the start focused on the selling of dry packaged branded commodities. Though at the beginning was instituted through price reduction, Tesco quickly implemented contracts over price with producers to continue supplies in the 30s (Powell 1991 p.33-41). In 1958, Tesco changed its strategy to the one termed pile it high; sell it cheap strategy with an aim of gaining reputation. This was necessitated by the challenge from manufacturer imposed resale price maintenance. Similar to other groceries apart from Sainsbury, Tesco focused on retailing instead of wholesaling and processing and due to this, it did not establish wide range of its own brand capacities. Development of its own branded groceries for Tesco started in the sixties onwards.

Sainsbury and Tesco had established a large branch network expanding to 291 and 371 shops respectively by 1990. However by 2004, Sainsbury had 583 outlets throughout the UK. In the same year it was able to purchase Jacksons which had 114 stores and 2350 staff hence enlarging its access into the convenience sector. Whereas Sainsbury was conventionally developed by incremental growth, using remaining incomes for investment in new shops, Tesco implemented share floatation to grow the essential investment for taking over from rival companies (McClellan, 1966, p. 219).

Market Pricing Strategy at Sainsbury

The pricing policy is one of the most important overall marketing mixes for a company or brand. Consumers are now becoming more aware of prices and the way that they are being charged in different outlets owned by different companies. Moreover, companies are evolving their marketing tools by making them more refined to enable pricing to be undertaken in different ways that are more appealing to the consumer. Even though the UK grocery industry is comparatively united, it is also fiercely competitive because consumers tend to seek the finest prices. As a result, the pricing environment in the UK retail market has become very challenging and fiercely competitive especially because of the recession that prompted greater price sensitivity among the consumers.

According to Jones, Comfort and Hillier, 2009, p.816 the major UK food retailers have been unbeaten in building marketing strategies that are developed around competitive pricing. For some time, Sainsbury struggled with high commodity prices, poor customer service and constant out-of-stock. To transform its marketing strategy, the company brought in a new management and administration team from ASDA. This new and innovative team helped to turn the company around by looking into and improving the company’s supply chain, competitive pricing and service rendered to the customers. Since then Sainsbury has significantly improved its operating performance (McBride, 2010).

Albeit these improvements, the pricing environment has continued to be challenging. Sainsbury has come up with new policy which is aimed at leading the major multiple food retailers on quality, choice and range. Furthermore, it aims at maintaining competitive prices and hence it applies pricing rules to different pricing categories. Therefore, Sainsbury has come up with a “well-developed private-label program”, a marketing pricing strategy that is an affordable way for attracting and retaining consumers who are cash-trapped. The “private-label program” is divided into three categories which are: “good (basic), better (mid-priced) and best (premium)” (McBride, 2010, p.1). The broad strategy has translated into an overall pricing basket target relative to that of ASDA and Tesco which ensures they are within a small given percentage price gap. However, a higher gap is allowed against ASDA. These price gaps are made before the company considers any promotional offers.

Individual products at Sainsbury are also put into consideration about other competitors. At Sainsbury, prices are determined mostly by the market and the ability to drive costs down. Nonetheless, price changes are also affected by pressure from the competitors, supply prices variations, product performance, and seasonal availability of the product. The company highly benchmarks its prices against those of its two major competitors. As such it aims not only to lead in terms of variety, service and quality but also in charging highly competitive prices. Every four weeks Sainsbury tracts its product lines, monitors its major national competitors. If it discovers that its prices are out of line, nationwide corrections are effected. This market pricing strategy is an indication that Sainsbury follows the prices of its competitors. If Sainsbury leads in terms of price reductions, its other main competitors quickly react and follow in the same tread within a few days. Other than this strategy, the company also makes use of promotional offers, extra reward points, multibuys and special offers which are usually planned in advance as strategies of their own. However, perishables are promoted for a period of two to four weeks while perishable products are for four straight weeks (King, 2010 p. 1).

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In 2002, the company launched its new loyalty known as Nectar which is a customer-focused marketing pricing strategy. After it was launched, 11 million customers had signed for the cards within the first two months. The card is beneficial to the customer since it reduces the cost in the shopping basket and it is also beneficial to the customer on the basis of the number of points earned upon purchase. The points can then be redeemed by the customer for vouchers to purchase at any Sainsbury outlet, tickets to the cinema and for flights (McBride, 2010 p.1).

Innovation & Competitive Advantage

In spite of the extensive deviation of experience in the growth of multiple food retailers’ structural capacities it is still probable to stress significant resemblances among diverse companies. It is in the inventive utilization of advanced technology and techniques that the resemblances among multiple food retailers are perceptible. These huge multiple food retailers have attested to be extremely innovative in a bid to respond to the shifting patterns of customer demands (Morelli, 1997:770). Initially, the competitive advantage that was prevalent among the multiple food retailers in the UK stemmed from the creation of head office functions that were centralized around family control. This permitted the growth of economies of scale in purchasing and bargaining with manufacturers and in raising capital for the expansion of the latest retail outlets (Jeffreys, 1954 p. 39). The major competitive advantage found within both Sainsbury and Tesco is linked to their business strategy which is mainly centered upon a highly strong geographical region within the southeast and west of England.

Non-food Items

Multiple food retailers have moved from the food-only products and diversified their products to include non-food items. This is in response to the ensuing disintegration of the product markets by developing marketing niches in areas including beauty and health products, homeware and clothing (King, 2010 p.1). It is one way that has been identified in increasing the share of retail trade through the development of non-food sales. Sainsbury has dramatically expanded into higher-margin non-food areas and pitched itself as the low-cost alternative to Marks and Spencer (M&S) (McBride, 2010 p. 1). This innovative approach has presented considerable difficulties for large firms like Sainsbury, Tesco and Asda as they try to preserve their competitive advantage within the business. Nonetheless, these firms have been able to successfully use the innovation of new products to alter their individual market relationships, both with the suppliers and with their consumers.

The increased size and number of retail outlets and the innovation of new products have enabled these food retailers to significantly maximize on and increase the level of power over the market in various ways. However, Sainsbury has attempted to remain a fearsome competitor by improving its margin and taking the market share from its other competitors. The company has endeavored to do this by aggressively expanding and renovating space, growing the model of its convenience store and ultimately staying competitive in this new non-food industry. Additionally, Sainsbury’s use of own-brand products has enabled it to introduce price discounts without undermining the imposed price maintenance by manufacturers on products that are branded (McClelland, 1966 p. 300). This has therefore facilitated the company’s goal of keeping the prices of its new products which include shampoo and conditioner down by £1 compared to that of Tesco and ASDA. As a result, Sainsbury has been able to gain higher profit margins from its own-brand products.

Product Name Sainsbury Price (£) Tesco
Price (£)
ASDA
Price (£)
Andrew Collinge Purity Color Therapy Shampoo(250ml) 2.75 3.50 4.00
Aussie Color Mate Shampoo (300ml) 3.00 3.00 3.40
TRESemme Color Thrive Brunette Shampoo (900ml) 5.00 3.33 3.33
Herbal Essence Ignite My Color Acai Berry & Silk Extracts Shampoo (400ml) 1.53 3.25 3.25

From the table above it is clear that Sainsbury is the leading retail marketer for shampoo and conditioner products in the UK. The firm sells these products at much-discounted prices compared to both Tesco and ASDA. Although the prices of some of the products are higher than those of either Tesco or ASDA, Sainsbury still remains overall as number one. This could also be reflected in the firm’s sales level and profitability.

Conclusion

The main aim of innovative investment strategies is to create a competitive advantage based on turning fixed costs that are high into unit costs which are low while at the same time raising the firms’ cost of adaptation as a barrier to entry. Sainsbury has for a long time been a market leader since it followed this model within its food retailing. Despite the challenges being faced presently, the firm is confident that it will rise again to take over the market share again and capture back its consumers and increase its numbers.

References

Benson, J. (1994). The Rise of Consumer Society in Britain. 1880-1980. New York: McGraw Hill Publishers.

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Birchall, J. (1994). The People’s Business. Manchester: Manchester University Press.

Jeffreys, B. (1954). Retail Trading in Britain 1850-1950. Cambridge: Cambridge University Press.

Jones, P et al. (2009). Stores Marketing Sustainable Consumption.

King, S. (2010). Investing in People. Web.

Langlois, R & Robertson, P. (1995). Markets, Firms and Economic Change. London: Routledge.

Lazonick, W. (1991). Business Organization and Market Economy Myth. Cambridge: Cambridge University Press.

McBride, S. (2010). Challenges Ahead of Sainsbury. Web.

McClelland, W. (1966). Competition & Cost in Retailing. New York: MacMillan.

Morelli, C. (1997). Competitive Advantage in Multiple Food Retailing. Business and Economic History. Vol. 2 No. 2.

Powell, D. (1991). Counter Revolution. London: Grafton Publishers.

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