For many years now the Supermarket War has been raging. Coles and Woolworths have been at each other’s throats – each trying to secure the loyalty of the grocery shopper. The ‘War’ all but ended when Aldi joined the battle and came close to eliminating Coles and Woolworths. Woolworths in particular has been critically wounded while Coles appears to be limping on in battle.
Price can be defined in marketing terms as the dollar amount that customers are willing to pay to obtain a product or service (Kotler & Armstrong
, 2004). There are a number of factors that will influence the pricing strategy or strategies implemented by a company. These include the competitive landscape, the fixed and variable costs of producing and selling the product or service, the stage of the product lifecycle, and advertising expenses to name a few.
The price of a product (or group of products) sends a message to customers about the positioning and image of a brand (Iacobucci, 2004, p. 108). While there is a risk a lower price can create the image of a lower quality product, it is not always the case. Australian supermarket giants Woolworths and Coles have selected a pricing strategy of being everyday low price providers (EDLPs), positioning themselves as good value for money in the eyes of the consumer (Iacobucci, 2014, p. 110). They offer relatively stable pricing across a wide range of products (Ellickson & Misra, 2008, p. 811). And of course, don’t forget the multiple-unit pricing strategy (or quantity discounts) to encourage the customer to buy more than they intended to by offering a cheaper price for buying multiple units!
The choice of pricing strategy chosen by the supermarket chains is framed as a game between a finite set of players (Ellickson & Misra, 2008, p. 816). Game theory as it’s known is frequently used by marketers to analyse the expected results of price cuts and competitive response (Iacobucci, 2014, p. 122). It’s been ‘game on’ for Woolworths and Coles in their German competitor Aldi entered the Australian market in 2001 (Aldi). They have been effectively chasing Aldi by cutting prices and expanding their own private label ranges, with little luck holding on to their market share (Montgomery, 2016). Woolworths has been hit hardest by the war waged by Aldi. The grocery giant posted an after-tax loss of $973 million in half year results earlier this year – its first loss since it listed on the Australian Stock Exchange twenty three years ago (Hyam & Ong, 2016).
Advertising for each of the chains takes on a similar theme in that they are each trying to position themselves as the best value for money. Woolworths kicked off a new “Always at Woolworths” campaign in 2015 – its fourth price-based marketing campaign in as many years (Mitchell, 2015). Interestingly, despite wanting to position itself as a value for money brand, Woolworths dumped its “Cheap Cheap” campaign because of the low value image it portrayed for the brand (Mitchell, 2015). The campaign perhaps focused too much on the cheap prices at Woolworths, inadvertently advertising products of less quality given the mental cues that price can create (Iacobucci, 2014, p. 116). Conversely, the “Down Down” campaign has been successful (although annoying) for Coles (Heffernan, 2015).
Aldi’s strategy has been to offer non-brand name products of similar quality at a cheaper price – again focusing on everyday low prices. Their advertising campaigns have included “The Unconvincibles” (people that were not convinced that they could be converted to the Aldi brand and to unknown product ranges), “Aldi Home of Lowest Prices” and “Like Brands. Only Cheaper” (Aldi). The numbers of customers that have switched to the Aldi brand highlight the elasticity of the price-sensitive consumer segment. There has also been talk about the German discount giant Lidl entering the Australian market which would likely to take the battle between the supermarket chains to a whole new battlefield. While it has registered the Lidl brand here, it appears that the market was not large enough to prompt them into action…at least for now (Cummins, 2016, SMH).
The questions that come to mind are: will the war ever be won? And if so, what will that mean for prices?
Post by D.Bonham (danbon377)
Aldi, ‘Like Brands. Only Cheaper.’, https://www.aldi.com.au/en/shopping-at-aldi/like-brands-only-cheaper/
Aldi, ‘Pricing’, https://www.aldi.com.au/en/about-aldi/customer-information/pricing/
Cummins, C, SMH, 2016, ‘Supermarket wars are gaining traction’, http://www.smh.com.au/business/property/supermarket-wars-are-gaining-traction-20160804-gql47t.html
Ellickson, PB & Misra, S, 2008, ‘Supermarket pricing strategies’, Marketing Science, Vol. 27, No. 5, http://eds.a.ebscohost.com.ezproxy-f.deakin.edu.au/eds/pdfviewer/pdfviewer?vid=2&sid=3f9779c2-4825-4d51-8be7-5d114ca7fa9e@sessionmgr4010&hid=4208
Heffernan, M, May 2, 2015, SMH, ‘Woolworths ads not so cheap, but Coles ads down, down’, http://www.smh.com.au/business/retail/woolworths-ads-not-so-cheap-but-coles-ads-down-down-20150430-1mwur1.html
Hyam, R & Ong, T, 26 February 2016, ‘Woolworth reports almost $1 billion loss in half-year results’, ABC News, http://www.abc.net.au/news/2016-02-26/woolworths-reports-almost-$1-billion-loss/7202004
Iacobucci, D, 2014, Marketing Management (MM4), South-Western, Cengage Learning, Mason.
Kotler, P & Armstrong, G (2004), ‘Principles of Marketing’, Tenth Edition, New Jersey: Pearson Education Inc
Mitchell, S, October 20, 2015, SMH, ‘Woolworths kicks off new marketing campaign’, http://www.smh.com.au/business/retail/woolworths-kicks-off-new-marketing-campaign-20151019-gkd4dl.html
Montgomery, R, ‘It’s tough at the top as Aldi advances through the aisles’, Money, April 2016, http://rogermontgomery.com/content/uploads/2016/03/MM0416ValueAble.pdf