Supermarket Pricing and Brand Promotions – Playing Dirty or Legitimate Business Practice
This week Which? announced it would lodge a super-complaint with the Competition and Markets Authority (CMA) over ‘Misleading’ Supermarket Pricing Practices. .
Which? point out that over the years they have highlighted a range of what it describes as misleading and confusing pricing tactics in supermarkets – like “dodgy multi-buys, shrinking products and baffling sales offers” – that exaggerate discounts.
It said many retailers are creating the illusion of savings that don’t exist and are manipulating consumer spending by misleading people into choosing products they may not have chosen if they knew the full facts.
We have been here before
The pricing practices of concern that Which? has identified are confusing and misleading special offers; a lack of easily comparable prices because of the way unit pricing is being done; and shrinking pack sizes without any corresponding price reduction. In addition, it says that supermarket price match schemes for a basket of goods may also make price comparisons more difficult, as the range and types of products on offer can make accurate price matching impossible to achieve.
Which said that the cumulative impact of all these different pricing tactics means it is virtually impossible for people to know if they are getting a fair deal, particularly when prices vary frequently, consumers are in a hurry or are buying numerous low value items.
Using legal powers under the Enterprise Act 2002, Which? has made the first ever super-complaint against the grocery sector to the CMA, urging it to take action. Once Which? has submitted its evidence to the CMA, the regulator has 90 days to respond. As a first step the CMA may request a market study, in which it could demand further information from the supermarkets, before escalating to a full-blown investigation.
This is, in fact, by no means a new issue raised by Which?. In fact it goes right back to the last full OFT enquiry that I was involved with as Head of Insight for the (then) Institute of Promotion Marketing. At that time the OFT issued guidelines, and the major UK supermarkets agreed in 2012 (reported by the BBC) to adopt a set of principles drawn up by the OFT. They were Tesco, Sainsbury’s, Morrisons, Waitrose, Marks and Spencer, Aldi, the Co-op and Lidl. Asda, which had not yet signed up, said it was considering the revised code. Simple things such as not having the offer period longer than the comparison period bothered them.
Other things bothered me at the time of greater concern to brands and promoters
The first was the fact that the major retailers still only saw each other as competition – so their price comparisons were not against market pricing, but against a wholly artificial construct – the Tesco price in the main. This remains the case, so Sainsbury, who now use Asda as their benchmark, offer coupons for a gap that is impossible for the average shopper to know about. Given that the fastest movers are from Sainsbury to the discounters, and that Asda is not a natural home for the Sainsbury customer (geo)demographically this all seems very puzzling. For brands, however, this issue lead to a plethora of sizes, and the additional costs the this leads to, just to get around the straight price comparisons, that were used to force prices inexorably, and unaffordably down.
For the shopper, who sees the competitive set as much wider, Sainsbury must start to look increasingly out of touch.
Heads they win – Tails you lose
Secondly was the way that Tesco, in particular played fast and loose with coupons, as the major distributor, and recipient in the UK. With their market size they said – we will redeem your coupons, we will take the money straight from your trading account, and we will charge you for handling. Meanwhile most of the competitors were quite happy to see a coupon as money that they could put through the till against anything in the basket. Possibly the worst examples of this were the Tesco self scan checkouts. Here all you needed to do was scan an original and put any old piece of paper into the slot. I know, I did it myself (but advised the client accordingly).
The key retailer has a position that goes; You should always use our promotion techniques no matter how poor the result simply because we make a great deal of money from it. Frankly, if it did make money for the brand it would bu up-priced so it didn’t OR you would be prevented from using it (as in dunnhumby preventing you from couponing users of competitive products)
Quis custodiet ipsos custodes?
When you can set your own comparisons and manage and report on the way you have handled other peoples money confusion and the potential for serious misuse is built in up and down the line. Not just in the areas that Which? will focus on.
Brands, of course, lose every time.With GSCOP, saving the presence of the ombudsman, being the last resort of the desperate man. We have a client issue where a major retailer said “You will only use our in-house techniques as part of the listing process”. The in store sampling (very expensive, poorly managed), the coupon process (impossible to easily track, and given that in the case of Tesco you don’t know where they went, and where they came back) quite impossible to assess. Then when these failed to work, the challenge, fix or you are out. The fix went in, a non-price promotion technique, and was really successful It met the criteria laid down comfortably, but the product was de-listed anyway. A clear case of an appeal to GSCOP since more time should have been given. Will this happen dear reader – I invite you to draw your own conclusion.
Retailers need competition to temper their excesses
It is very hard to legislate for appropriate price promotions, since most could be defended strongly where they are properly used. In fact most retailers do actively set out to confuse the shopper. This they do in a wide variety of ways, changing store layouts, confusing offer statements, offer ticket forests on the shelf, own brand ranging at key shelf places etc. There are sound business reasons for this. Most shoppers do not vary from their walk, and breaking their habit pattern can deliver more sales. It does, mainly though, develop hostility.
Up to now key retailers have managed to get away with it. From now on it they need to consider service as well as their product offer.
Which? needs to apply common sense, and target their complaints much better
Brands have little leeway. In an era where costs rise inexorably, the shopper has become used to price stability, even often presented as price reductions. Which? suggest that they want to address pack reductions without a corresponding price reduction.
You would like to ask Which? the planet they come from. Why on earth should a new smaller size pack not be priced wherever the manufacturer or the retailer want to price it. Currently pack changes are the only way that many manufacturers have of delivering what they perceive shoppers want, and retailers tell them they must achieve. The same margin (or better) at the same price as last year, when costs overall have increased.
Where to from here. The issue that brands have is that their promotion horizons tend to be limited to the one’s that the retailers offer. Moreover, Sales Departments accept that they do not measure the value of the investment they make through this. Asking dunnhumby to measure the impact of the coupons they have just sold you is not likely to give “you have been wasting your time”..
Brands need to seriously explore other, non retailer sponsored, ways of growing the brand. Discounters are growing fast, and geo-demographic promotions to your core will build brand sales across outlets. Add to this real efforts to maximise distribution in your core areas and you can begin to build growth to your shoppers, wherever they go.
Executive Director, Richard Lloyd, said: “Despite Which? repeatedly exposing misleading and confusing pricing tactics, and calling for voluntary change by the retailers, these dodgy offers remain on numerous supermarket shelves. Shoppers think they’re getting a bargain but in reality it’s impossible for any consumer to know if they’re genuinely getting a fair deal. So shoppers are voting with their feet to places where they can get a fair deal – at least on a level they understand.
Brands may think they’re getting a bargain from retailer promotions but in reality it’s impossible for any of them to know if they’re genuinely getting a fair deal. Change your policy and invest behind the brand, not the retailer, for a change in your fortunes. Stick with your existing investment, and anticipate no change in your fortunes.