How Big Are Those Price Cuts?
Trumpets blaring out price cuts rarely say how much those prices have been cut. The number of items costing less per store is advertised in total, not item by item. As long as overall shopping baskets cost less than the same items from a competitor, the boasts are legitimate. But are they really transparent?
The Grocer is the oldest and most respected magazine for the U.K. grocery business. Each week its Grocer 33 shopping basket database monitors several hundred items across twelve categories, showing readers how prices compare across the four main grocery retailers in the country. As price wars rage, the magazine is seen as the place the trade can go to see how each chain measures up. But it is a trade magazine, rarely if ever read by consumers who see little more than banners, ads and newspaper articles about "everyday" fair prices and bargains because "every little bit helps."
Last week, The Grocer discovered that "more than half of the 5,000 price cuts promised by the supermarket group Asda are only worth a penny an item." Furthermore, like everyone else, Asda has also raised prices and, of these, "fewer than one in 10 of those increased in price rose by only a penny."
In announcing the price reductions on Feb. 26, Asda said with the additional 5,000 cuts planned by Easter, prices will be reduced on 12,500 items since the year's start. It also pledged not to engage in any deals or promotions that were not genuine price reductions. Chief executive Andy Bond said at the time, "We're engaging with our customers in a transparent way to ensure the products we sell and the prices we charge meet their needs in these difficult times."
Consultant Kay Staniland, of Assosia, responded by saying that, "Having reported last week that it was dropping bogofs [buy-one-get-one-free] in favor of being transparent in its price cuts, such small cuts could be seen as simply trying to retain the cheapest title rather than passing on any real savings to the consumer."
Confirming Ms. Staniland's statement while defending their policy, Asda's spokeswoman asserted that, "As the Grocer 33 shows, week in week out we are the undisputed price leader." Admitting that price cuts of a penny are counted in the total, she also reaffirmed Asda's position that they offer good value and claimed that further cuts will include "dozens of deep rollbacks."
Discussion questions: Are retailers doing enough to make price cuts transparent? Do consumers trust marketing campaigns touting price reductions?