It Really Isn’t All About Price or Is It?
Sometimes it seems almost all of retail is engaged in one giant, lemming-like race to the bottom—a competition where the lowest price wins. Yet, not all retailers can offer the lowest price despite claims to contrary. How then, can they change the conversation from price to value received at fair price?
Wendy’s “Right Price, Right Size” menu is its response to the dollar menus offered by its rivals. In a commercial for Wendy’s, a young woman compares the quality of a sandwich bought from a dollar menu to that offered at Wendy’s for very little more. The "you get what you pay for" messaging is clear.
Just as Wendy’s is tackling the issue in foodservice, Kroger provides a good example in grocery where price promotions are prevalent. The company now targets value consumers in some markets by opening Ruler Foods, a deep discount grocery concept that focuses on Kroger and Kroger Value brand items. Some 80 percent of the limited selection is Kroger labels, which offer savings between 30 percent and 50 percent below national brand prices.
Also in limited assortment grocery, Aldi sells itself to consumers stressing a combination of savings and quality. Its own-label products are growing increasingly sophisticated with ingredients and packaging near, at or above that of national brands in many instances.
- Right Price, Right Size – YouTube
- Courting Thrifty Shoppers With Value and Quality – The New York Times (tiered sub.)
- Kellogg’s takes on copycat brands with new online campaign – Convenience Store
- Value Brand Products – Kroger
- Kroger rolling out more Ruler Food shops – Cincinnati Business Journal
- Consumers are picking "premium" or "value" grocery items, not mid-range – Farm Futures
Discussion Questions
How can retailers shift the consumer focus from price to value received? Are there examples in retailing from the present or past that you think illustrate your point?
To break the cycle of lowering prices, retailers need to demonstrate value to consumers. This could be in the form of better quality products at slightly higher prices, bundling products/services to create higher perceived value, and offering exclusive merchandise, either from national companies or private label. Few retailers can win the lowest price game. It makes more sense to compete on value.
We see each year that chains such as Publix and Wegmans top the leaderboard when it comes to best-in-class service.
I think that there are many levels or classes of shoppers. Those that want lower prices and those that want better service and for the most part the rest of the pack is attempting to do both. The better retailers define their target customer and create the store that meets their needs. This is a major part of being in the grocery business, where price, lines, cleaniness and service add up to where one shops. And now add to the mix what I call the grocery industry disruptors: drug stores, warehouse clubs, C-stores and what once was call mass merchants (now supercenters or hypermakrets). Lots of choices for lots of people, just pick one or two.
In an uncertain economy, with “real” unemployment (given the diminished size of the workforce) being around 13%, for some shoppers there is no viable strategy to divert their attention away from “price.” However as we have discussed in this forum in the past, there are shoppers, and plenty of them, that do have other priorities than finding the lowest price. For those shoppers, Whole Foods, Trader Joe’s, and others are fulfilling their need for meal planning, quality, specialty foods, and other services.
For the traditional supermarkets, who find themselves in the middle of these two polar ends of the market, it is about understanding your shopper base and marketing to them accordingly. Kroger, which is cited in today’s blog, is better than most in using their customer database and tangential resources to segment and target their store banners according to the predominant needs of the market they are addressing.
Problems occur, however, when the retailer attempts to service both ends of this polarized customer base in one format. While it is possible to be “all things to all people” in one store or banner…it’s usually not profitable!
One of my favorites is Culver’s which sells hamburgers and custard. They have no dollar menu. Their hamburgers are good quality and you pay more. They only hire young, clean cut, good looking friendly employees and pay them more. The best way to overcome price is to make customers feel better about themselves if they come into your store. My dry cleaner is a good example. The lady running the place always gives me a kiss and hug. I have no clue what she is charging me.
I really don’t get the Kroger/Ruler thing. Don’t understand their message. Is it that they sell Kroger products cheaper than at Kroger? I’ve been in some and did not see prices cheaper than Walmart and certainly not cheaper than Aldi. So what’s the appeal? It was like Save-A-Lot with a different name. And we know how badly that is turning out for Supervalu.
Bernice got it right in the first sentence. If you want people to think in terms other than price, quit shoving price down their throats every chance you get.
As far as examples, take any high-end or quality based business—there are thousands of good examples from Harry Winston to any upscale restaurant.
It’s not about shifting consumer focus, it’s about shifting YOUR focus to the shoppers you choose to serve. The consumer market has never been comprised solely of bottom feeders, whether you are talking grocery, furniture, electronics or whatever. It’s always amazed me how many grocers haven’t yet figured that out.
It’s funny, when I read the headline, I said to myself “its private label, stupid” and of course the article points that out.
I am not familiar with the new Kroger banner, but I am old enough to remember many other retailer excursions into the world of limited assortments. I am not sure that is the answer and I am not sure the retailer economics are necessarily as compelling as they may seem upon simple analysis. Often the new banner involves its own promotion schedule, new shelving, and different staff hiring and training requirements. These expenses can add up and a certain number of outlets are required to support the overhead involved with supporting the new banner. For the consumer, I don’t think it is necessarily advantageous to create the need for a “second stop” in order to get that one branded product that junior only eats. And besides, if the prices are still higher in the full service banner the consumer will just make their second stop at a competitor.
I still believe private label is the alternative differentiator, but promote it within the existing banner. By sharing the overhead and distributing it across both branded and private label merchandise, the retailer should be able to build an even more compelling price offering. I recently watched a TED video that chastised selection of charities based upon their low overhead expenses. The point was that 10% of a $10 million pie is more than 50% of a $1 million pie. If spending on promotion and advertising for the private label brand can build the size of the pie, why not do it? So by keeping private label within the existing retail infrastructure and investing more in promoting it, a retailer is able to differentiate themselves on something besides price.
Stop pulling the price lever! There are other things to demonstrate value rather than price. Consumers want knowledgeable associates, good value, and efficient checkout. Retailers can’t compete on just price.
Examples abound—from your local burger joint that has quality service and food to Nordstroms.
Price versus value—or can you have both? In some cases you can. However, the best companies have chosen which camp they want to compete in.
Examples:
Walmart chooses to have lower prices and lots of inventory. You won’t find lots of employees walking the aisles, looking to help their customers. The customer knows and accepts that. The value proposition comes in the form of lower prices. It works.
Nordstrom is not known for having low prices, but are know for fair prices with quality merchandise—and great customer service.
Ace Hardware competes against the big box stores. They have fair prices and amazing customer service.
Whole Foods is not known for low prices. Every time I walk into a Whole Foods there are plenty of customers who are more interested in higher quality and fresh food than a discounted price.
The point is that for a retailer to succeed, the customer has to know what the value proposition is: Price or value (in the form of quality, service, etc.). The retailer delivers on that perception and the customer is happy—and comes back.
Once again we are into the realm of pricing and value in supermarkets. One of the biggest problems I deal with is the economy in our area. There is no chance of it getting better for many, many years as the Rust Belt is dead. So, price is king and if you don’t believe so, you will fail. There is a way to attract the high end, which is small but profitable, and the majority of the low income folks, and still keep both happy.
Excellent service is a mindset, not just in body count, but in the way the customer is treated from the time they walk into the door. Everyone deserves a smile and a friendly hello along with quick service, just for starters. The extras such as talking about how to cook your roast or helping a church get a good deal for the picnic dinner, is something that doesn’t require a huge amount of investment, and THAT is where I can make a difference.
Making money is all about building a trusting relationship in your community, One customer at a time and also realizing that you can not please everybody. It is not easy, but you must provide a value in terms of price and quality while maintaining your image along the perimeter of the store. Retail is not for sissies and the commitment to your customers must never waver as your success depends on how they feel about your store.
Price is still #1, but to go against the supercenters and dollar stores, you must give good pricing and great service to stay in this crazy business.
Shifting the consumer from a focus on price to value received could be an upill struggle, given price inflation in recent years. Where I live, a package of hamburger that will create a meatloaf for 4 people can easily cost $12. My mother says that going to the meat counter is like going to the Smithsonian; you can look at the things on display but you won’t be taking them home.
Retailers can shift the focus to value received by focusing on properly developing brand. It sounds simple, but it’s always easier to lower price and allow the consumer to define the brand.
When the consumer defines the retail brand, it will invariably end as a commodity ruled by location and convenience. There is a reason why retailers with a strong brand are always able to withstand the arrival of Walmart while those in the “lowest price” territory disappear.
If David doesn’t like the Kroger example, I don’t like the Wendy’s one: “very little more” is STILL focusing on price, you’re just admitting you don’t have the…uhm, grill paddles to actually be the lowest. But of course there ARE strategies other than price: Nordstrom does service, Applebees does “neighborhoodness”(i.e.convenience), Apple is a religion, etc. The problem is too many retailers aren’t really the “most” at anything, and try to create an image of being a good mix of everything, that doesn’t please anybody. There are still people – like me – who will pick an item because it’s “in the middle” (price wise, size wise, etc.) but most, I suspect, will gravitate to the extremes, whether it’s price, size or whatever.