Supermarket Price Wars – Who wins & who loses?

Written by Nina Kraskov & Sandra Salomon 

It all started on Australia Day 2011. Coles fired the first shot at its arch rival Woolworths, announcing that it was cutting the price of its private label milk to a $1 a litre. Of course Woolworths followed suit, as did all the other supermarkets.

Supermarket shoppers were ecstatic!  Especially mothers of children who drank gallons, (or litres) of the stuff.  So while consumers were the winners who were the losers?

The Supermarkets have been focusing their marketing campaigns on lower prices, which at the end could be a risky move. The psychology of pricing suggests the direct relationship that customers make with price and quality, having more expectations for products with higher prices.

The enormous amount of publicity that has been generated during the last year with lower prices, are in effect giving results to these companies. They are approaching customers with offers that impact directly on their psychological make up, showing for example, attractive numbers or great discounts.

Aldi started with a different way of informing customers about the lower prices, comparing some of the products and their prices. This plan has generated a price war and now these three giants have to work hard in the way they communicate, since there are not really clear differentiation.

Back to where it all began.  Did anyone stop to consider the farmers? We did. However, we did not give a thought to the companies who bottled and distributed milk. According to Hawthorne (2015), retail prices hit a 20 year low, and processors and farmers were espousing the death of the industry.

So what are the consequences for years into the milk wars? At a grassroots level, its tangible. Just ask the 50 Queensland dairy farmers who walked away, most for good (Hawthorne 2015).  And the milk processors?  Lion (Pura and Dairy Farmers) and Parmalat (Pauls), have had the sales of their key domestic brands dive by $175 million a year.  Can you believe milk is now cheaper than bottled water?  In 2008, Lion and Parmalat controlled almost half of Australian milk sales, sharing the combined $660 million share of the $1.44 billion fresh milk industry in Australia (Hawthorne 2015). Given that they also produced the private labels, this was a nice little duopoly, back then.

At the end of last year Pauls share of the market had dropped from  20 to 17.2 per cent, Pura went from 14.4 to 6.4 per cent and Dairy Farmers from 11.5 to 10 per cent.

So what has happened since?

The price wars continue, and have expanded to bread and sausages, 85 cents and $6.99 for 2kg tray respectively.  This shot was fired by Woolies, in an attempt to try and win back customers, and thus its dwindling market share.  Of course, everyone plays follow the leader and joins the fray.  According to McCrann (2013), the price wars are great news for consumers and not so great for suppliers.  Some one has to pay for the savings, and McCrann (2013) and Robb (2013) both say that Coles and Woolies are putting the squeeze on suppliers.  Whilst both Coles and Woolies have lost some of their market share, they are still able to report an increase in dollar sales and revenue (McCrann 2013) and their profit margin (Reid 2014).  Aldi’s arrival in 2001 has probably had the biggest impact on market share, largely at the expense of the “other” supermarkets.  The graph shows just where consumers are doing their supermarket shopping.

Image

Source: Roy Morgan Single Source (Australia), January 2005 – December 2013, latest 12 months to December 2013 n= 14,006. Base: Grocery Buyers 14+

Don’t forget that Woolies has more supermarkets in Australia than any other chain.  Robb (2013) suggests that whilst Coles and Woolworths are two of the most profitable supermarkets in the world, their profit margin will begin to drop, especially as competition hots up, with Aldi planning to expand into South and West Australia.  According to the ACCC, Woolworths has the highest profit margin of any supermarket chain in the world.  So while consumers pocket the savings, what happens to the suppliers? Have the price wars changed the way or where you shop?

In the end, is this  really `safe` competition between these companies in which the customers are actually receiving benefits? Or is it just a strategy to retain market share and profitability?

Reference List 

Robb, K(2013),Supermarket wars: Aldi takes on market share as Woolworths drops prices Smart Company  Monday, 09 March.  Retrieved 30/04/15 at 0845 hours

http://www.smartcompany.com, .au/growth/45992-supermarket-wars-aldi-takes-on-market-share-as-woolworths-drops-prices.html#

Reid, W (2014), Market share narrows between Coles and Woolworths, while ALDI makes important gains Roy Morgan Research February 12 2014.  Retrieved 30/04/15 0850 hours

http://www.roymorgan.com/findings/5427-market-share-narrows-between-coles-woolworths-while-aldi-makes-gains-201402120013

Hawthorne, M, (2015), Milk wars likely to claim more victims yet, The Sydney Morning Herald, Business Day, January 24, 2015. Retrieved 30/04/15 0853 hours

http://www.smh.com.au/business/milk-wars-likely-to-claim-more-victims-yet-20150124-12wirn.html

McCrann, T, (2013), Who pays for the Coles and Woolworths price war? Sunday Herald Sun, Business, 1st September 2013.  Retrieved 29/04/15

http://www.heraldsun.com.au/business/terry-mccrann/who-pays-for-the-coles-and-woolworths-price-war/story-fni0d8gi-1226708164906

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Fair Price Australia… Maybe not?

By Victoria Palmer and Edward Howard

Pricing. An issue that never ceases to amaze. In store or online, domestic or overseas, the possibilities are endless and more recently so are the differences. It is becoming exceedingly apparent that there has been an emphasis on the price discrepancies between products available in Australia and the price of these same products in overseas markets.

What happens to public perception when a product is priced at an inequitable rate? Is it reasonable that someone in Australia pay the same for the exact same item as someone in the United States?

Obviously, there are factors that must come into play when approaching pricing, including cost of development, sales infrastructure, national/state regulation and cost of shipping the item to another location. But, what if those elements are almost nil in the case of digitally delivered products?

This is a real issue, especially in the IT sector. For instance, the price differences between the cost of computer games on Steam (an online game provider) in the Australia compared to the cost of the same computer games in the US offered by the same platform. There is no delivery, no packaging, just a ‘click here to download’.

Pricing Pic 1

Many major corporations, in terms of the digital and physical consumer business have been under attack for inflating prices in markets like Australia. The following article highlights this:

http://www.abc.net.au/news/2013-03-22/apple-microsoft-grilled-over-high-prices/4587900

Unfortunately, this disparity is not only limited to computer related products. Homeware and furniture giant IKEA was also in hot water in recent times, due the inflation of the price of its products in Australia compare with the exact same product in the US. As shown below:Pricing pic 2

Even with the conversion rate:Pricing pic 3That’s over $500 difference for the same product! And it’s not only Australia, similar cases have been reported in the UK.

Pricing is one of the key factors a company must consider when entering a product into the market. It is the mechanism that guides customer choice and satisfaction and reception of the product. Appropriate pricing also influences profitability. Pricing is also another way in which a corporation can position its product or direct it towards a specific market segment. How the product is to be perceived has great impact on its success or failure.

The Australian government has supported this ideology and has attempted to hold many of these corporations accountable for pricing decisions. Taxation and cost of doing business is also a major factor, but does it mitigate the pressure to price more equitably?

The key difficulties are in the ‘trade-off’ that customers are willing to make when considering the utilisation of a particular product. Is it worth the price? Does it offer value? Is it competitive? Are there other similar products available?

The second, relating to customer psychology, does this pricing structure and discrimination adversely effect a companies brand and its ability to generate revenue in the market. In this instance it could be argued that in the case of digital media, consumers were turning to pirated media sites, not benefiting either the companies or the artists themselves. After media reports of the price differences across the IKEA brand, the company publicly back peddled its pricing stance, by reducing the price of selected items across its Australian stores. This also potentially impacts on sales revenue, profitability and consumer faith in the brand. Is a pricing structure that drives consumers to illegal activity or forces a public rethink of prices, the right approach?

Conversely, consumers are driving pricing strategies for companies like Apple, who have inelastic demand for products. Despite the price differences Apple continues to build a greater brand presence. But, has it hurt them in terms of their digital presence, with the introduction of cheaper services like Spotify and Netflix. Will companies like Netflix and Spotify have to be mindful of pricing out their markets? We have seen some price reduction in some of Apple’s products given the recent weakening of the Australian dollar. Is the market responsive, perhaps to a level? But is it just? Should a brand capitalise and take advantage of its consumers’ and their desire for its products?

I’m not entirely convinced this is fair. But, maybe fair has nothing to do with it.

Sources:

http://www.abc.net.au/news/2013-03-22/apple-microsoft-grilled-over-high-prices/4587900

http://www.dailymail.co.uk/news/article-2330639/Ikeas-70-UK-surcharge-Flatpack-giant-makes-pay-Europe.html

http://www.news.com.au/finance/money/the-price-you-pay-for-being-an-aussie/story-fnagkbpv-1226576495570

http://www.theaustralian.com.au/life/personal-technology/australians-pay-50-per-cent-more-for-tech-goods/story-e6frgazf-1226687429151

https://hbr.org/2011/07/why-im-not-going-near-spotifyhttp://www.smh.com.au/digital-life/smartphone-apps/apple-australia-slashes-app-prices-by-up-to-25-20110714-1heuu.html

It’s all in your head

You walk into a store and you instantly fall in love with the price? or the product? is it price at first sight? Consider the many blinding occasions that you have experienced a greater than usual excitement and emphasis towards pricing and discounts. Here’s a reminder:

PricesImageProxy

Did that get you excited? No? How about the second one which came to my email today and seemed to have worked because my wife rang me straight away, I then asked her what were you looking for, the response, “I don’t know, was just cool to see they having a big sale” I immediately thought that my wife had fallen victim to a marketing trick called psychological pricing. I could be making this all up but you get the idea (except this doesn’t work too well on women’s shoes for some reason as they don’t seem to care about prices). Okay moving on..here’s a discussion on some mind benders;

Artificial Time Constraints – You’ve seen the adverts, a one day only sale! and it does something to consumers to think ah, I only have one day to buy. Customers are afraid of missing out of a sale and losing it to their best friend. Rug’s a Million?

Charm pricing – Well I’m charmed. 9’s at the end of the price increases consumer demand. Really? well look at this one and tell me which one is more attractive? $2.00 or $1.99? Why it’s $1.99 of course, that extra 1 cent is the most valuable saving you’ve had this year. Of course this needs to swing in both directions. If you are buying something really expensive like a gold ring for your mistress.. I mean wife do you really want her to see you buying it for $5999.99 or $6000 or even $6k, something like $5999.99 may tell her that you are cheap and after a deal breaker. This also goes into the appearance of the price as longer prices appear to be worth more than shorter ones.

Innumeracy – Which do you think is a better deal? Buy one get one free or 50% off two items? I am pretty sure it amounts to the same thing?

The main thing is to be aware of marketing tactics and not fall victim to them but that would also mean we would be putting marriage counselors out of business and fall down in social popularity. I can just hear my daughter saying “But Alice has one and I don’t”

You can read more detail here or if you want or you could go checkout the latest sales at    JB’s

Have you experienced price imprints? Do you know a good deal when you see one? Is 99c better than $1.00? or are you null and void to the effects of price Psychology?

Apple – What Are They Thinking?

$24,000 for a watch. Repeat after me, $24,000 for a watch. I am a loyal Apple fan-girl, but I can’t help but think that this time, they have got it wrong.

Do you think Apple has overestimated their brand power and customer loyalty to warrant this kind of pricing? Do they really know their customer or do you think they are taking the Mickey here? mickey

What really baffles me is the disconnect between their image of being one with the people and then creating something SO exclusive and out of reach for what I would suggest would be a significant portion of their customer base.

Think of your local Apple store and the Apple geniuses working within. I picture scruffy, ultra casual and laid back; a bright blue t-shirt thrown over whatever they happened to be wearing that day – stylish or not. apple genius If you were about to purchase a luxury vehicle, or even your first Rolex… would you expect to be served by a hipster in a t-shirt? Most likely not.

So if you had $24,000 to spend on a watch, which experience would you prefer?

This: apple store Or this? rolex store Admittedly they have attempted to tailor the pricing structure to include a broader segment of their customer, but it is clear they have used the ‘high price’ structure – estimating the upper bound and pricing just below it. Have you ever paid $1000 for a watch, or even $500? I certainly haven’t, and had never considered it …until now. Apple have very cleverly created a need in the customer that we didn’t know we had, but how are so many people willing to spend an exorbitant amount of money on a technology we haven’t even tried yet?? The watch needs to be paired with an iPhone; not only does that add $1000 to the cost of the watch but we don’t know how long the battery will last, the subsequent battery drain on the iPhone, the excess data being used by the constant pairing, the current model becoming obsolete with future releases (probably within 12-24 months) etc. 2 billion pre-sales means people clearly don’t care. How do Apple do this?

 As a 30-something woman, style is important to me, and there is no way that I’m going to pay even $500 for a watch that resembles a Fitbit.

 fit bit    green watch

 However, I have caught myself calling it ‘the cheap one’. A $500 watch. Cheap. Although this model is closest to my price bracket (chuck me in the price-sensitive segment), not only is it not stylish enough for my taste, I don’t want to be perceived as wearing ‘the cheap one’. The next model up looks slightly classier, and if I were ever to purchase one, I suppose it would be that one. As much as I’d love a rose gold Edition, I certainly can’t fathom ever spending $24,000 on one either (and make that $26,3000 if you want the AppleCare warranty that goes with it). This is classic use of the compromise effect, the upper end is way out of my reach, the lower end is not my taste at all – and now I’m considering spending $1000 on a watch, that doesn’t even exist yet.

Apple have trained their customers to accept their prices without question. There are no blitz discounts, end of financial year sales or reduced prices for out of date models. This is how each product creates so much hype because there is no need to wait for a sale that is never going to happen. People want to be early adopters, for the prestige of owning the latest technology.

Except that this time, they lost me. I know that 2 billion other customers weren’t lost along the way… but were you?

Have you pre-ordered an Apple Watch or did the hefty price tag deter you too?

 

Iacobucci, D 2013, Marketing Management, 4th edn, Cengage Learning , Mason, OH, USA.

 

 

 

 

Launch SUV – The overall trend for high-end automakers

Very good blog about Luxury Brand and Diversification!

Marketing Management Blog T1 2015

180px-Lamborghini_Logo_svg

The Lamborghini Urus have confirmed that they will launch the new family friendly SUV in 2017.  Lamborghini CEO Stephen Winkelman suggested that it was the automaker’s “expectation” to launch the SUV and the luxury SUV, as it is anticipated that the SUV market is will grow substantially over the next few years.

lamborghini-urus-suvlamborghini-urus-14lamborghini-urus-suv-concept-at-pebble-beach-front-view

As a traditional high end luxury sports car manufacturer, Lamborghini is in famous of producing super fast sports car. At FY 2014, the company has sold 2,530 units across the world.

Lambo sales

Entering the SUV market provides Lamborghini with a truly incremental opportunity to drive sales by offering innovative products outside of their legacy product offering. Increasing their product portfolio will in turn increase their target customer base, providing them with wider distribution and appeal amongst automobile consumers.

Lamborghini have recognized the success of their sister brand Porsche (Cayenne and Macan) having entered into the SUV market, (Porsche Sold…

View original post 153 more words

Launch SUV – The overall trend for high-end automakers

180px-Lamborghini_Logo_svg

The Lamborghini Urus have confirmed that they will launch the new family friendly SUV in 2017.  Lamborghini CEO Stephen Winkelman suggested that it was the automaker’s “expectation” to launch the SUV and the luxury SUV, as it is anticipated that the SUV market is will grow substantially over the next few years.

lamborghini-urus-suvlamborghini-urus-14lamborghini-urus-suv-concept-at-pebble-beach-front-view

As a traditional high end luxury sports car manufacturer, Lamborghini is in famous of producing super fast sports car. At FY 2014, the company has sold 2,530 units across the world.

Lambo sales

Entering the SUV market provides Lamborghini with a truly incremental opportunity to drive sales by offering innovative products outside of their legacy product offering. Increasing their product portfolio will in turn increase their target customer base, providing them with wider distribution and appeal amongst automobile consumers.

Lamborghini have recognized the success of their sister brand Porsche (Cayenne and Macan) having entered into the SUV market, (Porsche Sold 45,000 Macan SUVs Last Year, Reports 17.2 Billion Euro Revenue) setting a precedent on how product diversification can take a brand from strength to strength. Bentley, also sister brand to both Lamborghini and Porsche, have announced their plans to enter the SUV market in 2016. Market share for the taking, leveraging the strength of brand equity paired with product innovation to entice consumers.

Although deemed a great opportunity to increase business, one must look to the potential headwinds. Diversification with regard to product range/offering brings a number of challenges. Brand perception, specialist product knowledge, and dilution of the brand core value. That being said, with the right plan in place all of these potential headwinds should be easily overcome with a solid commercial strategy paired with optimized back office support.

Will this strategy take these giants to the next level? Will other brands follow foot such as Ferrari?

Only time will tell….

http://www.autoevolution.com/news/porsche-sold-45000-macan-suvs-last-year-reports-172-billion-euro-revenue-93241.html

No1 Online Retailer in Australia Kogan – Is Kogan business model their penetration pricing strategy

Ruslan Kogan in his parents garage started selling LCD televisions by direct shipping from manufacturer to consumers by which unnecessary costs is bypassed and the savings were passed to customers then this revolution business model of Kogan was born.

Because of this new model Kogan has grown at surprising speed with different products across the world and operating in 15 countries including their Home brand Kogan. No1 online retailer in Australia

Kogan is the most recognisable face of the online retailing revolution in Australia.”

Inside Retail Magazine

Kogan.com prides itself on offering the products we want, at the best prices. As an independent online store, they are able to go straight to the manufacturers, and bypass the agents, importers, wholesalers, distributors and retailers that are usually part of the retail process. By cutting out these expensive middlemen, Savings is passed to us.

KOgan1

Kogan’s Mission is “to provide the best products for the most affordable prices”.

Kogan has 99.8% customer satisfaction and 98% on-time dispatch record

Kogan3                 Kogan

Kogan2

New York Times had reviewed for Kogan Agora 4G as the best cheapest smartphones in Australia and with same features, powerful smartphone that runs with Android and is under 200$ .For example if anyone who have branded phone that costed above $500 few years back and if  the damaged screen replacement costs $100 now.Instaed of screen replacement they can put few more dollars to get this new Kogan Phone .Is this good decision .

lhttp://http://www.nytimes.com/video/technology/personaltech/100000003533757/smartphones-on-a-budget.html

What matters most to you Brand/Price of a product? And Why?

What matters most to you Brand/Price of a product? And Why?

Is this model the penetration pricing strategy of Kogan .As they have started their own range of electronics such as TVs, tablets and phones and other categories?

What you feel about other online retailers who are Kogan competitors?

Have you used Kogan products or heard anything from your friends & family. If yes is it worth buying this cheap Kogan products compared with branded products of same features ?

< https://www.kogan.com/au/about/ >

< http://www.nytimes.com/2015/02/26/technology/personaltech/video-feature-high-quality-smartphones-for-less-money.html?_r=2 >