Retailers’ Pricing Strategy Assignment

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Retail Industry Overview in UK

The Organised retail industry has penetrated very fast in UK. Organised retailing is having a major part of the overall retailing in the country and among the organised retailing major chunk of retail format used in the country are supermarkets. The market share covered by supermarket is 80% at the end of year 2005 (Mira, P., 2006).  Further expansion of retail industry prospects is very good and it is assumed to increase by around 15% in the coming 5 years which showcases the potential of the sector. Hence the total value generated by this sector, after five years will reaches to a cumulative value of £ 312 billion.

The retail industry has seen a paradigm shift in the last decade or so mainly because of the innovation in the service suppliers. There is major shift in the retailing pattern in the country due to some of the factors which are affecting not only UK retailing sector but across the globe (D.S. et al, 2006). The major factors under consideration are globalisation, IT developments, and operational efficiencies. These factors have changed the way retailing was done in UK a decade back and now the country which was earlier known as the country of small shopkeeper is now have become as the country of big supermarkets, since supermarkets count for 80% of total retail business in UK.

The retail market in the UK has a distinct characteristic which it has acquired since the early 2000s, i.e. strives in the direction of greater consolidation which they had and is still impacting the general UK retail market (Rysman, M. et al, 2006). The consolidation, which took place, was not of big mergers and acquisitions, but also of small scale takeover by convenience stores by the hypermarket.

In UK, there are 4 giants in the retail industry: Tesco, Asda, Sainsbury’s and Morrisons, all whom have been in constant competition for several decades and try to outrun each other with the help of different marketing strategies. Though, there are 4 competitors, the actual competition is between Tesco and Asda, which are the number 1 and number 2 retail brands in UK respectively (Nekipelov, D. et al, 2005). Their approach towards increasing customer base is very different. On one side there is Tesco, which focuses on expanding the market demand and saving its market share with tactics like flack,. Whereas, Asda try and tarnish Tesco’s market leader position by using strategies of frontal, Asda has been famous for using price promotions since the Wal Mart took over Asda in 1999 (J.D. et al, 2006).

Research Question

To know how to tackle the choice of methodology, it is crucial to understand the research questions and identify the variables of the study. The study aims to understand how the packaging strategy helps to understand the promotion strategies with respect to the retail sector. With regards to the same, the following research questions were formed:

  1. What are the current developments in supermarket industry in UK?
  2. What changes supermarket industry has gone through before and after economic crisis?
  3. What are the various pricing strategies which affect customer’s purchase decision making habits?
  4. What Promotional strategies are used in during discounted period and normal business environment?

Literature Review

Supermarkets trend was initiated in United States of America with the retail chain named Clarence Saunders started providing their services through supermarkets and started a self service model in their retail outlet. The concept of supermarkets in comparatively new in UK and in UK supermarkets trend has penetrated from year 1950’s with introduction of Sainsbury’s self service model in UK supermarket industry (Timmins, C., 2006). Though at initial stages this concept was more liked by women but after its penetration in UK men also liked the concept since it break the traditional shopping notions which were not so fascinating to people (Samli, 2007). The period of 1960 and onward is assumed as the Golden era for supermarkets since there were vast improvement and expansion happened for supermarkets in this period. In this period there was abolishment of the Retail price Maintenance.

With the advent of supermarkets in UK food retailing also started evolving very fast in UK and there were huge changes into food retailing sector thereafter. Globalisation of the food industry also contributed to the trend change in the food sector (J., 2007). Some of the major changes in the sector were: less number of big food suppliers instead of large number of small suppliers, change in the way delivery of food takes place in supermarkets. With these changing trends UK which was considered to be as the nation of small shopkeeper changed to a nation of big supermarket chains. This can be highlighted by the fact that supermarkets till year 1950’s were having 20% of the whole UK retail market share and by 1990 they possessed 80% of the retail market share.

Some of the major players in the UK supermarkets are Aldi, Asda, Co-ops, Tesco, Morrison, Lidl, and Sainsbury etc (Durlauf, S., 2007). Among all these supermarkets chain Tesco is having the 30% market share of the whole supermarket in UK retail industry. From last few years Tesco is having high profits annually which have established records in UK retail industry (Rogers, 2008). Due to these profits more and more number of players entering into the industry and competition is getting intense.

 These players include Tesco with 30% market share, ASDA with 19% market share and Sainsbury and Safeway with 16 % market share (Einav, L., 2006). The market share of Tesco has increased very rapidly from year 1998 to year 2005. Also in the same period many new players have entered into the industry and have captured the market.

General Pricing strategy in Supermarkets

In general there are 3 kinds of pricing strategies used in the supermarkets which are as follows:

  1. Every day low pricing (EDLP): It involves building the volumes from the customer and volumes are built from providing lower prices every day (Ellickson, P., 2007). The lower price is given by using the bundling strategy by the marketers. Wal-mart is the classics example of EDLP strategy implementation.
  2. Promotional Pricing (Hi-Lo Pricing): This pricing strategy makes use of the heavy promotional activity and prices are varied according to the promotional activities used by the marketers.
  3. Hybrid EDLP: This pricing strategy mixes both EDLP as well as the promotional pricing in order to attract the customers.

Research Methodology

Secondary Research:

Secondary research is the process of gathering the data from the literature which is related from that field and involve the same kind of research on the topic. That data is collected from the various medium selected and analyzed in order to make the research.

This research contains lot of data regarding the pricing strategy implemented by supermarkets in order to generate the volumes and attract the customer towards their offerings.

Primary Research:

 Primary research is the process of collecting data at real time with interaction with the sample group chosen by the researcher. Primary research is one of the most viable and trusted method for data collection in any kind of research since it provide the data for that specific research topic and also it removes any kind of biasness from the data since the sample is chosen in such a manner to remove biasness.

Generally an instrument is developed to gather the data in primary research. That instrument used is generally questionnaire which contains questions about the research topic asked from the selected sample group.

Limitations with the study:

Conducting a study on the retail promotions during discounted and normal business environments has a few limitations mainly because the research question is with respect to consumer perception and studying consumer behaviour. Thus, the following limitations were encountered:

  • Studying the discounted and normal business environment would be difficult together as sometimes there are spill over effects which may affect the results of the study.
  • The topic of promotions has a general view, breaking it into price and non-price promotions and explaining the same to the consumer is a difficult task.
  • We can’t assess the real pricing strategy from the retailers since that is very confidential.
  • Pricing strategies in supermarkets are very dynamic and changes very rapidly so it is not possible to generalise them

This Research is going to be planned as it shows below in the Figure:

Gantt Chart Retailers' Pricing Strategy Assignment References: Figure 1 Grant chart to show research stages.

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