Can price-matching take price off the table?

Discussion
Oct 06, 2014

In a market facing record-low growth of 0.3 percent, according to data from Kantar Worldpanel, UK grocers are in an all-out price war.

Now Morrisons, one of the UK’s "big four" grocers, will match not only traditional competitors on price, but also prices of Aldi and Lidl, the fast-growing discounters rapidly gaining share.

Called "Match and More," the program compares regular and promoted prices using data from Profitero. Participating shoppers will automatically accrue points when products are found to be cheaper elsewhere; shoppers receive a £5 voucher when 5,000 points have been accrued.

The move follows Morrisons’ March announcement of plans to invest £1 billion in more competitive pricing.

According to Kantar Worldpanel, for the 12 weeks ending September 14, 2014, Aldi sales increased 29.1 percent year-over-year, while Lidl sales increased 17.7 percent. Together, Aldi and Lidl account for 8.3 percent of the market, up from 6.7 percent a year ago. Morrisons, Tesco, and Sainsbury shares declined in the same period.

"We are not and will not become a discounter," Dalton Philips, Morrisons CEO, told The Telegraph.

Morrisons Match and More

"The discounters are growing fast, but they have one thing: price. Match & More is about neutralizing on price, so that the rest of our offer will really shine through."

Aldi has already responded, telling the publication, "We won’t be beaten on price and remain committed to offering our customers the lowest priced, highest quality groceries in the UK, every time they shop at Aldi."

Comparing prices between the chains can be a tricky exercise, considering that a majority of Aldi’s and Lidl’s assortments are private label. Morrison’s program will cover both branded and own-branded products, with the discounters’ own-brand products matched to Morrison’s mid-tier own label products.

The initiative bears some similarity to Savings Catcher, a price match program that Walmart rolled out nationally in the U.S. earlier this year where the growth of discounters like Dollar General and Aldi also outpaces the market. According to Walmart, Savings Catcher has returned more than $2 million to Walmart shoppers and is beginning to yield shopper insights.

Disclosure: The Morrisons program is powered by data provided by Profitero.

Can price-matching programs “neutralize price” and help mainstream retailers compete more effectively with discounters? How should retailers balance competing on price and non-price factors?

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20 Comments on "Can price-matching take price off the table?"

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Nikki Baird
BrainTrust
Well, it’s not technically “price-matching.” It’s more like a more complicated loyalty program based on points accumulation. So, first, I don’t think this neutralizes price as an issue. Cherry-picking shoppers will still cherry pick. And consumers who are price conscious will still split their basket between discounters and whoever else they need to fill in their shopping list. That battle is not won at the shelf. It is won when the customer chooses the store. As far as loyalty programs go, I like the idea—this isn’t about meeting on price for every shopper. It’s only focused on shoppers who have the loyalty card (which, in the world of grocery, may well be “everyone,” but still, it is a requirement that must be met to get the deal). My reticence comes from the fact that Morrisons has to offer this in the first place. I just think that it speaks to the lack of trust out there that a retailer has to promise some kind of price matching to get shoppers to shop there. If a retailer had a way to deliver real value—a way to prove that they care about their customers and add value to their customers’ lives—then they… Read more »
Dr. Stephen Needel
BrainTrust

The question will be whether it’s simple or not to do the price-matching. Walmart’s program is very complex and the item has to be the same item on promotion somewhere else for the shopper to benefit. Not sure if it’s worth the effort for shoppers to go through this. If true, it suggests that the program won’t help compete better.

Chris Petersen, PhD.
BrainTrust

Price-matching can be the dangerous, slippery slope to competing primarily on price. An all-out price war is one that only a couple of the largest, most efficient retailers can win.

There are examples of price-matching that have worked as strategies to drive traffic in other categories. Best Buy instituted price-matching in an effort to neutralize the price advantage of e-commerce players like Amazon. But Best Buy also upgraded its website, instituted BOPIS (Buy Online Pickup In Store) and retrained staff to up sale value and services beyond price.

Yes, price-matching can neutralize temporary market share losses. But in the commodity, price-driven world of the grocery business retailers must also have strategies for creating a consumer experience that adds value beyond the lowest prices of the day—or the razor thin margins of CPG products will evaporate.

Steve Montgomery
BrainTrust

The disadvantage of Morrisons’ program versus Aldi and Lidl is immediacy. Instead of paying less the consumer is offered a future discount equal to the pricing difference. To secure that discount the customer has to be a member of their program and spend a minimum of $15. Is it better than what Sainsbury’s, Tesco and Asda are offering? Yes, but I doubt it will be enough to slow the share growth of Aldi and Lidl.

gordon arnold
Guest

Price-matching for commonplace commodities such as grocery product, fuel, clothing and more are a no-brainer in the continuing worldwide economic disaster. Running a company in this economy without using your brains just brings the end closer to reality at a quicker pace. Differentiation and selling skills increase sales and profits in any economy.

Mel Kleiman
BrainTrust

YES: Other benefits make everyone’s ad your ad.

Gene Hoffman
Guest
Gene Hoffman
2 years 8 months ago

Price-matching is not price-creating. Price-matching has no magic beyond saying we’ve now gotten competitive with everybody. The grocery industry has become an ever-evolving playing field for new responses and gimmicks.

Retailers are expected to be competitive on either prices or perceptions. Give targeted consumers what they want, when and how they want it delivered, and they will regularly visit your store(s). Some choice retailers are doing that today.

Ken Lonyai
BrainTrust

Wow that’s some investment in price competitiveness! It’s a great time to be buying food in the U.K., but this sounds like an eventual realignment of the existing grocery landscape. Either Morrisons and other big competitors will have to bleed the discounters into a hole and out-survive them on cash in the bank, or they’re going to have to find ways to increase basket size quickly. If not, the discounters may force big competitors with bigger carrying costs into more desperate strategies and instability as they wait out their demise.

Trying to compete by lowering prices is never a long term strategy.

Keith Anderson
BrainTrust

Retailers should absolutely consider investing in improved service levels, perishables’ quality, exclusive merchandise and other non-price points of difference.

Still, with shoppers’ sustained price sensitivity establishing itself as a structural reality, it is no surprise that actual industry operators continue to look for ways to reassure shoppers that they’re spending sensibly.

Others have rightly pointed out the importance of minimizing the work shoppers must do to enjoy this reassurance. Both Walmart’s Savings Catcher and Morrisons’ Match & More go beyond previous initiatives to automate parts of the process.

The US is a more complex pricing market than the U.K., with much more nuanced regional/zone pricing, far less parity between online and offline prices, and greater prevalence of price optimization capabilities.

In light of consumer and competitive dynamics, I expect continued experimentation and innovation around price in both the U.S. and U.K.

Peter Charness
BrainTrust

I wonder what percentage of shoppers bother to “claim” the price match, vs. just buy the lowest price. If the shelf price is higher than the competitors I suspect most customers will consider Morrisons to be “expensive” regardless of the somewhat intricate method through which a shopper can get the match. If a Morrisons’ weekly shopper does their “pantry buy” at an Aldi where the brand and image of lowest cost are a much stronger statement, will they come back to Morrisons for those items with price matching?

Tim Cote
Guest
2 years 8 months ago

It can also neutralize profits, since suppliers will likely not support the price-match deals at the matching retailer to the level that they supported the price-originator deal.

Joseph Marseu
Guest
Joseph Marseu
2 years 8 months ago

These types of price-matching programs are typically done to improve the price perception for the retailer. For lower-priced items like groceries, most consumers will do little pricing research/comparisons across retailers. The time required typically isn’t worth the savings.

Bernice Hurst
BrainTrust

It isn’t all about price. Countless articles in the U.K. press last week explained the reasons why British people are shopping differently AND helping Aldi and Lidl to grow at the expense of the big four supermarket chains.

Any retailer wanting to retrieve or grow their customer base will have to consider a range of factors, not least transparency about quality and provenance. How suppliers and employees are treated, especially compared to how shareholders and executives are treated, is also increasingly important.

Discounters are not the only competition. More people, as discussed here last week, are opting to buy more locally and/or have their basics delivered following online purchases. Many people are finally realizing that cheap doesn’t always equate to value. There are major issues about trust, including questions about loyalty.

As for footfall and impulse purchases, discounters and small independent retailers (farm shops, delis, etc.,) often offer surprises and the unexpected. When was the last time a major chain did that?

Life changes, retailers. Deal with it.

Larry Negrich
BrainTrust

The promotional value of the “price match” policy conveys the retailers’ message that “we’ve got your back” when it comes to getting you the most bang for your buck. As many of the purchases in grocery are for commodity products, this is a very resonant message for a certain segment of consumer. Most grocers should have some type of mechanism in place to make price match a non-issue.

The issue then becomes how to change the landscape and deliver value. So change the landscape of being a sea of commodity products by offering high-quality private label such as those offered by Trader Joe’s, for example. This removes the price comparison issue, at the same time building long-term brand loyalty, as long as the private label is a quality product (labeling to contents.) Then increase the value of the entire experience: pleasant, interesting offerings; pre-made meal offerings (as it seems nobody cooks any more); easy shopping and checkout/payment; and some delight in the experience.

Make the experience enjoyable and price is lessened as a differentiator.

Shep Hyken
BrainTrust
What does a company want to be known for? Lowest prices? Best Service? Greatest value? While I teach companies how to deliver amazing service that makes price less important, I accept that we still have to be competitive. In many cases, price-matching is acceptable, and many times appreciated. For example, I like to do business at a store in St. Louis that provides great value in several areas. They are known for their great service, knowledge, vast inventory and competitive pricing — but not the lowest pricing. That said, they will check the Internet for competitors to ensure the customer is getting the lowest published price. That’s an extra layer of comfort. The fact that they are willing to do it voluntarily takes it to another level. It works for them. One of my clients is Ace Hardware. They go up against the big box stores. Even with fair and competitive pricing, they will still price-match on lower advertised items. Their customers know it, but what is still most important to their customers is the overall value they bring with helpful staff, great service and more. We live in a world where it’s easy to find competitive pricing information. If… Read more »
Ed Stevens
Guest
Ed Stevens
2 years 8 months ago

I agree with many of the comments already provided. Price-matching on low cost items is not really a huge positive for the shopper. I think everyone knows they aren’t going to shop around after buying a gallon of milk.

Maybe a price-matching program provides a bit of air cover in the short-term, but it is not a long-term strategy.

Graeme McVie
Guest
Graeme McVie
2 years 8 months ago
Price matching can be one component of an overall customer centricity strategy but it has to be done in the right way. As a marketing initiative, price matching can be very powerful; as a merchandising strategy, it can be challenging to get the balance right between low prices across the assortment and financial viability while simultaneously satisfy customer needs in other areas of the overall value proposition. If you have the lowest costs in the market, then it would be possible for you to compete mainly on the basis of low prices, but even in those situations the way in which you compete depends on the needs of your customers. Some customers are predominantly interested in low prices above all else and are willing to sacrifice on product quality, customer service, convenience, choice and other customer decision factors. But many customers want low prices plus a number of other components of the overall value proposition. A holistic customer-centric approach involves analyzing customer data to understand which items are most important from a pricing perspective to the most valuable customers. Disproportionate investments can then be made to lower the prices of those items where price is the primary customer decision criteria.… Read more »
Naomi K. Shapiro
Guest
Naomi K. Shapiro
2 years 8 months ago
No. No. No. The opposite! “Neutralizing price” by competing with discounters is the equivalent of committing hari-kari. We, as a price intelligence provider, live, eat, breathe, sleep on the subject of price, and the idea of price competing or, as they say, a Price War, is the worst possible thing a retailer can do. Here are some choice quotes and notes from our blog posts over the past three years, and I recommend you go and read the suggested articles: “Price wars make for good press, but lousy business.” “(If you focus on price), You have distracted from (or totally ruined) your opportunity to prove the value of your services or product.” “Once you start with price, you have nowhere to go but down.” “You may get into a price war, which is the last thing you want, as it lowers everyone’s perceived value. A race to the bottom, as they say.” “You create the spiral of ongoing lower prices and encourage the customer to continue to ask for, expect, and haggle over prices.” I recommend the following articles for more information: 10 Reasons A Retailer Would Be Crazy To Lead With Price 3 Reasons Companies Fight Price Wars Price… Read more »
Arie Shpanya
Guest

Competing on price can be a slippery slope. While customers want a good deal, selling products at or below cost to capture market share can be a losing battle because price matching often leads to price wars.

What grocers (and all retailers) should focus on is value. What are you providing to shoppers that they can’t get elsewhere? Convenience, luxury, an exceptionally knowledgeable staff? All of these factors can influence price elasticity, validate a higher price point, and lead to more profit and revenue. Morrisons stated that it would never be a discounter and this makes sense because it only works for some retailers. A brand needs to weigh the pros and cons of matching and discounting to make sure that it fits within its existing branding and pricing strategy.

One thing that Morrisons and Walmart are doing right is creating loyalty through vouchers. Shoppers might split their purchases among several retailers, but vouchers will keep them coming back. They likely won’t get shoppers to choose one exclusively, but it’s definitely a step in the right direction in terms of incentivizing loyalty.

Jenn Markey
Guest
2 years 8 months ago
Price matching without a loyalty program construct is the “race to zero.” Unfortunately, grocers and other retailers continue to be lured into the concept of “neutralizing on price” or price wars, thinking this is the only way to untie the purse strings of the almighty consumer. As Paula Rosenblum, Managing Partner with RSR Research states, this is one of the biggest retail lies “in a race to the bottom, the company with the lowest cost wins.” You’re just driving down your own margins and in turn, negatively impacting your brand image. Pricing is a bit like poker; it’s not wise to play every hand. If you always win on price, you’re likely too cheap. Beyond loyalty, a more balanced approach would seek to:– Identify and address your under-priced items including by: – Zone/Geography – Time: i.e. Hour, Day, Week, Month– Determine the target price range and stay within– Know and manage your assortment overlap with competitors– Equip your customer-facing staff with competitive pricing Since zone-based (or regional) pricing is heavily applied in grocery, let’s use zones as an example for how mainstream retailers can compete more effectively with discounters AND increase margin. Think about it, why would you drive down… Read more »
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