Albertsons Discovering Word Gets Around
Good
news. Albertsons is cutting prices. The news has shown up in newspapers,
on television, radio, websites, blogs… you
name it. That’s good for a retailer trying to get the word out that consumers
don’t need to go to the competition to save.
Now
for the bad news… Albertsons has made such a splash with its "big
relief price cut"
that consumers in markets such as Boise, Idaho have noticed that those same
savings are not happening in their area.
"That
makes me feel cheated. They’re doing it there, they should do it
here,"
shopper Mabel Omas told KTVB 7 news.
When
the station contacted Albertsons’ parent company Supervalu to ask why Idaho
wasn’t included in the price-cutting, it said it was told that competitive
pressures and consumer behavioral data determined which markets would see
prices cuts.
According
to the KTVB report, "Supervalu says its new program is not
meant to be exclusive. It says it was built specifically for the markets,
which it is targeting. But didn’t really answer the question why we and
many others were not included in the price cuts."
Discussion Questions:
Do local market price changes such as those promoted by Albertsons work
in today’s world where information is so readily available through a
variety of sources? What should Albertsons (Supervalu) do now that word
is out that consumers in some markets are not getting price cuts while
others are?
This problem has been around forever. Price zones are an important tool for retailers to be able to squeeze pennies of profit out of operations, wherever they can. What’s new is the increasing attitude of entitlement in our society. The whiners noted above completely disregard the variations in cost to serve different markets, the balance of competition, etc. They are also probably ignorant about the price zones that exist within a given geography. Unfortunately, entitlement bloggers get a lot of attention.
In my humble opinion and apart form basic civil liberties, people don’t deserve everything everyone else gets, just because “you are you.” Methinks Mr. Rogers haunts us.
Sometimes the best intentions result in a black eye. In this case, Albertsons was the recipient. Even in the markets where they are cutting prices, the news was not all good. Their announcement in Los Angeles caused the LA Times to do a price comparison which found Albertsons prices to be significantly higher than Ralphs and somewhat higher than Vons. That kind of news causes a lack of consumer trust, which can only hurt business, especially for the chain that used to boast that it alone had every day low prices.
It’s all about demographics but now that the cat is out of the bag in Idaho, they will probably have to do something to appease the masses. You can’t expect prices to be the same in all zones but the program should have been rolled out with less items and smaller discounts to maintain brand consistency. This would be a great opportunity for Smiths or another competitor to come in and offer a similar program.
In an increasingly connected world one should never be shocked when consumers make connections. Dan’s right, this is the old zone pricing problem raising its ugly head again–the only difference is that price comparisons are now just a few keystrokes or a blog away.
When Albertsons was owned by Albertsons and not Supervalu, they could probably get away with having high prices in their hometown. Supervalu is banking on home-court loyalty. Supervalu is the outsider now and my guess is that they can no longer get away with operating high-priced, sterile grocery stores and having the home court fans give them a pass they way they do in Minneapolis.
Most chains zone price, whether it be local or nationally. However, they don’t like the news media discussing their methods. It’s the same when grocers raise prices in the lowest income areas. It always makes for bad press. In low income areas, it’s not a big deal because many consumers eat for free using food stamps and have few choices where to shop. In a market like Boise, there are choices and consumers are more motivated. Lucky for Supervalu, most people can’t find Boise on a map.
All this new focus and attention to prices caused by Supervalu’s advertising their price cuts will very likely end up hurting them. Their Jewel/Osco stores have already done this in Chicago and it looks to me like it has caused people to begin to compare prices. Supervalu will not win if people compare prices, as they are by far the highest, even after the price cuts.
Dominick’s (Safeway) is also very high priced and has allowed Jewel/Osco to get by with their pricing practices for years. I am curious as to how this new advertised price-cut policy will play out for them over time. I betting that it will have a more negative long-term effect than positive.
I agree with Dan Raftery. The country seems to be moving rather more quickly these days to an entitlement mentality. Zone pricing isn’t new, it is in fact vital to the profitable operation of a regional to national retail chain for reasons that we all understand. The consumer has benefited from the competitive nature of the retail industry and it’s long run of moving food prices ever downwards. To complain that the price of a gallon of milk in an LA Albertsons is lower than my store in Boise is as ridiculous as complaining that the price of a gallon of gas in those two towns is different and that this is somehow unfair. Really people, grow up.
As noted in several of the comments above, price zones have been a part of supermarkets ways of doing business for many years. The increasing sophistication of information systems means it can be done on a far more granular (and accurate) basis than ever before. I am sure those people in Southern California would be surprised to learn that two stores within miles of each other have different prices on certain items (even though both may cost less than they did previously).
This issue is how chains manage perception. In this case, Albertsons may have been better served to drop some prices in markets like Boise but simply do it to a lesser degree.
This is a classic case of Albertsons zigging when they should have zagged. I live in Boise and used to be a loyal Al’s customer; never much comparing prices. Then my parents relocated here; retired and on a fixed income and opened my eyes to how high-priced they really were. At the same time the competition grew fierce and Walmart and Winco expanded greatly and exploited the opportunity as did Kroger/Fred Meyer to some extent.
It has always been an assumed fact by many retirees locally; watch the Al’s flyer and only buy the advertised specials; nothing more. So what did Al’s do? They gave the stores an upscale re-design, kept prices high, focused on a few preferred savings card discounts and turned a blind eye to the consumer.
They recently re-vamped their Rewards program on Fuel to mirror Fred Meyer and made their shopping baskets actually SMALLER. They went high tech/high touch on checkout stands and went the other way than what the market was doing. The Supervalu buyout only made things worse and ironically many of the workers who haven’t been downsized don’t even shop at Albertsons because of their pricing practices and they know what is going on. How do you think the word got out to the community about the lack of price reductions in their “home market”?
The locals know the company has changed for the worse since Mr. Joe and Kathryn have passed on and no amount of hype and wooing will bring them back. I surmise that is why they didn’t even attempt to smooth it over locally, and figured in the end they would lose business, but still make more money.
It seems to us that when a retailer has a larger number of consumers who have a sense of entitlement, stores have one of two choices: 1. Address the needs (including perceptions) of those consumers. 2. Not worry about what the customer thinks and watch them walk to the nearest store that wants them bad enough to cater to their childish desires.
Unless an ad specifies a local area, nothing is local anymore for a chain with today’s technology.
It would seem Supervalu goofed on this move. Zone pricing has become vulnerable to lightning-fast communications. Will paper coupons, which follow a practice similar to zone pricing in that not everyone gets their benefits, become vulnerable?
Wow. It’s unfortunate Albertsons is getting flak, since virtually every retail chain has differing prices. Cross that magic line on the map and that $1.99 bag of cookies is now $2.49. You’d think people would just accept it as general business practices. If you don’t like it, move on to the 20 other places you can buy food at within a 3 km radius. But don’t assume that.
However knowledgeable about business people on this site are, about both retailing and supply, the general public is not aware even if it seems obvious (pricing zones pending demographics and competition).
I’ve worked in CPG companies for years and out of all those dusty textbooks I’d read, only maybe 5% of it applies to the real world. I’ve told my friends countless times about the travails of retailer-supplier relationships…what goes on, fees, trade spend, cut-throat negotiations, net pricing, etc…and almost nobody knew about them. They think it’s all retailer sells product at xxx price, it cost them yyy cost from the manufacturer = zzz margin. A perfect easy calculation with zero influence from other factors. No hidden costs or repercussions.
I see a “blame the consumer” mentality in this string and find that attitude a little disturbing. I would remind everyone of David Ogilvy’s words, “The consumer is not stupid, she is your wife.” (For context so I’m not accused of being sexist, this comment was made it the early ’60s).
Look, the internet has changed the world of marketing. Assume that everything you say and do will be seen and shared on a social network and then you won’t blindsided by issues like this. Open communication makes life more complex, but it’s the reality of our times. If you need to zone price because of higher transportation, real estate, energy, and other costs, then explain it to people. The woman quoted in the article didn’t ask for lower prices, she asked why her prices were higher. The key is to give her the explanation before she asks the question. People are used to paying more for things in some areas of the country than others. My house in Sheboygan would cost a heck of a lot more in Chicago….
I think the problem is that there isn’t enough serious news in Idaho. Without the news story, Idaho shoppers would have no idea that Albertsons is dropping prices in other parts of the country, half of which are in Southern California. Certainly one wouldn’t know about it going to the Albertsons website.
Prior to the price declines in Southern California, Albertsons was the highest priced chain and was losing an already weak market position. I suspect Albertsons-Idaho is in a very contrary position. While their prices are likely high, they are likely the market-share leader. Obviously, in this market, price is not a REAL concern.
Albertsons got a back eye from bad publicity. It’ll blow over in a few weeks. If you’re big enough, you’ll get bad publicity from time to time. Zone pricing = bigger profits. Profits trump temporary bad publicity. Here’s an idea for Albertsons: run a few ads a year on ktvb. It’s unlikely the station will bite the hand that feeds them.
Product market differentiation through target market segmentation is a tried and proven way to maximize marketing reach, and economize on promotional resources. Albertsons is doing the right thing. They aren’t ignoring their key markets, but instead focusing their resources on these key markets to better compete as an organization. This is the 80/20 rule in action and is the smart thing for Albertsons to do. Many of the smaller markets may not get the benefits of Albertsons’ focus, but overall, Albertsons can better compete and grow their business.
Different markets are different. Pressures and competition can vary greatly market to market. But consumers do not care; all they know is the Albertsons customers in one market are treated differently. Albertsons most definitely does not deserve a black eye over this but the world is growing smaller. Different nameplates are most definitely out of vogue currently but that would solve some of the problem. Kroger does not have to be the same as Dillon’s.