Channel Execution, Knowledge Bank Blog, Pricing & Promotions

Sainsbury’s Medium Low Pricing Strategy

Why are they doing this and will it work…?

Last week Sainsbury’s announced that they were moving to a medium low pricing strategy.  They have actually been moving this way for the last 18 months but they have waited until now to actively tell shoppers about it.

This week they announced like for like sales (excluding fuel) were down 2.8% in the 3 months to the end of September and warned that they expected a similar story in the second half of their financial year.  With this as the backdrop, Sainsbury’s are making a brave move on value.  However, the brave move might also be the sensible move.  The high-low value model does not appear to be working, particularly in the face of intense competition from the Discounters.

So, why do we think Sainsbury’s have done this and how might it help them win with more shoppers…?

Firstly, trust.  Many shoppers find the pricing and promotions in the Big 4 confusing.  It has become too hard to gauge what the real price of many products actually is.  Shoppers have become suspicious that retailers have been manipulating prices to make things seem like a better deal than they really are.

The Discounters offer a different approach, with simple, transparent pricing.  As a shopper you only have to make one ‘value decision’ – to go to Aldi or Lidl or not.  Once you walk through the entrance, you don’t need to think about price again.  You know that every price will be a good price.    In the Big 4, you have to make a value judgement down every aisle.  It’s tiring.  So, if Sainsbury’s can make their pricing simpler and more transparent, it will be easier to shop, more shoppers will trust them, and shoppers will be more loyal.  We think trust is a key thing Sainsbury’s are trying to establish, or re-establish, here.

Secondly, promotions will slowly move back to being a reward not the norm.  Sainsbury’s specifically talked about categories such as Laundry, Household and Personal Care where most shoppers were only buying on promotion, because the promoted price was so far off the base price.  We’ve talked before about the dangers of re-setting shopper expectations of what a fair price for a product is, and this is evidence of it happening.

By lowering base prices, and therefore the gap between base and promoted price, Sainsbury’s are reducing the incentive for shoppers to wait for the deal and giving shoppers more of an incentive to buy what they want, when they want it.  If it’s at base price, that’s OK.  If it’s at a promoted price, then it’s a bonus.

Finally, simplicity.  Sainsbury’s have said that they are making their promotional mechanics, and the way they express them, much simpler.  Every bit of evidence says that the less shoppers have to think about whether something is good value, the more likely they are to think it is good value.  So, moving from fractions, such as a third off, to absolutes, such as ‘was £3 now £2’ makes it easy to understand how much the shopper is saving.  By doing this consistently across the store, Sainsbury’s will make it much easier for shoppers to judge value and make choices.

It may take a bit of time for shoppers to understand exactly what Sainsbury’s are doing – it is a hard thing to communicate.  However, we think it will be less about the marketing and more about what the shopper experiences at shelf, week in, week out.    Might it mean some deflated sales numbers in the short term?  Possibly.  In the longer term, will it be simpler, clearer, more transparent and just plain easier to shop?  We suspect it will be.

Have a great weekend and speak to you next week.