Knowledge Bank Blog, Channel Execution

Tesco – The Acid Test For Brands

You all know the phrase “The Acid Test”. But do you know where it came from?

No, it didn’t come from a challenge of how much LSD you could take in the 1960s. It came from gold.

In the late 18th century, gold prospectors and dealers needed a way to distinguish gold from base metal. They realised that nitric acid had an ability to dissolve other metals more readily than gold.

To confirm that a find was gold, a test sample was taken. The degree to which it dissolved when acid was added, determined whether it was gold.

Hence “The Acid Test”.

Since then the term has been used much more broadly. It refers to the standard that something must meet to prove its value.

If something is described as “the acid test”, the bar has been set high.

Why are we talking about this? Tesco has launched their Aldi Price Match. They are asking suppliers to support it – less promotional support, more EDLP support. This is raising big commercial questions for manufacturers. Questions that will be really important for their business with Tesco. Their business with Aldi. Their business in the rest of the market.

The commercial questions will be different for different manufacturers. So we wanted to ask a different question. One that we think is relevant to everyone. What are the implications for brands and their propositions?

Many brands have been comfortable (perhaps reliant on…) operating in a “high low” world. Many of them sell 70%+ on deal. Some 80%+. They have a base price. But it is the promoted price at which they shift volume.

However, the wider environment has been changing. Tesco say promotional participation dropped from 45% in 2014 to 28% before the Covid 19 crisis. Since then it has fallen to 14%. Promotions will still be a lever, but they may be less of a lever (certainly in Tesco).

So what do brands need to do, to survive, and ultimately thrive, in this environment?

Here are 3 questions we think every brand should ask itself…

1. Will (enough) shoppers buy you at base price? Too many brands have seen base price as a price from which to promote not a price to sell at. Have a base price that is £2 so that when you (regularly) go to £1, the £1 looks great value. Shoppers snap you up. Then the next time you go to £1 they snap you up again.

This is the classic ‘high low’ model. Have a base price that is (too?) high. Then promote to a price that is (too?) low. Even a move to ‘medium low’ which is likely to happen in Tesco means that many brands will see the ‘medium’ price as the new price from which to promote. But base price should be the price you sell at. A price that most shoppers would think is a fair price. A price they are prepared to buy you at. If you promote, it should be a bonus for shoppers. A break from the norm. Not the norm.

2. Is your product superior? To support a commercially viable base price you need a really good product. That sounds obvious – of course you need a good product, right? But how often are new products launched that just about meet the quality or performance requirement? How often is a product specification reduced slightly so it goes from being good to being good enough?

Good enough shouldn’t be good enough. You need to be superior to your main competitors. To the wider competitive set. Noticeably superior. Even more so if you are charging a higher price than the competition. Shoppers will pay more for really good products. You need to give them a reason to do so.

3. Are you differentiated? Do you offer something your competition doesn’t offer? Or can’t offer? This could be something tangible (like a superior product) or it could be less tangible (e.g. your brand proposition). Something that makes price less of a factor. Something that makes whether or not you are on promotion less of a factor.

We think there are 3 elements to differentiation. The first is being different – what is it about your product or proposition that is different to the competition? For instance, Fever Tree have succeeded by being different to Schweppes (e.g. by heroing quality, ingredients, flavour). Secondly, is looking different. For instance, Bigham’s look different to most other ready meals. Thirdly, is sounding different. For instance, Ben & Jerry’s sound different to everyone else (e.g. product names, marketing tone of voice). In a high low world, differentiation can sometimes get lost. Promotions take over. In a less promoted world, differentiation will be key. Have you got it?

Of course the Tesco Price Match activity (and things other retailers will do in response) is a big commercial issue. We think it is also a big brand issue.

A true test for brands.

An acid test maybe?

Feel free to forward. We’re taking a socially-distanced summer break from blog writing. We’ll be back in September. Until then, have a good summer!