Saturday Essay: Beware the price war that no one can win

The supermarkets were this week accused of misleading shoppers over the price-slashing activities many have called a supermarket price war. Tesco’s Big Price Drop promises savings of £500m a year. Asda has its Rollback deal and has cut prices on 3,000 essential items in store. Morrisons offers its customers £25 off their Christmas shop if they spend more than £40 six times. Are these strategies really working or, with every supermarket participating, is it stalemate?

At the heart of this game, retailers want to show shoppers that they care and are trying to help them stay within budget. Shoppers are changing their habits. They are deciding what they want before they visit the store to limit impulse purchases or costly errors. They are shopping locally to cut down on fuel-heavy trips. They are buying own-label products in more categories. And now they are cutting back on the amount of food they buy. There appears to be a real constraint on how far the weekly grocery budget can stretch.

But, importantly, they are also questioning whether the products they buy really do give them enough overall value. And because value is measured on more than just price, shoppers have become weary as well as wary of promotional deals and price claims. They realise that they don’t always need three of item x in ‘buy two get one free’ offers. And that the ‘lowest price’ doesn’t always mean the best value. Consumers have become over-sensitised to promotions, partly because in the UK, brands and retailers have over-used them. More than one in every two products is sold on promotion in the UK, a deal rate higher than any other country in Europe.

But despite a brief respite in promotional escalation over the summer, retailers continue to increase their use of price promotions. The danger is that shoppers lose sight of the real price of the product and the ‘value’ it represents. This presents a challenge for premium brands in eroding the consumer value they rely on to support their price position. It also renders the supermarkets’ price-focused marketing campaigns oddly irrelevant.

The real battle should not be fought on absolute price, but on consumer perceptions of whether the retailer is offering value. At the moment, consumers don’t feel in control of their spending because the price of everything they buy is rising. Things they have always purchased are becoming unaffordable luxuries. Price-based offers are confusing and reinforce the evident lack of influence. Retailers that are transparent over pricing claims will give consumers a sense of value and control.

Tesco’s move this week to ask customers which products they wanted price drops on is a move in the right direction.

Retailers need to work harder to explain to consumers that they are helping them save money rather than, as the Panorama and Which? report claims, misleading them with unfair pricing practices.

Low-price deals have a role to play, but there is more than one way to give consumers what they want. If brands and retailers are over-reliant on price as their key differentiator, they could alienate more customers than they gain.