Flexible pricing strategy keeps shoppers happy

The Shopper Insight Loyalty and Pricing report from the UK's Institute of Grocery Distribution (IGD) reveals that 60 per cent of British shoppers prefer stores that offer consistently low prices and limited or no promotions, while just 40 per cent opt for stores which offer a variety of different promotions.

But the survey also revealed that shoppers felt that a pure EDLP strategy meant that they missed out on a level of in-store excitement associated with promotions. As one shopper said: "If it is low price all the time, eventually that is what you expect to pay, you don't think you are getting a bargain."​

Over half of those preferring EDLP did so because they shopped to a budget, the IGD said, while the remainder liked a store offering low prices, either because they felt that promotions were generally not relevant to them or that supermarkets which focused on promotions might have higher prices on other items.

Among those who favoured promotions, almost 23 per cent said that they preferred them because they enabled them to stock up and save money. BOGOFs (Buy One Get One Free) were more favoured by larger households and shoppers who were not working, as they were more relevant to their needs in terms of price and quantities of product offered. Only 8 per cent of shoppers liked promotions as an opportunity to try new products.

Joanne Denney-Finch, chief executive of the IGD, said that the survey had shown that shoppers were unlikely to be motivated by a pure EDLP pricing strategy. "From a shopper's perspective, both prices and promotions can influence overall trolley price and both have a role to play when choosing where to shop. It is also clear that promotions are not just about reducing the overall cost of shopping, but are liked because they bring variety and excitement to what can be a routine task."​

In a market where most of the UK supermarket groups have loyalty card schemes designed to keep shoppers coming back for more, the IGD's survey revealed that many customers were in fact more likely to shop around to take advantage of promotions.

Some 31 per cent of shoppers said that offers and promotions were a main factor in tempting them into stores other than their 'main' food outlet, the survey showed. Furthermore, many shoppers have become promotionally shrewd, knowing when different promotions are due and shopping around to use them to their advantage.

The survey findings are particularly interesting when taken in the context of the changing face of the UK food retail sector.

Assuming Asda's alleged attempt to scotch Morrisons' bid for Safeway is unsuccessful, the newly merged group will see the combination of business models at either end of the scale. Morrisons, along with Asda, is the champion of EDLP in the UK, while Safeway has traditionally been a promotions-driven retailer.

The likelihood is that Morrisons will impose its trading style on the Safeway business, although this might jar somewhat with more sophisticated shoppers in the south east of the country, suggesting that a combination of EDLP and promotions might be a better approach there.

Tesco is perhaps the best example of a retailer which combines both promotions with EDLP. Price conscious as the chain is, Tesco's prices are for the most part higher than those at Asda and Morrisons, but it makes up for this by running more promotions - again perhaps due to the fact that far more of its stores are in the affluent south east of the country than its two pure EDLP-driven rivals.

But having a stronghold in the richer parts of the country does not mean that higher prices can be maintained. Sainsbury's core store base is the south east, and it has suffered in recent years as Tesco in particular has moved towards an EDLP strategy, although not as much as the other 'high price' retailer, Safeway. Sainsbury has increased its efforts to bring prices down over the last few years, but it still remains predominantly a promotions-driven retailer - and as such caters to a smaller proportion of the UK population, according to the IGD's figures.