Should you be slashing your prices?

October 21, 2009

Here’s the update on the broad-based discount strategy that many large chain supermarkets have employed to draw in business and increase purchases.

Here’s the update on the broad-based discount strategy that many large chain supermarkets have employed to draw in business and increase purchases. The Lempert Report believes that by proclaiming price cuts on thousands of items, chains run the risk of upsetting customers, thus sealing their own less than positive fate.

Do price cuts lead shoppers to believe they had been previously ripped-off, and that new lower “sale” prices were fairer? Do shoppers believe that stores deeply discounting were doing so to help consumers in tough times? Our Consumer Panel “Price Cutting” quick poll gives you a snapshot of what consumers really think regarding store wide slashes.  
The majority of shoppers majority (68%) believe that stores are only lowering prices because they are desperate for sales, while 18% believe stores were lowering prices in response to shopper demand. We found that consumers still highly value price (48%) and quality (41%) when it comes to market selection. Service, relationships, and convenience only ranked in single digits. inquired about shopping habits within the past three months. Forty-five percent of consumers reported trying more alternative brands and private label, while 32% reported visiting a different store to save money. Twenty-two percent even reported being attracted to chains promoting price cuts on thousand of items. 
Our quick poll included several questions regarding private label, as we feel it necessary for retailers to seek an appropriate balance between both branded and private label items. The poll revealed that the vast majority (85%) report always buying both name brand and private label but have more recently switched to purchasing more private label items. Forty-three percent of shoppers opted for private label when the ingredients listed were close to identical. Twenty-five percent felt there needed to be at least 20% price difference if they were going to abandon their trusty name brand; 22% felt that a familiarity with the alternative brand and manufacturer was important.  
Although we understand the price cutting strategy, we still feel it carries only short-term potential and possible long-term risk. Our quick poll revealed price is only the main concern on half of shopper’s minds; retailers need not forget the other half whose main concern is quality. 

We suggest that chains moderate their price messages and keep longer-term customer retention strategies in mind. Quality is key. There’s a huge difference between productive shoppers who come to a store for years and the cherry pickers that aggressive discounting tends to attract.