Who really is the low price leader?
Posted on | March 16, 2009 | No Comments
Author:
Jason Voiovich
Ecra Creative Group
Key Points:
1. Claims made by major grocery retailers regarding low prices are not always warranted by an objective review.
2. Grocers (and other retailers) use common techniques – low price shockers, non-comparable packaging, and consistent advertising to nevertheless reinforce this perception.
3. That brand position has paid off materially for Wal-Mart, and hurt Target, even though the two retailers closely track and match each other’s pricing.
It all started with 1% milk.
As my two boys get older, we burn through an alarming amount of what I now refer to as ‘white gold’. That prompted a careful reevaluation of what we pay for it. And I thought I was getting a good deal; while my family buys most of its groceries at SuperTarget, we made a special trip to Cub Foods to buy its Value Twin Pack (two gallons of milk physically connected with a plastic carrier).
It turns out, it was not such a good deal after all.
The regular-price twin pack rang up at $6.58, or $3.29 per gallon. Obviously, when you buy in bulk, you get a better deal, right? Not so. Target’s regular price: $2.99 per gallon. In other words, I was paying $0.58 for the privilege of an extra shopping trip to Cub Foods.
So that got me thinking; how else have I been influenced by a ‘low price’ brand position at the supermarket? I wanted to find out.
I decided to conduct an experiment – to put brand positions to the test (at least a small one). Using a sample of a dozen products our family buys each week, I compared the prices at Target, Cub Foods, and Wal-Mart. Here are my results:
First off, a few caveats. I shopped between March 10, 2009 and March 13, 2009. That narrow window could lead to variations in pricing (some items were ‘on sale’ – such as milk at Cub this week, but other items were not). Also, while slightly representative, the list I am sharing with you is pretty narrow. Your experience could be very different.
Even so, I think you would find my experiment quite enlightening if you were to repeat it yourself. What do you notice right away? Overall, the prices really are not that different. Wal-Mart and Target were within a dollar of each other, but Cub Foods tended to be cheaper on ‘staples’.
To put it simply: Are the brand positions staked out by Wal-Mart as ‘unbeatable’, Cub Foods’ claim that it is the ‘low price leader’, or Target’s ‘eat well – pay less’ slogan really warranted by evidence?
My test would seem to say ‘no’.
But why then are Wal-Mart and Cub Foods so successful (and Target much less so) at convincing people they are the place to find the bargains?
A few ways.
First are the ‘price shockers’ (Cub’s term, and one of my favorites). This is an old retail trick; pick a staple item that everybody buys and cut the price to some ridiculous level. Yes, you’ll lose money on that item, but not only is it a way to clear out an excess of inventory, it is a powerful way to frame the low-price brand position in a customer’s mind. Consumers will associate that ultra-low-price with everything else in the store, even when clearly that is not the case. (The mega-discounters Sam’s Club and Costco do this with impunity; check for yourself).
Next are non-comparable sizes. Let’s say you’re a skeptic (like me) and you begin to try to compare multiple stores to find the best deal. That works if you have comparables, but in many cases you don’t. Wal-Mart might sell a 32-ounce box of cereal; Target a 28-ounce box; and Cub a 42-ounce box. Now it gets tough. This is especially true with soda, and the reason I couldn’t include that (and many other items) in my example above. Most people just won’t do the math.
Finally, you have good old-fashioned, drive it through your skull advertising. Wal-Mart doesn’t mess around; they do not go off-message. It is low price all the time. Cub Foods is pretty disciplined as well. Target is having trouble finding its voice, and it clearly is costing them.
Beyond the micro-level – the individual shopper – what does this brand position ultimately mean?
As one measure, let’s take a look at a stock price comparison. On September 12, 2008, Wal-Mart (WMT) shares traded for $62.41, Target (TGT) shares for $57.26 (Cub trades along with its parent – SuperValu – so the comparison isn’t quite fair). As of market close on March 12, 2009 (six month’s later), Wal-Mart had dipped to $48.94, but Target had plunged to $28.49. For a pair of stocks trading at nearly identical levels, Target’s drop has been precipitous.
And why is that? Of course, there are a myriad of factors, but analysts seem to agree that Target’s brand position as the more ‘stylish’ of the two mega-retailers meant consumers were going to flock to Wal-Mart – and its low prices – instead. And consumers in large numbers did just that.
If you ever doubted tangible brand value, I give you $23 billion in wiped-out market capitalization at Target as Exhibit A.
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Related Links:
Google Finance Stock Quote for Wal-Mart (WMT)
Google Finance Stock Quote for Target (TGT)
Tags: Cub Foods > Jason Voiovich > low price leader > price branding > price shocker > Target > wal mart
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About
Jason Voiovich
director_corporate marketing, Logic PD
Black Belt
Caffeine Addict
Dad
