Price, price, price

To listen to the media you would think that consumers consider only price when they are shopping. That's not even true about online shopping. And when one asks people what makes them choose a particular supermarket, then the main factor is never low prices. They are important, of course, but British consumers are much more sophisticated than just looking for the lowest possible price. They want value for money - something that is hard to measure and depends on one's circumstances. But it's a combination of convenience, quality, range, store standards, service and price.

Consumers have value expectations of their retailers and if they begin to feel that in some way the value proposition is falling short, then they drift away. That happened a few years ago when Asda cut back on quality and it happened with Tesco a couple of years ago when it cut service standards, store standards and quality.

Online activity

In Mintel’s Digital trends, March 2013, 92% of people in an online survey said they had shopped online, only 44% had visited a price comparison site.

For Mintel’s report on Electrical retailing, UK - May 2013 we found that 61% of people who had bought large white or brown goods in the last three years had compared prices on several retailers websites. Only 31% had used a price comparison site. For small electronic goods (tablets, smartphones etc) the proportions dropped to 53% and 30% respectively.

We failed to ask if they had then bought from the lowest priced retailer. But it is clear even here, that the price is only one of the factors which are important. In the case of electricals one is usually buying a known brand so what matters more is the trust in the retailer and the quality of service to be expected.

Price isn’t everything

The best example of this sophisticated approach from British shoppers is Aldi. Aldi attracts far more than just those looking for the lowest possible prices. In fact on the basis of Mintel's consumer research, Aldi has a customer base very close to the average consumer in terms of both age and socio-economic group. Aldi appeals to customers who realise that some of the products represent outstanding value for money and who are prepared to put up with a "basic" retail experience in order to get them.

Research carried out for Mintel’s report, Supermarkets: beyond just food retailing, November 2012, shows that Aldi’s customer base is more affluent than Asda’s. And so is Lidl’s. Only Iceland has a customer base as biased to the worst off as Asda.

Asda chasing Aldi

So reports that Asda plans to cut prices in order to combat competition from Aldi seem to us to be missing the point.

Asda will not gain any more customers from the other market leaders, by being even cheaper than it is at the moment, if, as it claims, it is already the cheapest supermarket. Cutting prices does tend to attract customers, but not when you are already the cheapest in the market. It might attract a few customers from Aldi to switch back the other way. Aldi’s Achilles heel is that it only stocks a limited range. It does not aim to offer sufficient for a full weekly shop and in Mintel’s consumer research fewer than 2% of people claim to use it for that. So if Aldi is taking customers from Asda it is because its overall value for money proposition on its limited range appears superior to those who switch.

Asda’s weakness

For us Asda's fixation with price in its marketing is a weakness. It is true that it appeals most to younger people in lower socio economic groups for whom a price led offer is most important, but even they want more than just low prices.

In our opinion Waitrose and Sainsbury’s are outperforming at the moment because their marketing stance is to say – “you won’t lose out on prices and look what great quality we have.” That’s a marketing position that puts prices in perspective – part of the value proposition but certainly not all of it.

The message of the customer bases is quite clear:

“If Asda wants to take business from Aldi it needs to improve its quality, not cut its prices”

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