Supermarkets, pricing and profits

[Peter Parker]

I wonder if this is one of my crazy theories or has some basis of fact.

The idea came about after I read this item on differential pricing (of software) http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

The basic idea is that you can make more money if you can stratify your buyers and charge more from people willing to pay more.

I reckon Woolworths use the same principle with their house branding for groceries. Sell daggily packaged Home Brand to the poor people. Repackage it as Select brand for the middle spenders. Then use Select Brand as a lever to buy national brand name stuff at lower prices by screwing suppliers (Select brand has more attractive packaging so is seen as a competitor to big brands whereas Home brand isn’t).

With chocolates the ploy is a bit different. They import lots of foreign chocolate bars that they sell for 69c. This is way cheaper than the Aussie made bars at $1.30 or so. So they screw the name brands on price and do more specials at 99c.

In the case of chocolate prices do seem to be lower for the customer (but don't help the nation's obesity problem). But no doubt Woolies are getting a big cut as well!

 

[Strannik]

you are right
if people can pay more they will pay more for the perceived benefit

Same goes with electronics. It all gets assembled at the same plants in Asia, and just labeled differently.

 

[jezza]

What supermarkets are getting better at and it is for there best interest is to force people with the change in specials from there own brand to a name brand that its forcing people away from the brand and towards the price point. With this in mind they know once they have more people buying towards the price then they know the benchmark at what to set there own brands pricing and it gives them greater control on the buying power of those products that they need to buy.

The exactly the same thing happened about 10 years ago in UK with tesco's they gradually ( although it was a faster process than what is happening here)had there own brand and a name brand product on the shelf and force people to go against there standard purchase and move towards a price point which was there products.

The other factor in this, is many of those product and not the big names such as Coke/Mars/Pepsi are actually made by the exact supplier and relabelled. One of the current large supermarket chains is negotiating this method pretty hard at the moment. Have our label on it or we will make a similar product and not stock your product is there theory

Jezza

 

[Intrinsic_Value]

I wonder if this is one of my crazy theories or has some basis of fact.

The idea came about after I read this item on differential pricing (of software) http://www.joelonsoftware.com/articles/CamelsandRubberDuckies.html

The basic idea is that you can make more money if you can stratify your buyers and charge more from people willing to pay more.

I reckon Woolworths use the same principle with their house branding for groceries. Sell daggily packaged Home Brand to the poor people. Repackage it as Select brand for the middle spenders. Then use Select Brand as a lever to buy national brand name stuff at lower prices by screwing suppliers (Select brand has more attractive packaging so is seen as a competitor to big brands whereas Home brand isn’t).

With chocolates the ploy is a bit different. They import lots of foreign chocolate bars that they sell for 69c. This is way cheaper than the Aussie made bars at $1.30 or so. So they screw the name brands on price and do more specials at 99c.

In the case of chocolate prices do seem to be lower for the customer (but don't help the nation's obesity problem). But no doubt Woolies are getting a big cut as well!

Interesting thought, but i think the australian situation is complicated by the fact that we have essentially only two retailers: coles and safeway.

Their market power when one applies game theory is soooo huge, and i dont see how their barriers can be removed easily.

I'm just waiting on WOW to suffer a significant drop in its share price because of some opperational issue, i'm going to charge in.

 

[Corey Batt]

I find it more interesting that many of the smartbuy/generic items are made by the same upmarket competitors e.g. You'll love coles chips are made by smiths chips, Coles Whole Chickens are Lilydale Free Range. Aim for the middle and get the best of both worlds.

 

[Aaron Sice]

when your food supply is goverened by unregulated private corporations, you are not free.

don't complain, just grow a majority of it yourself.

 

[topcropper]

when your food supply is goverened by unregulated private corporations, you are not free.

don't complain, just grow a majority of it yourself.

Yep.

The best thing about growing your own food is that you realise just how cheap and convenient it is to buy it at a supermarket.


See ya's.

 

[steveadl]

The basic idea is that you can make more money if you can stratify your buyers and charge more from people willing to pay more.

I reckon Woolworths use the same principle with their house branding for groceries. Sell daggily packaged Home Brand to the poor people. Repackage it as Select brand for the middle spenders. Then use Select Brand as a lever to buy national brand name stuff at lower prices by screwing suppliers (Select brand has more attractive packaging so is seen as a competitor to big brands whereas Home brand isn’t).

I don't think that's a crazy theory at all Spiderman, and it's a very interesting topic. In my store we set prices at the RRP's from my suppliers with some occasional special discounts, but again - set by the suppliers for the particular package on offer.

We have many different brands so we can pick and choose what we recommend to customers. Widgets Inc may have a RRP of $30 for their product, where as Bozo's Inc charge $12. For people who come in and browse they have their choice, but we also have a lot of people who seek help from my staff. Now forgetting for a moment that generally the cheaper product is inferior quality - why would we recommend a $12 product over a $30 product if I think the customer is happy to pay that?

But then how do we determine that - having sales people making a snap judgement of a client that walks through the door is fraught with peril. And I speak from experience when I say you can be surprised by customers - you'll have a toffy, nice looking woman cringe at spending $25, then a scruffy looking person come in and happily walk out spending $200.

Making the judgement incorrectly will see you end up assuming the scruffy person can't afford the higher price point so ignore it and go straight for the cheaper line. At times it's very hard not to make these judgements and it still happens automatically.

For me I've found the best way to go - judgements aside - is to recommend A) the best quality product you have on offer at B) the highest price point you have to EVERY customer that walks through the door. This helps because due to A, you believe in the product you're selling and people can pick up sincerity, so it's an easier sell. B then maximises the profit eg. ABC and XYZ may have the same price point, but if you believe XYZ is better quality, you'll have more belief in the product.

This can then result in 1) the client buying the product 2) the client stating they want something cheaper 3) client walking out with nothing (usually after thanking for your help and wandering around a bit). 1 is obviously the best result, and often works especially if you have belief in the product and conviction in your tone (good luck trying to get people to sell a $40 product they hate). 3 is the most uncommon as generally when you're explaining the product and you sense the hesitation at the price point (I'd day 70%+ of people ask price after the initial spiel) you switch straight away to 2 by showing them the the next brand down with the lower price point.

The majority of customers walking through the door leave with a purchase as they have come with intent and a need, so starting at a lower price point would kill a lot of $'s. Which is a reason I can't understand why some retailers by choice only stock cheaper lines without a higher price point alternative. Would be the same with the grocery example you used above, if someone walks into a supermarket to buy milk - whatever happens inside, they're walking out with milk, the only variable is whether they walk out with the $2 home brand or the $3 brand name.

Anyway, very interesting topic.

Their market power when one applies game theory is soooo huge, and i dont see how their barriers can be removed easily.

I'm just waiting on WOW to suffer a significant drop in its share price because of some opperational issue, i'm going to charge in.

That's why I'm in MST at the moment IV, yes they'll never equal WOW or WES with market power or perhaps even stellar growth, but they still turn a dollar and at the moment offer a pretty good yield for such a defensive play. My wife holds some WOW but at the moment too expensive for me and I doubt they'll fall too much in the current climate when they're seen as a good defensive - but we can always hope right?!

 

[Aaron Sice]

Yep.

The best thing about growing your own food is that you realise just how cheap and convenient it is to buy it at a supermarket.


See ya's.

you may also realise that the ability to buy artichokes in summer and lemons in winter is not necessarily a good thing - and that the rampant urbanisation of our populations is going to cause a serious issue in a few decades.

eat local, buy local.