Playing the Lowest Price War is a Losing Game

Lowest Price means lower margins

The Cheapest Brand. Is it a brand position at all?

By Tom Dougherty

Everyone loves a good deal. There are some people who search them out going from store to store, looking for the best deal. There are others who buy merchandise simply because it is a good deal and there are others who will only buy something if it is on sale.

The problem for companies is that these kinds of consumers have very little brand loyalty. They are deal shoppers. These shoppers are hardly ever satisfied.

Kind of obsessive, right?

Price is Not The Only Reason to Choose

Lowest PriceFunny that this group actually represents a very small percentage of the total consumer market but, if one looks at a big portion of the consumer retail business today with all its emphasis on price, one would assume these consumers account for a majority of the market.

This assumption, of course, is false, no matter your retail niche. Many higher end retailers do not view the market this way. Not surprisingly, this is one reason why many of them are successful.

Nordstrom, for example, promises (and executes) an unparalleled service standard. Grocery chains like Wegmans and Whole Foods understand that grocery shopping should not be strictly utilitarian and that there should be some sense of experience and discovery.

Much of retail has entered into a downward spiral of sorts, relying on short-term tactics of lowering prices to get more traffic. Retail giant Wal-Mart is even playing this game now in the wake of a decline in store traffic for the first time in its history and it has started a robust campaign to cut prices in an effort to remind consumers that it still “Wal-Mart, the home of low prices.” But lowest price is not a brand that you can own over time. The reason is because your brand promise demands that your competitors play along. They control your brand not you. (You can read a detailed study of the retail market here)

What is significantly lacking with this short-term approach is any long-term viability. Retailers, including grocery, can only cut prices so far and ask for so many concessions from vendors before there is too little margin to support their business.

The logical conclusion for these retailers is to become a commodity.

Retail Brands Becoming a Commodity with the Cheap Brand?

Imagine if prices are the same across the board and stores become nothing more than, a “Buy Food Here” or “Get Stuff Here.” Then there is no reason to choose one store over another. Most convenient wins – unless someone has given target audiences an emotional reason to covet being a part of that brand.

Interestingly, these price competitive retailers have recognized this as well. For example, drug stores build locations near each other in a battle to be more convenient.

For the consumer products themselves, it’s a constant battle for shelf space.  Buyers use their merchandising savvy to capitalize on shelf space and vendors attempt to use their sales savvy to get more of it or simply buy premium positions on the shelf to get that better visibility.

Invest in Your Brand

The sad fact is that with all of this brain power in the marketing organizations of these retailers there seems to be a failure to understand that an investment in their brands will give them a buttress against always having to be driven to reduce prices or fight for the most convenient spot.

Lowest PriceGood prices should be part of the equation, but they should not be the entire reason to choose. And too many are going down that doomed path. Even Target, who started a strong push as kind of the “anti-Wal-Mart,” has also returned to selling more “price” than the Target brand.

The traffic problems of retailers are not always price related. Wal-Mart cut a few national brand names in favor of higher margined “Great Value” brands, which supposedly had the same quality as the national brand.

In reaction, consumers complained both in their words and their actions by choosing a different store. Therefore, Wal-Mart’s traffic decreased last quarter.

Give consumers a reason to choose a particular brand of retailer because the store’s brand has a promise to the consumer that is something more than “low price.” Something that tells the consumer, “we understand you” and “we get you, so shop here.”

Price reductions and sales are tactics to bring people into your store. Without any way to keep them there, consumers will move to the next store for their sale and so on. Utilize sales to get consumers to experience your brand not condition them for the next store’s sale. Once they experience your brand, then live up to your brand’s promise each and every time they use you. It’s the only way to win.

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