Delivering value beyond price

It was refreshing to hear the CEO of Delhaize Pierre-Olivier Beckers describe the recent sales success of Food Lion revamps in Raleigh, N.C. and Chattanooga, Tenn. as driven by “holistic change” in the shopper’s experience. Make no mistake, Food Lion hasn’t abandoned the low price appeal, but they are reaching beyond low prices to deliver value on other dimensions – better-quality perishables, cleanliness, and service in this repositioning. We think it’s a good idea to keep the bigger picture in mind. (See the BMC presentation Finding Competitive Advantage in 21st Century Retailing.)

Pricing strategies alone can backfire

These days, a growing number of retailers are trying to deliver greater value mainly through lower prices. Whether these are offered on the shelf or reflected in specials and promotions, there’s a good chance that by themselves, lower prices will be slow to increase sales. In some cases, they may even deflate sales below what they would have been had there been no pricing initiative.

How can this happen? Lower prices need to be weaved into a pattern that changes the retailer’s price reputation with shoppers in order to change those shoppers’ buying habits. It takes a relatively long period of time – 6 months or more – for this to happen, and until the new reputation begins to result in shoppers buying more on a regular basis, there’s no return from margin on the investment. So a stronger price reputation can serve as the cornerstone for profitable growth, but by itself, it may not be enough.

Pricing is only one dimension of value

Pricing is important, but it isn’t the only source of value that influences where shoppers decide to shop.  Proximity, of course, is always a consideration, but there are other constants that shoppers factor into the value equation. These include quality, service, assortment, and facility. Altogether, the traditional shopper value equation looks like this:

Value = (Price x Quality x Service x Assortment x Facility

Retailers who generate strong sales typically execute well against a sharply defined shopper value equation – one that allows them to win the business of their target shoppers by: 

• Dominating on a dimension of value that’s important to the target shoppers
• Maintaining parity on all other important dimensions, which requires:

Identifying all the dimensions that are important to target shoppers
Executing on every one of them so that shoppers don’t have a reason to go elsewhere

Pricing is typically the most important dimension of value as long as there are significant differences in price reputation in the market – but absent significant differences, price reputation has no more impact than any other factor. The good news is that it isn’t necessary to beat or even match prices unless you’re trying to be the low price leader; it’s just necessary to close the gap far enough that it’s not a big deal.

New influences on 21st century shoppers

The shopper value equation described above has been a useful framework for decades, but it needs to be expanded and updated to deal with the realities of 21st century retailing. The old value drivers are no less important, but they’re no longer sufficient to capture all of the shopper’s considerations when they’re deciding where to shop. This is why we decided to step back and ask the question “Where can you find competitive advantage in 21st century retailing?”  Based on work we’ve done so far, we believe that at least some of the answer can be found in helping shoppers deal more effectively with three pressures that are forcing changes in shopping behavior, the pressures to:

• Economize – get as much as possible from the resources available
• Personalize – sort through offerings to find what’s meaningful
• Rationalize – make good decisions while faced with mountains of information

We’re also working to identify new factors that need to be included in an updated shopper value equation.

Learn more

Here are three ways you can learn more about these ideas and how to use them in your business:

Click here to access the BMC presentation deck Finding Competitive Advantage in 21st Century Retailing.

Sign up for the October 13 webinar that Brick Meets Click will present in cooperation with The Food Institute

Ask for one of the individual briefing sessions Brick Meets Click is now offering to companies who want to better understand their own competitive opportunities in this space.