Growth in price oriented formats such as supercenters, warehouse stores (DeMoulas Market Basket, WinCo Foods, Woodman’s Markets), and limited-assortment stores (Aldi, Price Rite) continue to outpace traditional formats. In response to this growth, supermarket executives continue to beef-up their pricing efforts. However, after investing hundreds of thousands of dollars into their ultra-competitive pricing strategies and tactics, shoppers still feel their prices are higher. This disparity between reality and shopper opinion is known as the Price Perception Gap.

Understanding the Price Perception Gap

 Friedrich Nietzche, the famed 19th century German philosopher, said, “All things are subject to interpretation. Whichever interpretation prevails at a given time is a function of power and not truth.”

The time-power function Nietzche references is one of the key reasons for the misalignment of a shopper’s belief structure. When Walmart (power) expanded into food retailing 24 years ago, it differentiated itself by being the low-cost provider. In addition to offering lower prices, the company went to great lengths to communicate its EDLP position. “Rollbacks,” which became a mainstream term, were easily translated into savings and value. This perception of value was actualized at the store level using strategic signage, innovative savings programs, and of course, low prices – All relentlessly communicated to the shopping public.

Walmart continues to reiterate is value proposition, and its brand’s position, through innovative campaigns and technologies. Their most recent program, Savings Catcher™, refunds a shopper the difference if a local competitor offers a lower advertised price for an item purchased at Walmart. These types of programs and campaigns continue to solidify Walmart’s price position in the shoppers’ mind. Or in direct, less diplomatic terms, customers have been programmed. Walmart’s value has become hard-wired in the shopper’s psyche. It’s now part of the shopper’s belief structure, which may be more grounded in emotions rather than facts. I don’t mean to imply that Walmart is doing anything wrong. In fact, I’d say they are doing most things right in terms of pricing, communications, and branding.

Bridging the Gap

Bridging the gap between actual prices and shopper perception requires a unified, integrated, strategy that enables retailers to get full credit for their competitive prices. In addition to aggressive price points, retailers must amplify their price communications so that shoppers understand what they are receiving. Over time they will begin to internalize these messages; thereby enabling belief structures to be reconfigured.

Bridging The Gap - Aug 2014 Blog

Aligning perception with reality does not require retailers to overhaul their entire price strategy. Capturing full credit for competitive pricing requires a concentrated effort in the following five areas:

1.       Preventing Disruptive Prices

Hi-Lo retailers must make sure their base prices do not escalate beyond acceptable, predetermine thresholds. If shoppers

note disruptive prices, winning them back can be costly and lengthy as their original “higher priced” belief gets validated.

Retailers should consistently monitor key competitors and invest in routine, comprehensive (full book; center-store and perishables) price checks.

2.       Known Value Items

Retailer POS data (velocity) should be properly mined in order to identify the optimal combination of known value items (KVIs). Market data is also useful for determining KVIs in competing banners and stores. These data sets can be augmented with loyalty card data in order to identify high value and price sensitive shoppers.

Additionally, retailers must align their KVIs with the categories used for competitive positioning such as signature, destination or routine; versus categories that are simply offered for convenience.

It is also important to refresh or update the list of KVIs every 12-18 months, in order to capture new products and categories, as well as changes in shopper preferences.

3.       Assortment

Shoppers must feel they are getting value throughout the store and across an assortment of products. Therefore retailers should offer a robust assortment of economy brands (like Kroger Value, Topco’s Valu Time, and Associated Wholesale Grocers’ Always Save) across all key categories. This ensures that prices on these items reflect the best value in the category.

4.       Merchandising

One of the easiest, most cost effective ways to improve price image is by taking control of end-cap displays and other off-shelf displays. Specifically, retailers should present uncluttered displays featuring a primary item and no more than two complementary or flanking items. The supporting signage should clearly highlight the price, as well as the savings. Displayed products should also have savings thresholds, such as 15% off or a minimum of $1.00 in savings.

5.       Price Communication

Digital price communication, although a useful platform, has complicated savings, or at least the message. Apps, websites, eCoupons, eLoyalty cards, social media, along with traditional print and in-store communications, are no doubt providing more ways to save. However, additional choices mean added complexity. Retailers must simply their messaging and tell shoppers how to “work the system” in order to capture all of the available savings.

The message must define value inside the store. Signage and shelf tags, as well as digital platforms, should work cohesively to communicate the banner’s value. Retailers should also routinely survey shoppers to make sure the desired message is being communicated and understood.

 Minding the Gap

 Retailers focusing on these 5 areas will bridge the gap between actual prices and shopper perception. However, bridging the gap is defining the strategy and the required tactics. Minding the gap is the ongoing execution, evaluation and course corrected needed to change the shopper’s ingrained perceptions. By conducting routine attitudinal surveys and embracing social listening practices, retailers will begin getting full credit for their competitive prices and programs.

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