Retailers losing trust in cut-to-fit discount strategy

LONDON: The old adage about the implausibility of free lunches also applies to super-market promotions. Shoppers are bombarded with deals from the moment they step into a store, but they are unaware of the hidden cost — a situation highlighted last week when retail giant Tesco was accused of doubling the price of fruit before offering it at 50% off for its Fruit & Veg Pledge days later.

On an average shopping trip, discounted goods account for about 25% of purchases, according to ACNielsen, and on the whole, consumers believe they are receiving a genuine discount.

However, as more exposes run in the mainstream media about the way discounting is achieved, supermarkets run the risk of damaging confidence in their brands as well as their offers.

Tesco denies that it has been artificially raising prices before discounting, and insists the majority of the figures quoted in the national press were incorrect. But even if Tesco had been guilty of such misleading practices, it would not have broken any laws.

The only legislation on the subject relates to the discounting and sale of non-food, non-perishable goods. And in the case of non-food, retailers such as DFS and Carpetright have to feature the discounted product for 28 days in only one store at the higher price.

The Trading Standards Institute, which polices pricing legislation, says artificial price increases are an integral part of retailing. “If you see a price reduction of 30%, the chances are that it is 30% off the price in a store in Edinburgh — and this is done by the bigger, more respectable companies as well as smaller ones,” says a spokesman for the body.

Tesco raised the price of its plums from £1.48 for 500g to £2.99 three days before reducing prices by 50%. However, a spokesman insisted the accusation that the store’s pricing team worked out its price promotions to keep products at the same price was ‘insulting’.

Simon Hathaway, managing director of retail specialist Saatchi & Saatchi X, says discounting has become part of the business model for many retailers, especially those in the furnishing sector.

He believes that much of this is driven by retailers taking advantage of consumers’ ignorance of the price of many products. ‘If you asked 20 people the price of a pint of milk, you would get 20 different answers,’ he says.

Mike Watkins, senior manager of retail services at ACNielsen, says the potential rewards of tempting shoppers with discounting are huge. “Consumers are hooked on promotions,” he says. “On average, about 80% of UK shoppers are looking for price promotions — that’s the highest in Europe. Low prices are now expected.”

Retailers across a variety of sectors are becoming more adept at playing within the rules. Some have even employed teams of former Trading Standards officers to advise on the best way to negotiate legislation.

According to one former retail marketer, these teams are intended to help navigate the rules on discounting and build strong relationships with local Trading Standards officers. He also accuses the latter of taking a relaxed approach.

‘They aren’t exactly the most proactive people in the world. If something is outside the strict letter of the law, they won’t take much notice,’ he says.

One potential problem for retailers is the growing consumer trend to shop around and use aids such as price-comparison sites. Futurebrand managing director Janice Montgomery says big brands inevitably attract more interest in their business practices, so Tesco’s place as one of the UK’s most trusted brands will be harder to maintain as customers become more savvy.

‘If Tesco is (manipulating its prices as claimed), then it needs to be careful,’ she warns. ‘If the press continues to pursue this, it could become an issue.’

The supermarkets may not be able to get away with such practices for much longer, as the Department of Trade and Industry is reviewing the rules. Consumer minister Ian McCartney plans to revamp the pricing code as part of the forthcoming Unfair Commercial Practices Directive, which is due to come into effect at the end of the year.

There are no indications yet as to the changes that could be implemented, nor whether the one-store 28-day rule will be altered following the review, which brackets discounting with practices such as prize-draw scams, aggressive door-to-door salesmen and bogus closing-down sales.

However, it is clear that McCartney intends to stamp down on any possible misleading of the public. ‘Whether shopping in the high street or online, consumers have a right to be sold to honestly and fairly,’ he says. ‘The new protection will make life a lot tougher for the rogues and easier for legitimate businesses to operate.’

Discounting is an essential weapon in any retailer’s marketing armoury, appealing to consumers’ bargain-hunting instinct. But it is not as though supermarkets are giving anything away — food prices have risen over the past two years. As consumers become more savvy to the deals they are really getting, retailers may be forced to rethink how they lure them in, or risk damaging hard-earned trust in their brand.

Marketing(c) Brand Republic