• Navya Sri

3 Ways to improve the value for money perception

Updated: Jul 22, 2021

Understanding what drives consumers' perceptions of value for money is critical for improving it in a way that is both economically and environmentally sustainable.

Four money-related criteria drive the majority of value for money, with value qualities having a minor role. First and foremost, retailers must provide attractive shelf prices on products when the cost is a factor. Second, and perhaps equally important, it is critical to provide a wide range of low-cost products. This is connected to the third most significant characteristic: a low overall basket price. A grocer can have low costs, but it will be seen as more expensive than a competitor who sells low-cost, good quality items if it only sells premium items. Promotions are the fourth major driver. Of course, all of the above must be conveyed to customers in a consistent manner that reinforces the value-for-money message.

Analytics to set low shelf prices on the most important items and in the most important locations: While using key value things to influence perception is not new, the ability to employ analytics to discover key value things pushes this strategy to the next level.

Grocers can target their price investments even more precisely with analytics. Analytics enables the use of various lenses, such as more precisely identifying products that promote price awareness: these are items purchased primarily by price-sensitive customers or have a high price elasticity. Furthermore, it is feasible to determine how the main value of goods fluctuate between different retailers and between online and offline shopping. This enables grocers to create a highly precise set of key-value goods specific to a particular shop cluster, area, or channel and target any price investment where it matters most to the customers in these stores and channels.

Grocers should simulate the economic effects of this investment strategy, including competitive responses. Price elasticities have traditionally been used to predict customer reaction (volume) to price adjustments and make recommendations on improving margin and maintaining revenue. In recent years, however, mature grocery players have understood that elasticity is often exaggerated and must account for rival responses. This allows merchants to run war-gaming scenarios to comprehend the impact of price changes fully.

It's crucial to remember that pricing is both an art and a science when using advanced analytics. While data is gold, analytically derived guardrails and business principles must accompany prices in order to get the best results, and organisational capabilities and buy-in cannot be overstated.

Understand how people compare private label and fresh prices: Customers compare prices between major brands and between similar items like fresh produce and private-label items. Finding out which specific things buyers are comparing is a difficulty. Customers frequently compare things that are regarded to be of similar quality, according to our research. Surprisingly, many supermarkets overestimate their product quality and compare their private labels to higher-grade competitor private labels. For example, hard discounter products are frequently compared to the supermarket's entry-price tier and the mid-price tier. In this case, a grocer may believe its prices are comparable to discount through its entry-price tier. At the same time, customers perceive a significant price difference when comparing hard-discount pricing to the supermarket's more expensive midprice tier.

Grocers must determine which products are of similar perceived quality or not when comparing pricing with those of competitors. Some supermarkets have set up departments whose main purpose is to create product-price matching based on consumer research and to identify quality gaps that need to be remedied.

Improve the quality and range of the private label's opening pricing point: While shelf prices are the foundation for a positive value-for-money perception, other levers are required to realise that view's full potential. For example, the quality and scope of the opening-price-point assortment are almost as important as the price.

Many supermarkets used to compete on opening pricing points with 400 to 800 private-label products that were frequently of poor quality and had unappealing packaging. As discounters' assortments have grown in size and quality, this type of opening-price-point private label has become obsolete. Its (perceived) quality is generally worse than that of hard discounters for many SKUs, and the selection isn't broad enough.

It takes more than 1,000 excellent products and appealing packaging to compete with the opening price point in many markets today. In many instances, this means that the quality of private label products at the opening price point is highly comparable to, if not identical to, the quality of products in the mid-tier price range. As a result, certain players, such as Albert Heijn, have begun to compete at the opening-price-point level by using key names in the midtier pricing range. Separately, in the wake of the pandemic and the economic downturn, several shops (such as Système U's Prix Mini product line) have returned to lower-priced products to cater to consumers' increased price sensitivity.

Because of the rise of internet purchasing, which has increased price transparency, fragmented customer baskets, and increased competition from discounters, taking a more nuanced approach to pricing has never been more important.

However, improving perceptions of value for money extends beyond pricing. Other factors, such as providing a diverse range of high-quality entry-price-tier products, are just as significant as low shelf pricing in determining the perceived value for money, if not more so in some markets. Grocers may address those needs across various levers and double down on value perception in the most cost-effective way possible by understanding what matters to customers through pricing analytics and market research.

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