Discount Retail Chain Lidl Poland’s campaign exposed the pricing strategy used by Biedronka, but also by other chains.
During the price war on the Polish market, Lidl publicly pointed out to Biedronka for differentiating the prices of the same products depending on the location of the store.
In the opinion of Tomasz Stec, managing partner in the Warsaw office of the international company Simon-Kucher, which specializes in pricing, it is worth noting another interesting aspect, i.e. price communication, which has recently turned out to be quite surprising.
A new level of the discounter war. From the lowest price to playing “fair”
“Typical communication that accompanies a price war focuses on conveying information about the fact that we are the cheapest – on key, selected products or on a “typical” shopping basket. Often, the exchange of arguments between players leads towards the methodology of comparing prices and selecting the presented products. However, in the current price war, communication between rival companies has entered a new, higher level – emphasizes the expert in a comment given to the wiadomoscihandlowe.pl portal.
For the first time, one of the discount chains showed consumers something that has long been a standard for industry experts – that prices can be differentiated depending on location, time or customer characteristics. In the expert’s opinion, Lidl tried to change the axis of the debate from “who is cheaper” to “who is fairer”.
A war without winners. Why did the old methods stop working?
Tomasz Stec explains that Lidl decided to launch such a campaign because, like its competitors, it stood still, and consumers were fed up with the rhetoric used before.
“Retail chains tried to gain an advantage on the market through aggressive pricing and promotional policies. Unfortunately, as is usually the case in a price war, this did not translate into significantly larger market shares or improved profitability. In addition, research has shown that consumers have become somewhat tired of aggressive communication, which tried to prove at all costs that a given network is the cheapest – argues the expert.
Such a course of events prompted the chains to look for other, alternative arguments and go beyond simple communication with the lowest price. As a consequence, Lidl decided to shift the discussion from “who is the cheapest” to “who plays the fairest to the customer”.
Psychology of price. Which fear is stronger?
Such a shift in emphasis is justified by Simon-Kucher’s research on the price image of companies in the retail industry. They show that consumers do not like to overpay (low price is an important factor in choosing where to shop), but at the same time it is important for them to feel that the price is fair and predictable.
“Taking advantage of this fear that ‘I can pay more than others and I don’t quite understand why’ is the basis for communication about the superiority of the same price in both large and small cities,” explains Stec.
In addition, a simpler message is easier to convey and builds a more consistent image. “This is no longer about attracting customers with attractive promotions, but about building trust in the brand. The message is: regardless of location, time and who you are – with us you will always get the same low price, without meeting any additional conditions – argues the expert.
Biedronka vs. Lidl, or margin versus image
When asked which of the discounters chose the better strategy, the expert does not have a clear answer. The assessment of Lidl’s and Biedronka’s actions depends on the criteria that will be taken into account.
“Looking only through the prism of economic calculation in the short term, price differentiation gives greater opportunities in terms of matching the customer and reacting locally, for example, to competitors’ prices, differences in demand or service costs, and allows for better margin optimization,” says Tomasz Stec. He adds that this is one of the elements of the smart pricing strategy, in which the price depends on the competitive environment, time and the willingness to pay a given group of customers.
However, if we take into account building a positive price image, a simple message and price predictability can increase trust in the brand. “This is especially important in times of inflation, when prices are rising and the noise and intensity of promotions do not help in decision-making, which leads to a decrease in consumer trust in the Internet. In the long run, such an approach may bring greater loyalty and attract new, less risk-averse customers,” the expert believes.
Personalization of food prices. Will consumers buy it?
To assess the effectiveness of both of these strategies, it is also crucial to answer the question: do consumers value overall fairness more or a more attractive price locally?
– The answer is not obvious. A customer who buys a product at an attractive lower price has the feeling that he is saving. Therefore, it is able to accept the lack of full consistency and higher prices, as long as they apply to other locations – says Tomasz Stec.
In this context, the expert also points out that this is certainly not the first time that consumers have encountered price differentiation. Everyone knows perfectly well that the rates for airline tickets, hotels or cultural and sporting events are constantly fluctuating. After all, in many situations we already hear that the price has been personalized for us.
– So will the awareness that we are also dealing with such mechanisms in the world of grocery shopping raise a lot of objections? Time will tell,” the expert concludes.
AI comes into play and… can mess up
When asked about how the approach to price management will change in the future, Tomasz Stec expressed his belief that the market will move towards more and more differentiation of prices.
“The era of smart pricing is just beginning. More and more companies are investing in professional systems for managing prices, assortment and promotions. With the current market volatility, further decision-making in Excel simply becomes impossible. The pursuit of margin optimization and maximization of ROI from price investments will direct companies to the area of increasingly granular decisions and greater differentiation of rates, also with the help of artificial intelligence algorithms – forecasts Tomasz Stec.
However, the expert warns retailers against thinking that the use of AI is the do