Tesco Pricing Strategies - Assignment Example

Tesco Pricing Strategies

• Does Tesco’s Promotion Pricing Campaign, the big price drop, deviate from Cohen’s Original motto of pile them high and sell them cheap? If so, how?

Tesco is one of the companies that have used different pricing strategies as a way of increasing their market share. Tesco’s “the Big Price Drop” and Cohen’s “Pile them high and Sell them Cheap” are two different price models that the company has used in promoting its products. One difference among the two models is that the latter focussed on priced reduction based on sales while the former focussed on reducing prices to attract customers. In the “Pile the High and Sell them Cheap”, Cohen intended to increase its sales by buying more goods, which in turn would lead to further product price drop. However, the “Big Price Drop” was a strategy that aimed at lowering prices to increase the volume of sales (Kotler & Armstrong, 2014). While the earlier approach was successful, the later approach failed since price reduction during a competitive time does not automatically result to an increase in the volume of sales. A drop in price is followed by a similar response by other market competitors.

• How has Tesco used pricing to segment the food market and position its offering? Why are customers willing to pay different prices for the same category of food (e.g. a tin of baked beans, a chicken of adopting)?

Tesco has successfully managed to adopt different price architectures within the market by appealing to customer needs and economic abilities. The company introduced the portfolio of own-brands by observing different market requirements and implementing different positioning strategies. From a close observation different market segments have customers with different purchasing power. Therefore, the idea of “cheap” varies from one market to the other and hence relative prices apply within each segment (Kotler & Armstrong, 2014). Naturally, customers compare prices within one market segment. Therefore, Tesco saw the opportunity to sell the same products at different prices within different market segments. The force that attracts customers to Tesco’s stores is the fact that Tesco offers relatively cheaper prices within the same market segment as compared to other companies. Therefore, the company is successful in implementing different pricing strategies within different target markets.

• How can Tesco’s Clubcard assist managers in developing pricing strategies?

Tesco’s Clubcard can be used in as pivot in supporting the managers pricing strategies. The Clubcard is a strategy through which Tesco rewards customer loyalty and sustains this loyalty in the long-term. All buyers can acquire points that in turn will help them get price discounts in the long run (Ryan & Jones, 2012). Therefore, the company rewards loyal customers through price reduction. Discounting is one of the price reduction strategies that attract customer loyalty within organization as they feel that such companies reward their consistent trust. Secondly, the Clubcard strategy can help managers win new customers in the market as customer are always looking for companies that they can form long-term relationships with. Increasing the number of customers visiting their shops will be a milestone in increasing their profits in the long-run. Resultantly, the company can lower their prices as they enjoy loyalty from a bigger crowd of customers (Kotler & Armstrong, 2014). Therefore, managers can leverage of the Clubcard advantage to provide winning prices in a competitive market.

• Since 1919, which major pricing strategies have tesco demonstrated evidence of adopting?

An analysis of Tesco marketing plans shows that the company has used different price-based marketing models to win the market. Initially, the company employed a penetration strategy by using the “Pile them High to Sell the Cheap Strategy”. In this strategy, the company intended to build loyalty by offering the best prices to their customers and to launch a price competition at its time of market entry (Berndt, Bui, Lucking-Reiley & Urban, 2014). This was crucial to win the customers during a time when customers. Secondly, the company has used a promotional pricing strategy by providing the customers with Clubcard in which they customers get bonus for their loyalty. While this strategy does not contribute to profit initially, it seeks to maintain the customers and targets new customers who recognize discounts as important rewards for loyal customers. Secondly, the company has engaged high end price-based strategies in which it has employed different price-architecture to win different target markets (Kotler & Armstrong, 2014). In this strategy, Tesco serves the high class customers with high price products, while selling the same products at cheaper prices within low-class markets. The ability of the organization to deploy different pricing strategies within the market has contributed to its high performance within the market.

• Cliona Lynch predicts that Tesco will move away from price deals and focus on the quality and range of its products in the future. Why do you think this is so? Do you believe that price deals should play a role in Tesco’s future promotional strategies?

Cliona Lynch’s claim that “Tesco will move away from price deals and focus on the quality and range of its products in the future” is reasonable. Evidently, too much focus on pricing strategies has proved ineffective in its marketing plan. To begin with, there “big price drop” did not result to an increase in volume of sales for the company. The reason why pricing strategies have become ineffective is because price competition has become the prime focus for many organizations; a drop in one company price results to similar drop by other companies. Therefore, the customers are acquiring higher sovereignty while companies are losing their profit margins (Ryan & Jones, 2012). Therefore, it is crucial that Tesco shifts its strategy and quality would be another way to launch competition in the market. For instance, the company would focus on keeping their prices stable while improving the quality of products and customer service. However, price remains a point of focus since the customers are price-driven and are always looking for cheaper products (Kotler & Armstrong, 2014). The company needs to focus on strategies that will reduce their expenses and streamline their supply management strategies. This way, they can genuinely offer lower costs and while maintain their profit margins at a high level.