Playground tactics that hide Sainsbury’s intent

Sainsbury’s warns that if it doesn’t get Safeway, the quality of UK retailing will be compromised, but the truth behind its bid is less altruistic, says Alan Mitchell

One of the most interesting reactions to the current play for Safeway was Sainsbury’s chief Sir Peter Davis’s almost plaintiff plea that only a Sainsbury’s takeover would provide an alternative to increasingly dominant “pile it high and sell it cheap” retailing.

Only Sainsbury’s, he seemed to be suggesting, stands in the way of a bloodbath price war that will take value out of the market, slash margins for both retailers and suppliers, culminating in worse service and worse value for consumers. Nice try, Davis, but it simply doesn’t wash.

The secret of all successful market-leading brands is that they have the enormous, unchallengeable weight of a superior value-creating ice-berg behind them, a weight that is sustained by a superior business model.

Such superior business models achieve three crucial things. First, they deliver superior value to customers at a cost that delivers them healthy margins. Second, the profit from such transactions represents just one link within a virtuous economic spiral that helps unleash further value for both buyer and seller, thereby luring them both back for more.

This reinforcing win-win circle then generates its own momentum, acting rather like a roundabout in a children’s playground. When you start out, each push on the ground (each separate transaction profit) hardly seems to have any effect. But over time, the momentum accumulates until the roundabout is spinning almost unstoppably, repelling any would-be boarders trying to grab a ride from a standing start.

That’s what makes brand leaders so incredibly powerful and profitable: not the value captured from any set of one-off transactions, but the accumulated momentum of this reinforcing cycle.

Third, this “roundabout momentum” in turn, becomes the centre of gravity of an entire industry or category. It sets the competitive agenda, forcing other players onto the defensive – always having to respond and catch up. It also drives customers’ expectations, prompting them to seek out the dimensions of value that the brand leader is in a best position to deliver. This agendasetting momentum creates stark choices for rivals: become a me-too or be marginalised.

The first such branded “magic roundabout” was developed by the earliest packaged goods pioneers. They distinguished themselves from their competitors by offering guaranteed, consistent quality, backed by the fact that they were publicly putting their reputation on the line. Such guaranteed, consistent quality – and its associated marketing – cost more to offer but it also offered greater user value – especially in a world where cheap often meant adulterated, off, or otherwise shoddy.

But there was something more to the mix than a mere price/quality trade-off. Not only did these early brands offer a higher level of user value, they also created an another, extra dimension of “buyer” value too. The brand reduced buyers’ risk. It also helped streamline their processes of search and choice. You didn’t have to inspect its content – you could trust its quality. It didn’t take a long time to find – its distinctive packaging, logos and the like made sure of that. In this way, a win-win transaction was extended into the future through momentum-building repeat purchase.

Yet happily, these extra dimensions of buyer value didn’t cost the seller a penny more to provide: they were a by-product of its own marketing activity. So sellers could offer genuinely superior value without incurring massive extra cost.

In its halcyon days, Sainsbury’s pulled off a similar feat. Out-of-town superstores made enormous economic sense: property and development costs were lower, as were supply chain and replenishment costs. This enabled the superstore owner to offer a wide range, at lower prices – while also adding another layer of buyer benefits at no extra cost to itself: the convenience of a one-stop shop, easy use of the car to carry heavy loads, and so on. This was another powerful momentum-building win-win cycle – accelerated even further by the triumphant development of own-label strategies.

In both examples, the brand/business model pioneers set the agenda for everyone else. But such virtuous spirals cannot last forever. Once the grocery market flipped from unbranded commodity supply to brands as standard, the playing field began to level – so the pioneers honed their model in order to add another momentum-building spin. This was the era of brands as vehicles of innovation – New! Improved! became the watchwords – with new economies of scale and lower unit costs driven by mass advertising and distribution. The brand pioneers had found a way to ratchet up their virtuous spiral.

Tesco and Asda are in the process of doing the same in groceries. Building on top of the established model they’ve been using, improving supply chain efficiencies and increasing buying power to create an extra virtuous spiral. Lower prices attract more customers, which drives volumes, which in turn generate increasing economies of scale and lower unit costs.

Theirs isn’t a pure price agenda. They are taking a certain set of expected standards – in terms of product quality, convenience, range, service – as a given, adding to them along the additional dimension of price to recast definitions of value for money. They’re using the additional momentum to extend their reach ever further, geographically, by format, by category, so that ever more value is sucked into their orbit.

The trouble is, Sainsbury’s missed this finesse and was left playing catch-up, both operationally and in terms of agenda-setting. And as Barclays Bank group marketing director Simon Gulliford pointed out at a D&AD symposium last week, “value for money” perceptions are vital for every brand. “It’s not as if the world is made up of two groups of people – those who want value for money and those who want to be ripped off,” he remarked.

Safeway is a victim of the vortex-creating power of superior branded business models operating at full tilt. For Sainsbury’s (and Boots) the major question is: can they create an alternative model with a strong enough magnetic field not only to resist the new market drivers, but to create a new momentum of their own? Complaining about rivals’ “pile it high” strategies is just a smokescreen.

Latest from Marketing Week

PLEASE SIGN IN OR REGISTER. IT'S FREE, QUICK AND EASY!

Access Marketing Week’s wealth of insight, analysis and inspiration that will help you develop as a marketer and leader.

Register and receive the best content from the only title 100% dedicated to serving marketers' needs.

We’ll ask you just a few questions about what you do and where you work, so we can make Marketing Week more relevant to you.

Register now

THE BEST CONTENT

Our award winning editorial team and columnists will ask the biggest questions about the biggest issues on everything from strategy through to execution to help you navigate the fast moving modern marketing landscape.

THE BIGGEST ISSUES

From the opportunities and challenges of emerging technology to the need for greater effectiveness, from the challenge of measurement to building a marketing team fit for the future, we will be your guide.

PERSONAL AND PROFESSIONAL DEVELOPMENT

Information, inspiration and advice from the marketing world and beyond that will help you develop as a marketer and as a leader.

Dedicated to developing your skills and helping you achieve marketing excellence. Find guidance on leadership, professional development and the latest industry jobs.

Having problems?

Contact us on +44 (0)20 7292 3711 or email subscriptions@marketingweek.com

If you are looking for our Jobs site, please click here