Poundland seeks to widen appeal as consumers tighten belts

Poundland is seeking to capitalise on straitened economic conditions by hiring its first advertising agency (MW last week). But it will be no easy task to differentiate the brand from its countless rivals in the discount retail sector.

Poundland, which was founded 17 years ago, announced last year that sales rose to £311m for the 52 weeks to April 1, 2007 – up from £281m the previous year. It is looking to expand on the back of the sales increases and experts believe its extensive product range – from household goods and stationery to toys and food – mean it is well placed to succeed in what is a cut-throat sector.

Healthy product range

Mike Godliman, marketing director at retail consultant Pragma, says: “Poundland has a stronger product range than its rivals. It is known as a place for bargains.”

About 30% of the goods Poundland sells are branded, which Verdict Retail consulting director Neil Saunders believes is key. “Poundland can say they have Duracell batteries for an excellent price,” he adds.

But Saunders thinks it will be a challenge for Poundland to stand out from the crowd because, like its rivals, its proposition is based around price. He also points out that it will be difficult for Poundland to invest seriously in expansion because it “doesn’t have any margins”.

Instead, he thinks that the company should “tweak” its product range and improve its customer service – which he concedes is already better than its rivals – to give it an edge.

However, Godliman disagrees that investing on low margins will be a problem for Poundland: “That’s their business model. They are used to low margins and their strategy is geared to that.”

Loyal customer base

Poundland boasts a loyal customer base. In a survey the retailer conducted in July last year, 99% of respondents said they would recommend the chain. Godliman says that puts them in a good position to advertise. “Some advertise and don’t have the right proposition,” he adds. “But the key thing for Poundland is that it does.”

Poundland has about 2 million predominantly female shoppers every week in the C1, C2, D and E categories. However, it claims 10% of its customers are in the A/B group. Poundland also attracts students and the elderly, both of which watch their budgets and look for bargains.

While the chain is already popular with the low income segment, Godliman points out that higher earning consumers are increasingly in the market for a bargain. He thinks therein lies an opportunity for Poundland to attract more customers and suggests that appointing an advertising agency may help it achieve that aim.

Poundland has 164 stores and is opening a further 66 over the next two years. With the help of a TV advertising campaign, Poundland looks set to take full advantage of an economic situation that will likely favour the value sector.

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