Case study: Iceland

Click here to read the cover feature: Is your price strategy broken?
Click here to read case studies on Ocado and Robert Dyas

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Nick Canning

The UK’s supermarkets demonstrate a preoccupation with price that is unrivalled by any other retail sector. Given this, OC&C’s research into the price-sensitivity of shoppers holds some hidden shocks.

Consumers claim not to be greatly influenced by price when buying groceries. Only 32% measure ’high’ on the study’s price-sensitivity measure – shopping around for better prices and seeking out promotions. This compares with 61% in the electricals sector. It is a finding that does not ring true for Iceland executive director Nick Canning.

“I find that difficult to believe,” he says. “Consumers are very influenced by price when shopping for food. You only have to look at the money the big four have spent in the press [on advertising], which is 99% about value and price. If they did not think it was a contributing factor to help customers’ decisions and they were not price-sensitive, they would not do it.”

With marketing that positions it at the lower end of the price spectrum, it is unsurprising that Iceland is thought to be 4.2% cheaper than average for grocery retailers. Of the supermarkets studied, only Asda and Aldi are assumed by consumers to be cheaper. In fact, Iceland’s prices are higher than consumers believe them to be.

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Tom Gladstone, associate partner at OC&C, suggests the brand benefits from simple messages targeted at what the report calls the “cash-strapped consumer”. This includes a policy of pricing to round sums.

Canning says: “We took Iceland to round-pound pricing in mid-2005 and have never looked back. Over 85% of our products are now at a round-sum price, which we define as a pound or a pound fifty. What we do is allow our customers to budget and shop the stores very easily. It allows for simple communication in the store, and I think they get the value as a result of that.”

Pricing strategy is still a balancing act, Canning says. To compete against other supermarkets, a brand cannot afford to be out of line on big promotions, even if aiming for round sums limits the options for moving prices around.

But he adds: “At the same time, from a branded perspective and what the customer expects, I think the consistency of communication in store is very important.”

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