Case study: Supermarkets

The double-dip recession has been accompanied by a brutal price war between Britain’s three biggest supermarkets – Tesco, Asda and Sainsbury’s. Tesco had a headstart on its discounting strategy, launching its Big Price Drop in September 2011, cutting prices on thousands of everyday items.

Yet Tesco has come off worst from the skirmish so far – its profits have fallen for the first time in 20 years. Sainsbury’s, conversely, has benefited from its alternative approach of offering coupons issued at the till. These let customers claim back the difference on their next shop if they buy branded items that would have been cheaper at Asda or Tesco. Last month, Sainsbury’s announced a 7% rise in full-year profits.

Revenue growth for Sainsbury’s – as with the supermarket sector as a whole – is coming mainly from the two ends of the price spectrum. Sales of its Taste the Difference premium range grew 8.7% in the 12 months to March, while its Basics range grew by 6.8%.

Whether the supermarkets can continue competing on price is doubtful, but Sainsbury’s director of loyalty and customer insight Andrew Mann believes the change in consumer behaviour that prompted the discounting is here to stay.

With competition between the supermarkets so strong, the role of customer data has become fundamental in both matching Sainsbury’s prices to its competitors’ and tailoring its products to customer needs. The company uses transaction information collected through the Nectar loyalty card to spot trends.

“Past behaviour is still the best predictor of future behaviour and we use this data to adapt promotions, ranges and develop new products,” says Mann.

He gives an example: “From looking at our Indian ready meal data, we noticed that people were buying a medium curry together with hot chilli and chilli powder. As a result, we developed a super-hot curry, which is now one of our most popular ready meals in the range.”

Nectar card transaction data also shows that consumers are shopping across a variety of price points, continuing to treat themselves to the more expensive, higher-quality items they value most while replacing other items with cheaper alternatives. People are buying premium and budget products “side by side”, says Mann.

He cites an example of this behaviour: “Using our Nectar card data we have seen that our ‘confident cooks’ customer segment buy Taste the Difference Jubilee tomatoes, pak choi and our basics range aubergines all in the same basket.”