Supermarket Pricing Tactics

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Major supermarket chains regularly churn out and advertise a dazzling array of promotional packages and price discounts.

But are consumers really benefitting from this seemingly perpetual price competition between the two biggest supermarket chains - ParknShop and Wellcome - in the market?

The truth is that, in some cases, they are not what they appear to be but mere promotional sale tactics to lure customers into buying - and buying more.

The revelation was borne out in an analysis of the Consumer Council based on its daily surveillance of online prices of the two supermarket chains on 288 items over a 5-month period between October 2008 and February 2009.

(Prices of these 288 items were available and monitored throughout the entire study period).

The analysis cited, as an example, the case of the price movement of a popular brand of canned beer 330ml in a promotion.

On November 14, both supermarket chains raised the unit price of the item from $5.9 to $6.1, and again on November 15, to $6.5 bringing the increase to a total of $0.6 or 10.2% within a brief span of two days.

Having raised the price in rapid succession, later on the same day (November 15), one of the chains offered a promotional package priced at $12.3 for 2. This was matched by the other chain the following day.

It transpired that, however, the promotional unit price of $6.15 (at $12.3 for 2) was actually $0.25 ($6.15 - $5.9) or 4.2% higher than the individual selling price prior to the price escalation immediately before the promotion.

Consumers lured to the promotion had not only purchased more of the item but also paid a higher cost.

In this case, the consumers would have been better off had they made the purchase before the promotion. Or, indeed, as observed in the study, after the promotion.

Using the same example of the canned beer, it was shown that, on 19 December, both supermarket chains simultaneously adjusted the price to $6.1 each, down from the...
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