Tesco Launches Big Price Drop

To fund the initiative, the U.K.-based retailer plans to end the double points offer on its Clubcard loyalty scheme.

With an investment of $812 million, Tesco has reduced the prices of 3,000 everyday products, including 1,000 Tesco-branded items. This will make some products up to 50 percent cheaper than the branded alternative, the company claims.

“We’re giving customers a more straightforward shop — reducing the number of promotions and putting the emphasis on clear and reliable savings that everyone can benefit from,” says recently appointed Tesco U.K. CEO Richard Brasher.

Tesco launched the program after listening to the views of 200,000 customers and studying their shopping behavior using Clubcard data. Tesco highlighted evidence from the Institute for Fiscal Studies stating that the past decade has been one of the worst in more than 60 years in terms of living standards, and that the effects of the recession will be felt for years to come. It also cited Office of Budget Responsibility predictions that average earnings will fall over the next two years, and that there is a growing consensus that the majority of the population (around 80 percent) are experiencing a “squeeze” on their income from the rising cost of living.

The number of categories the Price Drop program encompasses appears to be broader than originally thought; products featured in the price reductions are highlighted through shelf barkers reading “Price Drop.”

Implications
The initiative’s strong price message will resonate well with consumers at times of austerity and continued economic gloom. The move will be bad news for branded manufacturers, as Tesco’s own labels form a key part of the promotional program. It could also affect the margins of Tesco’s key competitors as they cut prices to compete — particularly Asda, which has pledged to undercut its rivals by 10 percent through the Asda Price Guarantee.

Still, scrapping double Clubcard points will almost certainly reduce the attractiveness of the loyalty program, which has been pivotal to Tesco’s success over the years.

The Big Price Drop marks a strategic shift in Tesco’s promotional strategy and is one of the first major initiatives to be implemented by Brasher. The program will enable the chain to better deliver everyday low prices — bringing Tesco closer in line with Asda, which has an everyday low-pricing proposition.

The move once again demonstrates Tesco’s flexibility and willingness to adjust its strategy to changing customer requirements. Although it has endured a tougher time over the last few years — largely attributable to the economic climate and Tesco’s significant non-food inventory — the company has consistently adapted its offer.

Funding the Price Drop program through the scrapping of double Clubcard points could save Tesco approximately $568 million. In effect, it is reassigning where it spends the pot of money designated for price cuts and loyalty programs. To compensate customers for the change to the scheme, Tesco has strengthened its Clubcard rewards program – though it seems unlikely to re-introduce four-times value Clubcard vouchers at the levels offered as recently as last year.