Pricing and the UK Supermarket Industry

Pricing and the UK Supermarket IndustryIn this chapter the background of the topic and the discussion most look into problems of the thesis are introduced as considerably as the purpose and delimitations of the study. They will be described and examined in order to enhance the understanding of our endeavor for the research and its boundaries.1.1 BackgroundPricing is an exercise , sort of an integral bankrupt of economic decision making regarding what the seller or the producer outhouse expect to get under integritys skin in exchange for the manufacture products or the intangible services. (reference)In economic sense, a lot of micro and macro factors go into bearing their consequences for price conclusion vis a vis the level of prerequisite in the bad-tempered market. Pricing theory ,since its inception has researched the absolute and evolving nature of determine decisions to be made and executed by various stake holders in the economic system.(reference)In business enter prises ,the pricing decisions are no doubt the most significant decisions which not nevertheless pay off consequences for marketability, ability to meet or not to meet the current levels of demand ,the level of disputation ,the sustenance and survival of the entity, but also in round of drinks determines the cash inflows, business viability and the very economic supply chains, value chains and virtually the entire economic system and its performance over periods of time as well.The financial modeling in financial analysis as well as the marketing mix, all insists on just the right pricing to arrogate consumers surplus and in turn generate the monetary resources for enterprise to sustain and evolve . The pricing is the sole decision which brings in money, everything else is just cost1.The British Super MarketsA supermarket, a form of grocery store, is a self-service store offering a wide variety of food and household merchandise, organised into departments. It is whoppingr in size and has a wider selection than a traditional grocery store and it is smaller than a hypermarket or superstore2. (journal/book reference rather than Wikipedia)Supermarkets have their roots in the 19th century Co-operative movement through which groups of local retailers would come together to sell affordable food under the potency of consumer members (reference). The first co-operative was founded in Rochdale, Lancashire in the 1840s. Subsequently co-operatives across the North of England came together to form the Co-operative Society in order to allow the purchasing goods in volume3.In the United Kingdom, first supermarket emerged under the bracing Premier Supermarkets brand in 1951, taking ten times as much per week as the average British general store of the time. Other chains caught on, and after Galvani lost out to Tescos Jack Cohen in 1960 to buy the 212 Irwins chain, the sector underwent a large amount of consolidation, resulting in the big four dominant UK retailers o f today Tesco, Asda (owned by Wal-Mart), Sainsburys and Morrisons4. (reference apart from Wikipedia)The major chains have been opening ever-larger format stores, with Asda and Tesco in particular opening hypermarkets. The major grocery retailers have diversified into non-food retail, online shopping, and other activities unrelated to shopping.The industry structure has now evolved. The on going consolidation and mergers and acquisitions as well as development of monopoly is rendering a new shape to the industry. The bigger the supermarket chain, the more ability it has to abuse its market position and put pressure on other parts of the food chain5. (reference apart from tescopoly)The Leading supermarketsTesco Tesco became the market leader in 1995 and has continued to increase its market office ever since, reach a staggering 31.5% market share in 2006Asda Asdas business is more focuse on hypermarkets and out-of-town stores than the other UK chains, in the model of Wal-Mart, which bought it in 1999.Sainsburys bonk and neck on market share with Asda, Sainsburys slipped since cosmos the top retailer in the UK but is now doing well.Morrisons Morrisons became the fourth supermarket chain when it acquired the majority of Safeway stores in 2005.tag Spencer MS has 450 stores in the UK, and a further 150 worldwide.The Co-operative Group The Co-op has a total market share of around 5%.Retailers today hardihood many challenges keeping costs low and supply chain efficiencies high protecting their brand and reputation responding rapidly to changing consumer tastes expanding their reach to penetrate new markets and compete from a position of strength and greening their operations . (reference)Approaches to pricingChange has become the universal constant. There were times in British organise retail industry ,when the economic dominance over global economic systems was unchallengeable. In the post-recession period since the 2008,the economic realities have undergo ne transition. The comparable pricing decisions now of necessity re interpretation in wake of emerging economic complexities and financial crisis.The economic questions remain the same yet environment is various .The most base question is regarding the quantum of allocation of manufactured product or the service or the probable creation of value for consumer. Then comes the objectives and the motives before cornering on a limited price.(reference) Profit maximization or cost-plus pricing or demand found or value-based pricing or rate of return pricing, or adversary indexing.The intentions to provide local flavor-different prices at different locations can be another strategy.(reference) The efficient market mix calls for market share development ,incorporating the information and demand based asymmetries as well as cornering the competitor. Marketing age and dependency of consumers herald yet another dimension in pricing. Oligopolistic attempts to retain market share can be vi sible in form of price maintenance, price collusion, or price discrimination. More than that the microeconomic factors like production costs, extent of competition , role of state and demand elasticities do creep in.T he value chain costs and methods of payments as well as associated lateral costs can also figure up. (reference)After all , a well-designed pricing strategy needs to help the organization achieve the economic objectives and financial goals. Along with this it should crystalise the business motives achievable .In addition to this it needs to support a products positioning and be consistent with the other variables in the marketing mix .Evolution and preponderanceThe capitalistic socialistic economic divide is no longer feasible. The market structure is in itself much more complex than ever. The attempts to single out one strategy no longer seems to be practical.Thinkers and philosophers are coming up with new theoretical inputs to the change.The law of one price (here after LoP) , one of the most elementary laws of economics and yet it is a law observed in the breach6. Demanding two prices for same product in one market for exactly the same goodis so simple as to invite complication.Changes in ways to approach the problem do happen. Economists come up with new theoretical precept behind the current problems . LoP has undergone restatement8.The dynamics of information availability or non-availability seems to be the under current behind price variability.The philosophy of price novelty seems to have revolutionized after the Barzels innovation. Most commodity exchange agreements consist of an explicit, objectively measured contractual component compel by the state, and an implicit, subjective component enforced by reputations.Becoming informed about the former is relatively easy, but becoming informed about the latter is not9. Buyers do not amply adjust for differences in the reputational component of similar commodities. This gives sellers di scretion in setting prices, and we expect prices to diverge even at equilibrium. Costless information, along with competition, yields the LOP.LoP is based on greed , homogeneity of goods and speed to equilibrium11A. Multiple sellers at one spot to ensure competition at each location.B. Standardized, bulk sales agreement commodities with specialized traders, for which ready credit is available.C. Rapid attainment of equilibrium.Yet the practical observation clearly suggests that , even if all commodities were goods, the sheer volume of goods makes the collection, compilation, storage and contagion of data so costly that we will never get individual data, only indexes and aggregates.Then the trend of modern consumerism is toward more personalized products, which not only increases the number of goods to be considered but also makes price discrimination more likely.Further , all modern economies are moving away from mass produced manufactured goods and toward services. This clearly co mplicates the pricing tactics .it appears to be in the interest of sellers to acquire one degree of information beyond that acquired by consumers-hence there will of all time be some room for the sellers to manipulate consumers and violate the LoP in the process121.2 Problem DefinitionThe master thesis covers the topic of how same product-. being priced at three different retail chains() , in ..area in .. In todays environment customers are becoming more demanding in terms of better service, including dependability and faster delivery.Pricing in itself is being viewed with competitive advantage aspect. Yet the availability and non-availability of information can bring about the LoP. There seems to be no validity for the argument that increasing information processing capacities will bring about the end to price variation across the considered retail chains in ..area in .An underlying reason for the importance of the chosen topic lies in evaluating the reasons behind the price varia tions across the as well as providing superior pricing strategy inputs which is the main foundation for a sustainable competitive advantage.1.3. Research MethodologyIn this typography, the researcher will investigate into product differentiation used by the retailers to rouse different prices for same products to different customers, using the case of supermarkets. in . Area across ..city.The study will adopt triangulation method to defend out the research. Given the time and resource limitation, a convenience sampling method will be used. Observations regarding the prices of different products sold by the three stellar(a) supermarkets Tesco, Sainsbury and Waitrose will be made and analyzed. The final result will be achieved by combining the existing qualitative theories with the observation and analyses of the data collected.1.4 Research ObjectivesThe paper intends to carry out an assessment of product differentiation used by different supermarkets in order to charge different prices for the same products. The basic research objectives of this study areTo understand the rationale behind pricingTo understand what affects pricing in the chosen supermarkets in the designated area of studyTo discover different pricing strategiesTo critically evaluate previous academic studies on pricing theoriesTo understand what theories retails useTo understand the extent to which retailers use product differentiation to charge different prices from different customers.To understand the limitations in this studyHowever, the main objective of the study will be to understand the pricing theories that exist in indite and the observation made about the pricing theories used by the supermarkets in reality.1.5. Thesis OrganisationChapter 2 Literature Review2.1 Price Variation...... historical economies are subject to a succession of exogenous shocks. The discovery of new products, new processes, new sources of raw materials, new demands, and new ways of organizing production ar e, as emphasized by J. Schumpeter (1911), the driving forces of economic development and growth. It is unreasonable to suppose that such Schumpeterian shocks are all foreseen and can be incorporated as part of equilibrium.2.2 Factors affecting pricing......2.3 Theoretical frameworkChapter 3 Research MethodologyChapter 4 Data AnalysisChapter 5 FindingsChapter 6 ConclusionsAppendix