Hi-Value Supermarkets- Everyday Low Pricing Essay
Hi-Value Supermarkets- Everyday Low Pricing
I. Factual Summary
Hi-Value Supermarkets became a division of Hall Consolidated, a privately owned wholesaler and retail food distributor in 1975. Hi-Value Supermarkets is considered to be the smallest of the three supermarkets chains owned by Hall Consolidated, with a small store distribution for its category. Hi-Value was the number one or two ranked supermarket chain in each of its trade markets (as measured by market share).
Hi-Value is known as “most convenient”, having three stores in Centralia compared to its top competitors only having one each. Hi- Values three are major competitors are: Harrison’s, Grand American, and Missouri Mart. The three major competitors in Centralia contain stores all subsequently larger in size than those of Hi-Value. The four major supermarkets in Centralia make up 85% of all food sales, with the remaining 15% stemming from smaller, independent grocery stores and convenience stores. All 3 major competitors contain a feature attributes and a unique position in the market. With Hi-Value having three locations in Centralia, it puts them at an advantage for convenience that the competition cannot duplicate without having the funds or other resources to do so.
Although Hi-Value Supermarkets offer the highest level of convenience, there prices are overall are the highest as well. Residents of Centralia prefer lower prices because according to the U.S. Census held in 2000, the median income was 36,000. It is understood that price is the most important store determinant for the residents, which poses a problem for Hi-Value. The major question described in the case is whether or not Hi-Value should implement a low-pricing strategy. With the examination of Hi-Value’s current situation, it is evident that their future falls in between several courses of action that executives must examine and choose whether or not to integrate them. This process must be done in order to maintain a strong position in their served market and prosperous future.
II. Case Problem/Opportunity
Hi Values main problems are that they lack strong customer image and are highly priced. Each of the local supermarkets in the Centralia area has an image. Harrisons has an extremely favorable image. They are well managed, clean, orderly, and attractive, and the store is conveniently located along with excellent parking. Grand American is the most modern store in Centralia and has a highly regarded dairy department. Contrarily, they have a modest variety in meats, and produce and offer double coupons. Missouri Marts primary merchandising strength is in groceries and special purchase displays, but its store lacks quality and freshness. Hi-Value has multiple locations but has highly priced merchandise. A supermarket interview was conducted to give customers an opportunity to share their overall thoughts and experience they had when shopping at local supermarkets in Centralia. The questions were asked based upon the characteristics each store had to offer. The number one concern customers had with Hi Value was “price”. At the time Hi-Values prices ran 10 percent above Harrison’s, and 7 percent above Missouri Mart and Grand American. Although Hi-Value is recognized for its store convenience it lacks a top ranking sales item that sets it aside from other supermarkets in the area. Since Hi- Values reputation is not where management expected, Hi-Value Supermarket is reviewing whether or not it would be a good business decision to incorporate an everyday low pricing strategy to stay competitive with the other supermarkets in the area marketing tactic.
The most important opportunity for Hi-Value Supermarkets is the growing price consciousness Centralia shoppers are becoming. The increase on price elastic customers should be carefully taken into consideration when developing new strategies, or taking new courses of action. One of Hi-Value’s opportunities could be identified in the customer spending habits. Company records point out fresh meat, poultry, and seafood to be among the items people in Centralia spend the most money on. This representative 14.32% average plus the fact that meat quality is the second most important determinant of store choice can be seen as an attractive opportunity for Hi-Value executives to improve the quality of their butcher in order to attract more customers. Another opportunity for Hi-Value is to modernize their store to make it more attractive and easier for customers to maneuver around to make their shopping experience better. It may not be a bad idea as well to offer a greater variety of bakery choices along with fresher produce.
III. Alternative Solutions
1). Implement “Everyday low-pricing” strategy to all Hi-Value Supermarket products: By choosing to implement “Everyday low-pricing” strategy to all Hi- Value Supermarket products in Centralia, Missouri, Hi- Value would begin direct competition with Harrison’s via most reasonable prices. According to the Exhibit 6 found on page 506, data shows that, Harrison’s is a market leader with 36 percent of customers agreeing that Harrison’s has the most reasonable prices , while customers rated Hi- Value with only 7percent . Also in this data we can see that Hi Value scored lowest on best overall variety with 2 percent while Missouri Mart came in at 74 percent. With 13,500 households retaining an average income of a mere $36,000/ year, consumers of Centralia are money conscious and smart shoppers. Since Harrison’s is favored 29 percent higher, than Hi-Value’s pricing, they are undoubtedly the average consumer’s penny stretching, go-to supermarket. Because price is believed to be the most important store choice determinant for customers, this may be a strategy that Hi-Value should consider. By implementing the “Everyday low-pricing” strategy, Hi- Value Supermarkets would promise customers a low price, without the need to wait for a sale price or other comparison.
A strategy like this has proved to work well with a broader store positioning strategy and if it is well supported with advertising. Since Hi-Value has 3 stores compared to the other retailers who only have 1, it is positioned as the “most convenient” and uses a value approach when advertising. With the current positioning as Hi-Value= Superior Value, in convenience, service and bakery items, Hi- Value falls short in the pricing category and also typically spends .11% less on advertising annually than the average advertising sales (which is 1% of annual revenue). Implementing this strategy may confuse Hi-Values image and positioning. However, if it is implemented, the “Everyday low-pricing” strategy has the potential to reduce operating costs and increase profit (.9% of annual sales), which the company could then use to bolster a new advertising campaign featuring Hi-Values new “Everyday low-pricing” strategy.
2) Implement “Everyday low-pricing” strategy to Grocery and Seasonal/General merchandise only By choosing to implement an “Everyday low-pricing” strategy on Grocery and Seasonal/ General merchandise only to Hi- Value Supermarket products Hi- Value would limit the pricing strategy to all grocery (including dairy) and general merchandise (including beauty care and health care items). Since these categories represents 57 percent of Hi-Values annual sales, this limited approach on the “Everyday low-pricing” strategy should convey the image they want to project as well as enter Hi- Value Supermarkets into a different level of competition (reasonable pricing) where they were last in the category before. As a result, this would mean more direct competition with Grand American, Harrison’s and Missouri Mart. However, this change does alter Hi- Value’s positioning as “superior value and convenience” and may begin to confuse shoppers. Hi- Value Supermarket Shopper Interview Resulted in saying that 77.9 percent of all Hi- Value customers are dedicated patrons that have stayed and shopped with Hi- Value for 3 or more years. Of these customers, 51.7 percent purchase about half of their total food needs with Hi- Value Supermarket. Of that 51.7 percent, 36.9 percent purchased grocery items only and 23.4 percent purchased grocery, meat and produce. Of these customers interviewed, 27 percent of them stated that the things they liked best about other stores were the “prices”. This information allows a conclusion to be drawn that because of the strong base of loyal customers, who mostly purchase grocery items, preferred most stores with lower pricing and shopped most regularly for other groceries at Missouri Mart (whose ad’s feature “very low prices”), that the strategy of implementing “Everyday low-pricing” limited to Grocery and Seasonal/ General merchandise only, to Hi- Value Supermarket products would only make sense.
3) Do not implement the “Everyday low-pricing” strategy by choosing not to implement the “Everyday low-pricing” strategy whatsoever to Hi- Value Supermarket products in Centralia, Missouri would allow Hi- Value Supermarkets to maintain their prided image and positioning as the “greatest convenience for shoppers”. Their 3:1 ratio of stores located throughout Centralia gives them a competitive edge against the other leading supermarkets in the area. Hi-Values W. Prospect store, being the only Supermarket in that section of town is a definite advantage for the organization. By choosing to focus directly on their existing positioning they will be sure to not confuse customers, also with their large base of 77.9 percent customers who have been loyal customers over 3 years. Hi value has to be careful about simply lowering prices because if Hi-Value was to change their positioning, it may change the way they are overall perceived. Higher prices indicate higher value and superior service. This is a trend seen worldwide. These categories of high value and service are what Hi- Value Supermarkets was built upon. The option of lowering price may or may not contradict these written values. In a well-defined market area, for “Everyday low pricing” to work, you do not have to be the lowest priced supermarket in the trade area. This allows the option to always be considered to only slightly lower prices. With Hi-Value’s pricing to be 7-10% higher than its competitors, if Hi-Value lowers prices by a mere 2-3% they can still be positioned as the most convenient and superior value supermarket, while satisfying their customers price concerns.
IV. Selected Solutions
Hi-Value Supermarkets best bet is to implement an everyday low pricing strategy in certain product categories with a price reduction anywhere from 5-7% below the original quote. With growing sensitivity to pricing in the area, this strategy will work to increase customer satisfaction and will lead to a positive company image. Implementing low prices will keep Hi -Value competitive with other markets in the area. Although Hi- value cannot out price Harrison’s, it still may be an option worth while looking into. Also Hi-Value needs to greatly improve their customer image. Usually first impression is the last impression, so it is important that Hi-Value staff consider training their staff on the importance of making sure that the customer has a better experience when coming to their stores. Perhaps they can have more staff working to ensure that the isles ate wide enough and that the shelves are neatly stocked and organized so that when the customer shops it will be a smoother transition from the shelves to the cash register. Along with that it may be a good idea as well if they focused more on offering a better variety of bakery items as well for customers to enjoy.
With all the information that has been provided, it can be concluded that if Hi-Value decided to operate in a way that is seen as being more reasonable and economical for customers, customers will be more inclined to shop there. If management decides to implement better sanitary solutions and decides to clean up the dairy department, it would more than likely lead to better customer satisfaction. If management works more closely with ensuring that customers do not experience out of stock items and fresher produce, customers will be more inclined to shop there and continue to recommend Hi-Value to their friends and family. These are simple options that management can takes that will be work out to be both effective and efficient. If management also decides to take this approach it can compensate for their higher prices. If your prices are higher than there needs to be a justifiable reason, so in this case Hi-Values justifiable reason would be again to work on customer image. Altering their advertising slogan, start advertising on television, and targeting shoppers outside of Centralia will increase sales and market share. As of now 89 percent of their sales are devoted to advertising. Having an increase in marketing expenses from the new strategy will be offset with increased sales and market share. Once these actions have been implemented, it would be a good idea for Hi-Value to allow customers to take a survey to comment on their recent improvements to store and allow them to give feedback so that management is always in the know and so that customers can always contribute. This will put Hi-Value at an advantage with its competitors.