30 Jul Is Range Tiering an Endangered Strategy?
The way supermarkets tier their pricing does not necessarily define the way we shop.
Investigative research by Anne Brister and Alison Eddershaw at Cambridge Market Research
Range tiering has been a highly successful mechanism by which major supermarket chains differentiated and broadened their offer within store and within each product category.
Tiering was first introduced to UK shoppers in 1993, with the launch of the Tesco Value range (rebranded in 2012 as Everyday Value). The brand came about as the result of supermarket price wars, with new Value products including baked beans for 3p and bread for 7p. Other supermarkets then followed suit and established their own low price ranges. Subsequent premium ranges were launched around the turn of the century, the most successful being Tesco Finest* and Sainsbury’s Taste the Difference. The strategy of differentiating range and product ideas to appeal to a broad customer base proved highly successful at a time of changing shopping behaviour. Claimed turnover for Tesco’s Finest range is now a stunning £1.4bn.
The three-tier structure has remained in place since its inception, with each of the ‘Big Four’ supermarkets launching their own value and premium brands. However, the relevance of tiering has been brought under scrutiny by the results of Cambridge Market Research’s recent studies on tiering, carried out in June 2015. “The retail industry is very different now compared to how it was at the dawn of tiering; we’ve entered and emerged from a global recession, shopping behaviours have changed, and new players have entered the market in both the value and premium sectors” claims Anne Brister, Qualitative Associate Director of Cambridge Market Research.
Imitated by many, top end food stores responded in the noughties with everyday Essentials and Simply ranges to maintain customer loyalty at a time of differentiated purchasing behaviour by consumers who – prompted by static and declining budgets – became more rational in making choices at a level appropriate for need.
“Our research has identified an increasingly blurred line between the three tiers, and confusion is exacerbated by the presence of retailers that do not fit the standard structure. For example, Waitrose and M&S are seen as treat destinations, and both sell their own value range – however, these aren’t viewed in the same way as the lower cost own brands offered by the Big Four; Waitrose Essentials, for example, is perceived as being more akin to a mid-tier range. At the other end of the spectrum are the discounters – Aldi and Lidl, who have disrupted the standard tiering principle of ‘good, better, best’. Aldi and Lidl have a clear strategy to build quality perceptions. They talk value rather than price; their sector name – discounters – does the rest”.
The focus of much activity is on the discounters’ premium ranges – Specially Selected and Deluxe; on limited, but highly engaging ranges of premium foods, like Lobster Tails, Kangaroo Steaks and high quality Continental lines. They aim to offer restaurant quality at everyday prices – as Lidl advertising demonstrates. At the same time their core range is compared with brands as a benchmark, as comparative benchmarking by Lidl and Aldi illustrate on a regular basis. “With everyday lines as good as brands and premium lines offering phenomenal value for money – with a touch of Continental excitement – who needs conventional tiering? The implication being, why have a value range when everything is good value? Why have a premium range when everything is good quality and at a tempting price for those special occasions when you need something different?” adds Anne.
This disruption by the Discounters runs deep into the strategic thinking of the major multiples. Consumers still appreciate the ‘help’ that tiering gives them. Linked quantitative research shows…
– 2 in 5 choose premium if the think it is better quality, with over half (%57%) buying for a weekend treat.
– 2/3 think Tesco Finest is worth paying extra for.
“But the thinking and differentiation has become blurred as prices fall in the major multiples and more consumers become aware – and excited by – the Discounter offering” says Alison Eddershaw. “Consumers still ‘trade up’ to the premium ranges, but this tends to be for certain types of products (e.g. chilled ready meals, meat based products and treat desserts), or on special occasions (e.g. a Friday night treat ‘for me’ or something to impress guests when entertaining). There is not always a sense amongst shoppers that premium labels are worthy of their higher price tags, though Tesco are obviously doing something right – 2 in 3 consumers agreed that it was ‘worth paying extra for’. Some shoppers choose to make their premium purchases elsewhere, such as Waitrose, M&S or their local deli, butcher or farm shop – or they may trade up to a branded product” adds Alison.
So what does the future hold for tiering?
It was clear from our research that if it is to survive the old 3-tier system needs to evolve. The major multiples need to acknowledge the paradigm shift that the entry of the discounters has triggered and respond with a fresh approach to ranging and differentiating their product offering. Supermarkets face a difficult battle to keep tiers relevant in the eyes of the consumer, so will need to innovate and experiment in order to ensure the validity of separate value and premium own brands. The premium tier will likely become a place for supermarkets to showcase their ‘foodie’ credentials by developing exciting on-trend products. Catering for current shopping habits is also important; focussing on providing ‘special occasion’ products, chilled ready meals, meat products, desserts and cakes.
Conversely, the value tier needs to continue to offer ‘no frills’ products. Today’s rational consumers will buy into value for certain categories, e.g. for ‘everyday food’ or a ‘cooking ingredient’ or if they are buying in bulk for the family. Supermarkets need to focus on functionality: if a product is ‘as effective’ and gets accepted in the household, a value brand is fine.
Regardless of their place in the food chain, all retailers must acknowledge changing contemporary consumer needs, buying behaviour and requirements if they are to remain a destination of choice.