Whether it be direct savings on price or cash pots for future purchases, retailers are investing heavily to protect their market share and deflect shoppers from discounters, writes Sophie Bailey, Managing Director at Acuity Pricing.

Loyalty. Embedded so firmly in retailers’ lexicon that it's almost sure to make the shortlist for the Oxford English dictionary’s ‘Word of the year’. Since Tesco launched their ‘Clubcard Prices’ loyalty scheme in May 2019, retailers all over the UK have jumped on the bandwagon. The internet awash with memes of the margin-defying deals available. So dogmatic is Tesco’s commitment to their scheme that they have removed most promotional mechanics, leaving just loyalty promotions and their highly successful ‘Aldi Price Match’ campaign.

Sainsbury’s - Tesco’s nearest competitor - launched their Nectar pricing (and similar ‘Aldi Price Match’ campaign)this April, almost four years after Tesco. As of August 2023, Tesco had 6354 products on loyalty promotion compared to Sainsbury’s 3088 with an average discount of 21% and 24% respectively.

Other retailers have been slow to react and with mixed success- transparent loyalty price discounts, like Boots’ ‘Price Advantage’ scheme, are more popular with shoppers compared to complicated cashpot offers to be redeemed on future shops. Too many conflicting mechanics in one scheme confuse shoppers and the increasingly budget conscious customer wants to know what they are saving at point of purchase, not against a future shop.

However, whilst rollouts have been somewhat slow, it is a guarantee that other retailers will follow suit as they overcome challenges with resources and technology, because loyalty data is increasingly big business. By productising the data these schemes generate to give third parties a deeper insight into shopper behaviour, retailers are diversifying their business models to create additional revenue streams. Pair this with the investment into retail media platforms (more on that another time) and retailers are more incentivised than ever before to make their loyalty schemes attractive to shoppers.

How they do that is largely down to the simplicity of the offering and message. By reducing the amount of promo mechanics to be mainly loyalty focussed, retailers like Tesco and Sainsbury’s are increasing their customer price perception by having a large selection of products on one single heavily advertised discount scheme. Their hope is likely to be that customers are so infatuated with the savings they’re getting on these products that they’re willing to pay more for others.

Whilst retailers put the recent inflationary profiteering accusations to bed with muted H1 results, significant investment in price cutting needs to be funded from somewhere. When Iceland announced it was reducing the price of 500 of its core products, they also increased the price of 631 more between mid-July and mid-August.

Being included in such a programme will have a significant positive impact to sales volumes but likely heavy rebates, (which almost always work in the retailers favour), and from a brand marketing perspective- a negative impact to value perception, if consumers begin associating your brand with the discounted loyalty price. Too low a price and customers become distrusting of the brand, believing the original selling price to be too inflated and essentially feeling they’ve been ‘ripped off’.

Loyalty schemes are particularly susceptible to this due to the length of time discounts are applied. In 2022, the standard promo cycle for a block of Saputo’s ‘Cathedral City’ cheddar was 4 weeks on then 2 weeks off. Now in 2023, these promo cycles last for longer, with the product being on loyalty price for 10 weeks - effectively cementing it as the new base price in shoppers' minds.

So how does a brand win against such aggressive discounting tactics? The key seems to be in 2023’s other contender for word of the year, ‘Value’. Brands should focus on investing in marketing which demonstrates why their product provides the shopper with value. It sounds obvious, but the modern media seems to have confused value with price. Value is not about being cheap, it's about demonstrating worth.

The competitive landscape has changed, and traditional brands are now going head to head with Own Label offerings. Gone are the days of meek Own Label ranges; instead retailers have invested heavily in the innovation of both the products and the branding. Add to that the heavily promoted discounts of loyalty schemes and brands have a real challenge on their hands.

Having a true understanding of competitors is key to understanding how to create brand differentiation and thus, worth. Most brands will never win in a war on price, but building a clear value message which demonstrates to the shopper the product’s worth will go a long way in protecting short term market share and most importantly, long term brand price sentiment.