The squeezed middle
By now we’re all familiar with the challenges facing UK supermarkets: those in the middle are being squeezed by budget players at the bottom and quality players at the top.
Those once referred to as the ‘Big Four’ are pushed to increase quality on the one hand and drastically cut prices on the other. Often it’s their suppliers who are central to the strategy. And by that I mean “If suppliers cut their prices, so can we.”
The problem with this strategy is that it is simply not sustainable. The challenge is to maintain the balance of quality and cost to deliver real and perceived value.
Squeezing suppliers is like a crash diet
If you think of your supply chain as your brand’s body – squeezing your suppliers to cut costs is like a crash diet.
Yes, you can reduce some excess weight in the short term, but long term, you are just putting your body under strain.
Cheap, fast or high quality?
That strain can be seen in the quality of your products or the speed of your projects. You must have heard the saying:
Pick two: do you want your products cheap, quick to market or high quality?
Ah, ah! I said pick two!
Hurt feelings could hurt your bottom line
Another area where crash diet pricing will hurt your brand is your relationship with your suppliers. As the choice for the consumer grows, so it does for the supplier.
Their expertise and experience is a vital source of innovation and it’s ultimately their choice who gets first dibs. Squeezing them may be at the expense of your partnership and may make them look to one of your competitors. There is a need to work with suppliers as ‘one private brand team’ to develop competitive own label products.
You may not be built to deliver ‘size zero’ prices
You also need to remember that you are competing with national brand retailers who are fundamentally different in their operation. They work with significantly less suppliers supplying a fraction of the items.
Jumping back to my body and diet analogy – you’re trying to have the same ‘size zero’ figure as someone with fundamentally different DNA!
The cold, hard truth
I believe that the main problem with cutting costs to drive sales is that it misses a fundamental point. No matter how low the price, people won’t keep coming back to buy your products because those items - and the experience you provide - are simply not compelling enough.
Asda is one retailer publicly recognising the need to achieve a better balance with their recent announcement of a five-year strategy to invest £1bn in lowering prices and £250m in quality. Quality forms another corner stone of making a product compelling along with aspects like branding, storytelling, ethical credentials and peer advocacy.
However, different stories will resonate differently with different customer groups. Therefore, to maximise your return on investment for any branding or merchandising initiative, it’s so important to have a clear understanding of your customers and what makes them tick. And in my opinion, there’s no better way than simply listening – or letting customers tell you what they want.