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Economic Analysis of Sainsbury pricing strategy

In the recent past, Sainsbury decided to overhaul their pricing strategy in a scheme of price wars with their fiercest competitors such as Tesco and Asda. The revision in the company process was also part of their bid to address the economic reality in the UK grocery market. Sainsbury decided to move to mid-low pricing strategy after reducing the prices of more than their 12,000 products for in the past one and a half years (Ruddick, 2014). The price cut was also facilitated by an aggressive marketing strategy with the aim of informing the public of new competitive prices offered by the company.

In economic terms, the price reduction by Sainsbury was a good strategy that is meant to ensure that the company makes more profit and remains relevant in the highly competitive UK retail industry. The company is aware that one of the best methods of attracting new customers and retaining the old ones is to offer competitive prices for their products. With more customers, the company is likely to make more sales, leading to more profits. On the other hand, the rivals in the industry were already offering more competitive prices that look attractive to the customers (Moorcroft, 2008). The failure by Sainsbury to revise the prices of their products would mean that the company would lose their customers to their competitors such as Morrisons and Tesco, who are already offering competitive prices for their products. In return, this would translate into lower sales and the subsequent fall of the company.

Porter five forces of Sainsbury

Competitive Rivalry

The retail market in the UK is highly competitive due to several players who are very aggressive in regaining significant market share. The intense competition in this industry is further strengthened by the new players who are determined to enter the UK retail market. The big players in the industry such as Asda, Morrisons, and Tesco continue to improve on their retail strategies, thus posing a great competition in the industry (Connor, 2008).

Barriers to Entry

The barriers to entry are extremely high in the UK food retail market due to heavy initial capital required. The barriers to entry in the UK retain industry is also heightened by the good number of established brands such as Tesco, Asda, and Morrisons. Finally, the retail industry in the UK is in its advanced stages, making it hard for the new entrants to gain significant market share in the industry.

Threat of substitutes

The threat of substitutes in the UK food retail is low since most of the consumers view food as a necessity that they cannot work without. Moreover, the retail market is always trying to converge and assimilate new innovations with respect to food products with the aim of making shopping pleasurable for millions of their customers. The possibility of any of the supermarkets lapping up with the business of other products is also low.

Bargaining power of customers

The customers in the UK food retail industry have high bargaining power due to increased number of retailers offering competitive products at competitive prices (Moocroft, 2008). Most of these retailers have focused on offering competitive prices and strategies on improving consumer loyalty, thus making their customers have strong bargaining power. On the other hand, the consumers’ needs are also likely to be given more weight whenever the economy goes towards recession.

Bargaining power of the suppliers

According to Connor (2008), the status of the bargaining power in the UK food retail industry is very complicated due to the interchange among several factors. The relationship between the retailer and their suppliers is mutually dependent since their suppliers come from large established firms with brand image such as Unilever, Cadbury, P&G, among others. In this regard, the suppliers can have a huge bargaining power if the supermarkets fail to sell their products.

Contestability of Sainsbury in UK market

Generally, Sainsbury has a great competitive advantage with the potential of making the business very successful in the coming years. To begin, the retailer is already an established brand in the UK food retail industry, serving about 16 million customers on a weekly basis (Ruddick, 2014). In addition, the company enjoys about 22% of the market share and this makes them a key player among the established brands such as Tesco. Sainsbury has several stores that are strategically located to serve their customers with their quality products. Sainsbury has highly skilled management and employees that ensures that all the operations and strategies are fruitful. With their recently reduced prices, Sainsbury is likely to attract new customers and retain the existing ones and this will see a steep rise in the volume of their sales. Sainsbury is also involved in the aggressive marketing strategy with celebrity endorsements of their products which will see rise in sales. In this regard, Sainsbury has a strong competitive advantage and this will enable the retailer to increase its sales and their overall profitability.

 

 

References

Connor, J. (2008). Inspiring colleagues to make sainsbury’s great again. Strategic Communication Management, 12(1), 24-27.

Moorcroft, R. (2008). Sainsbury’s managing the talent. The British Journal of Administrative Management, 14-16.

Ruddick, G. (15 January 2014). “Sainsbury’s overtakes Asda for first time in a decade”. Independent. Retrieved 04/08/2015

 

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