Impact of Price War on Supermarket Retailers: Tesco and Asda

Dissertation
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ACKNOWLEDGEMENT
I would like to thank all those individuals who have supported me in conducting the
present research and arrive at a valid conclusion. First of all I would like to thank my superior for
giving me opportunity to carry out the present research. Apart from this, I am thankful to my
friends and family members who have supported me at the time of data collection and analysis as
without their support it was not possible to carry out the entire research and accomplish its aim.
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ABSTRACT
The main purpose behind carrying out the present research is to analyse the impact of
existing price war among retail supermarket industry. It can be stated that earlier there was a
time when brands such as Asda and Tesco were considered as the main player in UK
supermarket industry. Further, the entry of German based discounted retailers like Lidl and Aldi
has affected the entire supermarket industry of the nation. The present study explores how sales,
profits and other related areas of Asda and Tesco has affected by the same. Nowadays, the UK
based market players are not able to generated adequate profits and they are also facing issues
regarding long term sustainability. For the purpose of carrying out the present study, the data has
been collected by managers of Tesco and Asda with the help of purposive sampling method.
Apart from this, quantitative technique of data analysis has been used here.
After conducting this study, the researcher has found that several areas such as
employees, suppliers, customers, sales, profits and market share has been affected by the price
wars. It has been recommended that Asda and Tesco should develop some innovative products
and services in order to sustain in highly competitive market place.
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TABLE OF CONTENTS
Chapter 1- Introduction....................................................................................................................6
1.1 Background of the study........................................................................................................6
1.2 Rationale of the study............................................................................................................7
1.3 Research aim, objectives and questions ................................................................................8
1.4 Potential significance of the study.........................................................................................8
1.5 Analysis and framework .......................................................................................................9
1.6 Structure of the dissertation.................................................................................................10
Chapter 2- Literature review..........................................................................................................11
2.1 Introduction.........................................................................................................................11
2.2 Concept of price wars..........................................................................................................11
2.3 Impact of price wars on customer loyalty............................................................................12
2.4 Factors for changing customer shopping habits..................................................................13
2.5 The concept of retail marketing mix....................................................................................13
2.6 Impact of German discount retailer on Asda and Tesco .....................................................14
2.7 Analysing retailer pricing strategy.......................................................................................16
2.8 Impact of price wars on employees and their earnings........................................................17
2.9 Impact of price wars on customers spending ......................................................................18
2.10 The future of discount retailers..........................................................................................19
Chapter 3 Research Methodology .................................................................................................21
3.1 Introduction..........................................................................................................................21
3.2 Research design...................................................................................................................21
3.3 Research Philosophy:...........................................................................................................22
3.4 Research Approach..............................................................................................................23
3.5 Data Collection....................................................................................................................24
3.6 Data Analysis.......................................................................................................................25
3.7 Sampling..............................................................................................................................26
Chapter 4-Data analysis ................................................................................................................28
4.1 Introduction..........................................................................................................................28
4.2 Data analysis of Asda .........................................................................................................28
4.3 Data analysis of Tesco ........................................................................................................38
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Chapter 5- Conclusion and recommendation ................................................................................48
5.1 Conclusion ..........................................................................................................................48
5.2 Recommendations................................................................................................................50
References......................................................................................................................................53
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CHAPTER 1- INTRODUCTION
1.1 Background of the study
In the modern era, the competition among businesses operating in retail supermarket of
UK has become very intense. There are many small and big market players which are trying very
hard to capture the market share. This includes development and implementation of aggressive
marketing strategies to attract customers and gain advantage over other market players. The use
of modern marketing tools and techniques has increased among retail supermarkets with an
objective to create more and more awareness among people in the market. It can be stated that
high or intense competition is a big threat to any organization as it has direct impact on four
major elements of marketing mix which are product, price, place and promotion. Nowadays, it is
required by supermarket retailer operating in UK to lay emphasis on the quality of products and
services delivered. However, it can be argued that in situations where satisfactory products are
not offered, there are opportunities that a business may start facing issues related to customer
retention and low market share.
At the time of carrying out their operations, it is also required by supermarket retailers to
adopt appropriate pricing strategy. Low prices can help in attracting more customers whereas
high prices will highlight clearly premium quality of products and services delivered. The issue
here is related to what kind of pricing strategy can be obtained to gain higher market share and
advantage over market players. In order to take care of overall cost of operations, supermarket
retailers has establishing their own manufacturing units. It can be stated that to a certain extent it
has helped the retailers to enhance their existing profits. There was a time when UK's retail
supermarket is mostly dominated by players such as Tesco and Asda.
Nowadays, these brands are facing intense competition from German based discounted
retailers which are Aldi and Lidl. It can be stated that during the initial stage, the prices war was
existing between market players such as Tesco, Asda, Morrisons and Sainsbury. Further, the
problem here is not linked with attracting customers towards store, the main issue is to encourage
customers to spend their money and purchase products/ services (Ruddick, 2015). In last few
years, German discount retailers such as Lidl and Aldi has emerged as the biggest competitors of
UK based supermarket retailer (Dentor, 2016). The reason why customers are getting more
attracted towards these stores is considered as their discounted pricing strategy.
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In UK, a price war has been developed wherein all the businesses in retailer supermarket
are competing with each other on the basis of their pricing strategy. Brands such as Asda and
Tesco has reduced their prices in order to sustain in market and compete with players such as
Lidl and Aldi. This can be considered as very good news for the people which fall under the
category of low income group but it has resulted in creating several kinds of issues for the
retailer. For example brands are required to offer products and services at low prices by reducing
their cost of operations. This has created challenges in carrying out smooth flow of operations
along with attaining high growth rate.
In last few years, brands such as Tesco and Asda has witnessed fall in existing market
share and sales because of intense competition from Lidl and Aldi (Quinn, 2015). In addition to
this, German based supermarkets have also expanded their operations and activities in the last
few years. This has resulted in creation of prices wars where businesses are competing with each
other to gain high market share on the basis of pricing strategy.
1.2 Rationale of the study
It can be stated that at the time of formulating pricing strategy or while deciding prices of
products and services there are large number of factors which needs to be taken into
consideration. This includes cost of operations, products quality, market demand, customer
buying behaviour, level of competition existing within marketplace etc. Any kind of changes in
prices of products and services has direct impact on sales, profits and market share of a particular
business enterprise. The main reason behind carrying out present researcher is to identify how
price war prevailing among UK supermarket retail industry has affected companies such as Asda
and Tesco.
It has been observed by researcher that the sales of Asda and Tesco has fallen but at the
same time Lidl and Aldi's sales has improved drastically. This means that the German based
supermarkets are forcing these brands to lower down prices of their products and services in
order to attract more customers and stay competitive in the marketplace. The present research
study explores impact of price wars on brands like Tesco and Asda. For this purpose, the
researcher has carried out in depth investigation on pricing strategies which has been adopted by
different supermarket retailers operating in UK. Another key rationale behind carrying out the
present research is that till now very limited number of studies has been conducted on price wars
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among retail supermarkets in UK. There are certain researches done on price wars but they also
not lay emphasis on the impact which such kind of wars have on overall operations of
supermarket retailers in the country.
1.3 Research aim, objectives and questions
The aim of the study is to “Analyse the impact of price war on the supermarket retailers:
Tesco and Asda”. The study has following objectives:
 To analyse on impact of `Germany discount retailers on Tesco and Asda.
 To identify and analyse the retailers pricing strategy. To investigate on the impact of price wars on employees and their earnings.
Research questions
The below mentioned questions has been used as a reference to assess the on the impact
of price wars for Tesco and Asda:
 What are the major factors of changing customers shopping habits?
 How do the retailers utilize the marketing mix concept?
 What is the future of discount retailers (Aldi and Lidl)?
 How are the suppliers effected due to retailer’s slashing prices?
 Does price war help customers to save on spending?
 How does price war effect on the employee?
 How does price cut effects on customer loyalty?
 How retailers can end price wars?
1.4 Potential significance of the study
The present research or carried out study can be termed as significant in context of both
academic and organizational level. It can be stated that at academic level, the study is important
because it will give a clear idea about the fact that how prices can affect activities and operation
of any business enterprise. This research can be used by other scholars in order to conducted
studies related to current topic under investigation. It will support in enhancing existing
knowledge of scholars and become aware about the significant impact of price wars. The
researcher has identified a gap between previous carried out researches and on the basis of that
the present study has been conducted. Earlier researches carried out on price wars were mainly
linked with buying behaviour and strategies which can be used for getting competitive advantage
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