Pricing Strategy in Retail Markets

This report analyzes the pricing and growth strategies of Woolworth and ALDI, two major supermarkets in Sydney, Australia. It examines the competitive landscape of the retail market, including market share, barriers to entry, and key developments. The report also explores the specific pricing strategies employed by each company, including psychological pricing, loss leader pricing, and market penetration strategies. Finally, it provides recommendations for future growth strategies for both companies.

ECONOMICS

Executive summary:
Woolworth and Aldi are providing fresh fruits and vegetables to their customers and are
using market strategies to increase their customer base and growth. Aldi is operating in different
countries and providing their products and services to increase its customer base in different
counties. This report will be based on research through the use of primary and secondary data.
Primary data collected for this study will include visiting to the site of Woolworth and Aldi to
identify various information about functioning and secondary data will include data from
published sources such as books, journals, report etc.

TABLE OF CONTENTS
TITLE..............................................................................................................................................1
INTRODUCTION...........................................................................................................................1
PART 1............................................................................................................................................2
Market structure...........................................................................................................................2
PART 2............................................................................................................................................4
Growth strategy...........................................................................................................................4
PART 3............................................................................................................................................6
Pricing strategy............................................................................................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

TITLE
Pricing strategy leading to increase into competitiveness within retail markets: A study on
Woolworth supermarket and ALDI in Sydney
INTRODUCTION
Economics is related to production, distribution and consumptions of goods and services.
It assists in utilising the resources in the best way to increase wealth of country. This report will
provide about the competition existing between the two organisation included in this study. This
research paper will include Woolworth and Aldi companies which are operating in the retail
industry and are giving tough competition to each other. Woolworth and Aldi are supermarkets
providing products such as food, beverage, sanitary, household goods etc.
This study will provide about the functioning of Woolworth and Aldi and also will
discuss about the competition in the retail industry because of increasing number of
supermarkets in the country. Furthermore, it will include about the growth strategy which are
being followed by the Woolworth and Aldi and also recommendation about their future growth
strategy to increase their profitability and grow their business in market. Growth strategies will
assist the firms in increasing their brand image and will also attract more customers towards the
organisation. Different growth strategies which will be included in this report consist of organic
growth, horizontal growth, vertical growth and differentiation.
It will also analyse pricing and non-pricing strategies used by Woolworth and Aldi
Which will assist in increasing their sales and gain more market share by adopting various
pricing strategies. This study will include the market structure in which it will provide
information about the competitors of organisation and also about new entrants in the retail
industry. This research also include about the market share of the competitors and about the
barriers to enter into new market. Also, it will provide about various developments which
happened in the retail industry relating to competition.
This study will assist in making proper research on this two organisation which are
operating in the same industry and will identify the competition existing between them and about
their growth in this particular industry. Research will provide about their future expansion and
developments to increase their sale and profitability. In market structure, It will include
information about area served by this organisation such as in city, across country or worldwide.
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At last, this report will provide conclusion about the result which provided by making a proper
research and what are the benefits provided by making this research.
PART 1
Market structure
Competition in the retail industry of Australia is increasing day by day due the new
entrants in this business. Increasing competition in this industry has reduced customers of many
companies which are providing their products and services at higher prices (Pigou, 2017). Also,
Australian market is increasing competition due to increasing demands of customers and the
changing trends in this industry (Nagle & Müller, 2017). Woolworth is a leading supermarket in
Australia which is facing tough competition from its competitors and thus it has reduced its
market share due to the emergence of new entrants which are offering low prices to customers
for their products and services.
Woolworth in order to gain the market due to entry of Aldi which is giving tough
competition to Woolworth it is reducing its prices for the various products and providing
discounts to customers to increase its sales and profitability. Australian retail market assist in
economic and social developments.
The key factors which in the growth of retail industry are economic growth, rising
population and rising purchasing power which support in increasing sales for companies
operating in this industry (Boserup, 2017). Sudden rise and sudden downfall in retail sector is
common in Australia. Competition is going to rise for this industry to the emergence of new
entrants in this industry which includes Kaufland, Amazon fresh, Aldi, Woolworth and Coles are
giving tough competition to each other by using various market strategies to attract customers
towards their organization and purchase their products.
Aldi provide online food delivery of its products and services due to which Woolworth
market share is decreasing and Aldi is increasing its sale due to providing this facility to
customers (Kagel and Roth, 2016). There are various barriers which the competitors are facing
that includes technological advancement, store location, qualified workforce, product
differentiation, capital requirements, government policy, economies of scale etc. Technological advancement: This is a barrier to the new entrants due to which they are
not able to perform their various activities (Richey and Klein, 2014). Technology is
changing day by day and there are various advancement in the technology for which new
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entrants have to pay huge among for implementing high technology software and system
which would increase their cost and will reduce their profitability. Government policy: there are various policies which are formulated by government
which restrict the entry to industry (Sassen, 2016). Government formulates various
policies to control emergence of new entrants Such as license regulation etc. Distribution channels: It is another barriers to the entry as there may be various
distribution channels for the products and services offered by new entrants but they are
locked up by incumbents.
 Economies of scale: The new entrants have to spend large amount for supplying its
various products and services. Due to economies of scale unit cost of product is reduces
due to increase in volume per period. This force the entrants to either come at large scale
or a small scale due to which entrants face cost disadvantage.
Woolworth is having market share of 36.8 % whereas Aldi is having 8.6 % market share.
There are other competitors in this industry which share is 7.5 % of Metcash and 30.9 % of
Wesfarmers limited and 16.2% other competitors.
Woolworth is operating its business across Australia with 995 store in different cities of
Australia whereas Aldi is providing its products and services in different countries with 10000
store outlets to increase its customer base and provide tough competition to Woolworth (Thaler
and Ganser, 2015). Competition in this industry is increasing due to various developments or
changes which are shaping in this industry which includes customers trends , health conscious
food, use of technology, home delivery of products and services, using mobile phones for
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Figure 1: Market share
[Source: Muthén & Muthén, 2015]

purchasing products and services etc. due to the development of various technologies retail
companies can easily communicate with their customers and provide them information about
various products and services which are being offered by the organization (Muthu And et.al.,
2014). Aldi supermarket is using various social media sites to provide information about its
various products to customers using Instagram, Facebook etc. to attract customers towards the
firm to increase their profitability and market share. Aldi is giving tough competition to
Woolworth by providing its products at discount to increase its customers.
PART 2
Growth strategy
There are many strategy with the help of which company could be focusing on their level
of competition within national and international level and markets. By focusing on level of
competition within market firm could be easily looking out for more growth options and
expanding as well (Bamiatzi & Kirchmaier, 2014). It is very much important and essential that
the company is growing into market so that their share price, market base, customers and
revenues is increasing with this which is very much essential. All the companies of world need to
involve into formulation of growth strategies which they do with having their main focus on core
competencies. There are number of ways into which company could be expanding or growing
itself like by differentiation, horizontal growth, organic growth and vertical one.
Figure 2: Growth strategy
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[Source: Muthén & Muthén, 2015]
The growth strategy that is mostly used within the market area of Sydney and its retail or
supermarket industry the firms could be using either vertical or horizontal one. As both of them
are very helpful for market leader such as Woolworth supermarket and ALDI which are two
most important supermarket for industry. Woolworth supermarket is having majority of shares
into the Australian supermarket industry with about 80% of market being under it. They are
having about more that 1000+ stores all across country so this is very clear that they are
following horizontal growth strategy.
Under this type of growth strategy company is expanding its activities and operations in
more wider geographic region with also increasing their range of products and services that are
offered into market (Baker, Collier & Jayaraman, 2017). The company in starting was only
specializing into food, fruit and meat while during its growth phrase they started selling health,
beauty, stationary and baby products which is very good growth strategy of Woolworth
supermarket. Thus horizontal growth strategy is one of the most important competitive strategy
which company is using which includes going into more market segment with same or new
products and services.
While on other hand ALDI is another supermarket which is growing and performing very
well into market of Australia leading to having about 12.6% of market share in year 2016. As
after opening its first store into Sydney in 2001 ALDI was expanding with its new strategies and
potential into country now it is having about 500+ stores in whole country of Australia. Their
growth strategy into Australia is mostly based on differentiation one. As they are accepting the
unique value proposition which is that of using debit card into their payment systems. As this is
the major differentiation strategy which ALDI is using for attracting more customers and
improving their service. Store in Sydney and all across country is also selling many branded
cloths or other accessories like that of Vegemite and Milo with selling alcoholic products as well.
Differentiation growth strategy is that which is used by company for developing the
unique products that are mainly different from their other competitors into market. This will be
helpful for attracting more number of customers segment and not relying on only one type of
segmentation (Arouri, Lahiani & Nguyen, 2015). They are having different type of products and
services for all type of customer that too under one roof only thus making their share of market
higher than others.
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Recommendation for Growth Strategies
There are various growth strategies which the organization can use to expand its business
and increase its market share.
 It is recommended to organization that they should use market penetration strategy
which will helps them in increasing their customer’s base by reducing the price of its
products and services.
 Organization should use porter's generic strategies for enhancing their business which
include cost leadership, differentiation, cost focus and differentiation focus.
 It is recommended to the firm it should use high technology for distribution of its
product and services to different location.
 Company should increase its social media presence to attract more customers and
provide them information about organization product and services.
 Company should use product differentiation strategy to increase its market share by
providing that products and services which are not available in the market by
competitors this will help in increasing monopoly for organization.
PART 3
Pricing strategy
Figure 3: Pricing strategy
[Source: Muthén & Muthén, 2015]
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Pricing strategy is that type of strategy which is used by companies to grow or involve
themselves into sales and profit generation process which could be different or same as their
competitors are using. The pricing strategy is mainly used for taking into account the market
condition, action which competitors are taking, their own ability to pay, accounting segments,
input cost and trade margin within their competitors. The main of pricing strategy will be for
targeting different types of customers as against their competitors are doing. As price is the most
important factor which is getting influenced by many factors including like that of market
demand and supply apart from this competition is also one element which causes changes into
price.
There are different types of pricing strategies which are used by company so that they
could regulate within market competition. While there is certain number of competitors of
Woolworth and ALDI within the market of Australian supermarket industry likes that of
including Coles, IGA, Super IGA, BI-LO, Coles central and 8 Star Mart. So both of these firms
will be having different pricing strategy which is helping the company for competing with each
other. As included within the research it could be concluded that Woolworth is more impacting
upon the minds of their customers in way that company is using psychological pricing policy.
This type of pricing strategy is also called to as charm or price ending into which that type of
policy or theory is used which is impacting the psychology of customers (Woolworths new price
strategy is ‘psychological conditioning, 2017). This strategy of pricing will be having greater
impact upon mind set of customers. All sort of retail experts consider it as psychological ploy
which means that they started to price more than 20000 products to round dollars and not cents.
Thus it would be making it easier for customers to compare their performance and price on the
mental arithmetic. The psychological pricing method is generally used with the supermarket
which will be driving the total amount of product to be equal to for example as $19999 rather
than that of $20000. Into this type customer would be thinking that they are giving less pricing
for the product as compared to before while actually it is not much greater difference which is
noticed. This would be straightly impacting the mind and psychology of customers and then they
would be buying more of that product.
On other hand ALDI is having very stronger customer based as they are having very low
price products and having very good quality which is certainly not there within their competitors
into market. The company is using various types of pricing strategy and not just one as it is
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followed by Woolworth as analysed in above part. The researchers included that ALDI is
following loss leader, unit pricing, and market penetration, competitive and psychological
pricing strategies (ALDI Marketing Mix (4Ps) Strategy, 2017). All the pricing strategies are
helping ALDI in gaining competitor advantages to supermarket.
Like for example unit pricing strategy that is used by company which will be allowing
customers of supermarket in easily comparing the price of different products with that of other
company. While on other hand market penetration into which company will be charging low
price into market so that it could be easily entering into marketplace and gaining its share easily.
Competitive pricing strategy is also used by ALDI as included by researchers which means that
during the time of higher or increased competition company will be charging low price as
compared to that of its competitors. At this time ALDI could having opportunity with use of
economies of scale in way of purchasing into bulk that too at bargained price enabling it pass this
benefits to customers.
In case of psychological pricing which is also followed by Woolworth this would be
same which mean that considering only certain minor difference within price that could be
making huge difference into mind of customers. So in the same way ALDI is also using the same
type of pricing method so that they could be impacting mind set of customers by keeping price of
product like $4.98 instead of $5 (Sun, Fu, Cai & Shi, 2018). While in case of loss of leader
pricing ALDI is offering its non-food products at lower price so that customer could be able to
get attracted towards store and then could also end up buying other food or grocery products.
CONCLUSION
From the above report it could be concluded that pricing and growth strategies are very
much important for all companies which will be helping them not only to penetrate through
market but also into becoming as market leader. Both Woolworth and ALDI are using different
pricing and growth strategy for being into market but then also to some extent they are same. As
Woolworth is using horizontal growth strategy while ALDI is using differentiation strategy. It
could also be conclude that Woolworth is using psychological pricing method and on the other
hand ALDI is using different pricing strategies like that of loss leader, unit pricing, and market
penetration, competitive and psychological pricing strategies.
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REFERENCES
Books and Journals
Arouri, M. E. H., Lahiani, A., & Nguyen, D. K. (2015). World gold prices and stock returns in
China: insights for hedging and diversification strategies. Economic Modelling, 44,
273-282.
Baker, T., Collier, D., & Jayaraman, V. (2017). A new pricing strategy evaluation
model. International Journal of Operational Research, 29(3), 295-316.
Bamiatzi, V. C., & Kirchmaier, T. (2014). Strategies for superior performance under adverse
conditions: A focus on small and medium-sized high-growth firms. International
Small Business Journal, 32(3), 259-284.
Boserup, E., (2017). The conditions of agricultural growth: The economics of agrarian change
under population pressure. Routledge.
Kagel, J.H. & Roth, A.E. eds., (2016). The handbook of experimental economics, volume 2: the
handbook of experimental economics. Princeton university press.
Muthén, L. K., & Muthén, B. (2015). Mplus. The comprehensive modelling program for
applied researchers: user’s guide, 5.
Muthu, M.S. & et.al., (2014). Nanotheranostics˗ application and further development of
nanomedicine strategies for advanced theranostics. Theranostics. 4(6). pp.660.
Nagle, T. T., & Müller, G. (2017). The strategy and tactics of pricing: A guide to growing more
profitably. Routledge.
Pigou, A., 2017. The economics of welfare. Routledge.
Richey, R.C. & Klein, J.D., (2014). Design and development research: Methods, strategies, and
issues.
Sassen, S., (2016). The Global City: Strategic Site, New Frontier. In Managing Urban
Futures. (pp. 89-104). Routledge. Routledge.
Sun, J., Fu, X., Cai, S., & Shi, H. R. (2018). Dynamic Optimal Pricing Strategies for
Knowledge-Sharing Platforms.
Thaler, R.H. & Ganser, L.J., (2015). Misbehaving: The making of behavioral economics .(p.
358). New York, NY: WW Norton.
Online:
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ALDI Marketing Mix (4Ps) Strategy. (2017). [Online]. Available through
<https://www.mbaskool.com/marketing-mix/services/16807-aldi.html>.
Understanding The Australian Retail Market. (2017). [Online]. Available through
<https://omnilytics.co/blog/understanding-the-australian-retail-market>.
Woolworths new price strategy is ‘psychological conditioning. (2017). [Online]. Available
through <https://thenewdaily.com.au/money/your-budget/2017/04/13/woolworths-
prices-whole-numbers/>.
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