Analyzing the Impact of Price Wars on Tesco and Asda Operations

This dissertation investigates the impact of price wars on the UK supermarket industry, focusing on Tesco and Asda. It examines how the entry of German discount retailers like Aldi and Lidl has affected sales, profits, and market share. The study employs a purposive sampling method to collect data from Tesco and Asda managers and uses quantitative data analysis. The findings reveal that price wars have impacted employees, suppliers, customers, and market share, and the dissertation recommends innovative product and service development to enhance competitiveness. The research explores the factors influencing customer shopping habits, retailer pricing strategies, and the future of discount retailers, providing a comprehensive analysis of the competitive landscape and the challenges faced by major players in the UK retail market. The study also addresses the significance of the research at both academic and organizational levels, highlighting its contribution to understanding the effects of price wars on business operations and strategy formulation.

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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over other market players. The present research will support organization to identify what kind
of impact price wars may have on entire business practices and operations. Thus, it will help the
businesses in formulating the best possible and most effective strategies related to prices.
1.5 Analysis and framework
In the present research, there are various type of research methodologies which is adopted
by scholar to carry out study on analyze the impact of price war on the supermarket retailers:
Tesco and ASDA. The analysis and framework is mentioned below as:
Research design- It is the overall strategy which is adopted by a researcher to carry out
investigation on a particular topic. Furthermore, descriptive, experimental, exploratory, case
study, casual etc. are some key research designs that are commonly used (Jackson, 2011). It can
be stated that descriptive research design has been selected as it has helped in describing various
elements associated with the present research.
Research philosophy- At the time of carrying out any kind of research, it is required by
scholars to adopt for a suitable philosophy as it is directly linked with values and belief of a
researcher. It can be stated that the use of appropriate philosophy plays very important role in
process such as data collection and analysis. For carrying out the present research on analysing
the impact of price war on the supermarket retailers: Tesco and ASDA, positivism research
philosophy has been adopted. The rationale behind selecting positivism is that it has helped in
getting generalize information and eliminating any kind of biasness.
Research approach- It can be considered as the overall strategy which is used by
researcher to carry out a research and attain all its objectives. Research approach can be
classified into two main categories which are inductive and deductive (Crowther and Lancaster,
2012). For the purpose of conducting present inductive approach research which has supported in
carrying out literature review first and on the basis of same, hypothesis has been developed to
carry out data analysis.
Data collection- In the present study, both primary and secondary sources of data
collection has been taken into consideration. For gathering primary data, a well-structured
questionnaire is developed which consist of both open ended and close ended questions. Apart
from this, different online sources, books, journals has been considered for gathering information
through secondary sources.
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Data analysis- It can be termed as the process in which different types of techniques and
tools are used by researcher to carry out appropriate evaluation of raw data gathered from
different sources. For carrying out investigation on analysing the impact of price war on the
supermarket retailers: Tesco and ASDA, the scholar has adopted quantitative technique of data
analysis. Here, statistical tools such as SPSS is used for conducting evaluation of information
collected.
1.6 Structure of the dissertation
It can be expressed that every researcher is required to develop a suitable structure which
can provide them with direction regarding how the entire research can be conducted. The
structure for present dissertation is provided below as:
Chapter 1- Introduction: It is the first and foremost chapter of dissertation which gives
clear idea about the topic under investigation. This chapter is important because it supports in
developing interest of readers in a particular study. The chapter includes various areas such as
overview, rationale, aim, objective, research questions and significance of the work carried out.
Chapter 2- Literature review: This chapter is important because its supports in
developing appropriate knowledge about the topic which is taken under investigation. Here,
work of other researcher is presented in order to acquire in- depth knowledge about topic.
Critical analysis of work of other scholars is also carried out in this section.
Chapter 3- Research methodologies: The chapter of research methodologies consist of
tools and techniques which are adopted by a researcher to collect data and obtain suitable
findings. The use of suitable research techniques also supports in arriving at valid conclusion.
Chapter 4- Data analysis: It can be termed as one of the most important chapter of
research as it includes evaluation of raw data with the help of various tools and techniques. It can
be also stated that the quality of data analysis has direct impact on overall findings of a study
carried out.
Chapter 5- Conclusion and Recommendation: It is termed as the last chapter of
dissertation in which a suitable conclusion is derived on the basis of entire study. On the basis of
conclusion, some recommendation are provided to businesses such as Asda and Tesco.
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CHAPTER 2- LITERATURE REVIEW
2.1 Introduction
The section of literature review can be termed as another important chapter of a
researcher. Further, it plays a very important role in acquire in-depth knowledge about a
particular topic which can be selected for investigation. The chapter is also important because it
supports in accomplishing aim and objectives of research by getting aware of views and opinions
of other scholars. Here, analysis of existing literature is carried out in order to attain desired
outcomes. This section also explores impact on price wars in UK supermarket among on loyalty
of customers.
2.2 Concept of price wars
Metzger, (2014) found that in then recent years, the price competition among retailers has
become vivid. Retail industry has witnessed obsessions of customers as well as organizations
towards the battle for lower prices. These have triggered price wars which not only last for
longer times but also have dramatic impact on the market players. Pepe, Abratt and Dion, (2011)
state that price war is a state or situation which is characterized by the market players struggling
to cut down the prices of goods and services. This indicates the efforts made by organizations to
offer lower prices to the customers so as to win them. The authors found that when the prices are
lowered by a competitor, the others also follow the same path to match the price cut. When the
prices are further reduced, there takes place another round of reductions.
Grewal and et.al., (2010) found out that there are various reasons behind price wars.
Product differentiation is one of the reasons behind price wars. There are some products which
are considered as merely commodities. In such situations, price becomes the main competing
factor. Another reason is penetration pricing. A new entrant in the industry adopts penetration
pricing strategy to get established in the marketplace. According to Haddock-Millar and Rigby,
(2015) process optimization is a factor that results in price wars. Along with this, predatory
pricing also leads to this situation. It can be analysed that in retail industry, when a competitor
targets a particular product, they sell its alternative at lower prices. This is done in order to gain
market share. Smith, (2010) asserted that there are various levels of distribution channel in which
a price war can emerge. Hence, these impact the firms as well as the customers in different ways.
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As per the views of Yoo and Lee, (2011) price wars are good for consumers in the short run as
they get advantage of the lower prices. However, it can be critically analysed that it is not
advantageous for the companies in the industry. This is because the profit margins of these firms
are reduced due to lower prices which acts as a threat for their survival. But, Shah, Kumar and
Kim, (2014) argue that price wars can be beneficial for the dominant firms in the industry in the
medium or long term. However, it can be critically evaluated that price wars cannot benefit the
firms unless the company that initiates them has cost advantage. As per the views of Sullivan and
Gouldson, (2012) price wars result in unsustainable prices.
2.3 Impact of price wars on customer loyalty
As per the view of Pepe, Abratt and Dion, (2011) customer loyalty can be defined as the
situation where customer buys products and services of a particular brand irrespective of what
other players in the market are offering. High rate of customer loyalty has direct impact on long
term sales and profitability of any business enterprise. It can be stated that the retail supermarket
industry of UK is getting more and more intense along with the passage of time. Further, intense
competition has resulted in creation of price wars which is a big threat to all the supermarket
stores operating in the country.
Nowadays, customers are considered as the king of market and if they are not satisfied,
businesses cannot sustain in long run. Greenslade and Parker, (2012) has explained that
improving and increasing customer loyalty has become one of the most crucial elements of
organizations activities and operations. Strong marketing strategies are developed and efforts are
placed by companies to make customer loyal towards them. The reason why customer loyalty
has become so important is that it helps in long term success and growth of firms.
However, Dawson, (2013) has argued that now price wars has resulted in creating several
kinds of obstacles in increasing the rate of customer loyalty. It can be stated that with the help of
price wars many supermarket retailers in the country are offering products and services at low
prices in order to attract loyal customers of other brands. In the present scenario, what customers
actually want is that quality products and services are delivered to them at convenient prices.
This means firms has started to lose their loyal customers because other market players are
offering almost same services and products at much cheaper rate (Martos-Partal and González-
Benito, 2011). It has been a trend that customers are attracted towards companies which offer
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