MSc Marketing Dissertation

This dissertation analyzes the impact of price wars among UK supermarkets, focusing on the effects on Tesco and Asda due to the rise of discount retailers like Aldi and Lidl. Using a mixed-methods approach (primary data from Tesco and Asda managers via purposive sampling and secondary data from literature review), the study investigates the impact on customer loyalty, employee turnover, pricing strategies, and overall business practices. The findings reveal intense competition, a decline in customer loyalty for Tesco and Asda, and the effectiveness of Aldi and Lidl's everyday low pricing strategy. The price war negatively affected employee morale, training, and compensation. Recommendations include government intervention to mitigate price wars, competitive pricing strategies focusing on quality, and improved supplier relationships. The study concludes that while customers benefit from lower prices, the long-term sustainability of UK supermarkets requires innovative strategies and a focus on value beyond price.

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An analysis of Price war among UK supermarkets and its impact on business practices and customer
loyalty.
Dissertation submitted in partial fulfilment
for the award of Msc Marketing
at the University of Ulster, London

DECLARATION
-------------------------
I hereby declare that, with effect from the date on which this dissertation is deposited in the
library or other department / school / faculty of the University of Ulster, I permit the
dissertation to be copied in whole or in parts without reference to myself, in the
understanding that such authority applies to single copies made for studying purposes and
which are not published. An additional condition is that the acknowledgement is credited to
the actual source.
This restriction does not apply to the copying or publication of the title, abstract or
introduction to this dissertation. It is a condition that anyone who consults this dissertation
must recognize that the copyright rests with the author and no quotation from the
dissertation or information derived from it may be published unless the source is properly
acknowledged.
Signed ............................................................
.
Date :
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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 supervisor for
giving me an 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
Price wars are the facts of the today’s retail industries. The main purpose behind
carrying out the present research is to analyze the impact of existing price war among the
retail supermarket industry of the UK . This paper will seek to understand on how the the
discount retailers like Aldi and Lidl have initiated price war and how it has effected the giant
retailers like Asda and Tesco business operations. The report focuses on conducting the
research through the medium of primary and secondary research. It was assessed that there
has been a huge shift in the industry, a change in the customer’s mind and developments in
the market, which has basically led to increase/decrease in the sale of the few specific brands
in the UK supermarket industry.
It was further noticed that the entry of few German based discounted retailers, such
as Lidl and Aldi has also exaggerated the whole supermarket industry of the nation and
affected Tesco and ASDA. So, the present study investigates regarding in terms of how sales,
profits and other associated segments of ASDA and Tesco has been affected due to these
factors and how it have effected the customers buying behaviour or loyalty. For the purpose
of carrying out the present study, the data have been collected from the managers of Tesco
and Asda through purposive sampling method. Apart from this, the quantitative technique of
data analysis has been used to depict the results of the study.
It was concluded post study that there are the few areas like employees, suppliers,
customers, sales, profits and market share, which has been adversely affected due to the
situation of price wars. Also, it was suggested that Asda and Tesco should work and make
efforts to create innovative products and services and for sustaining well in the highly
competitive marketplace to retain the loyal customers. Improving the price image without
doing much harm to th product quality and services and focusing on savings for customers
will help in sustainable profit and to fight the ongoing price war.
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Table of Contents
ACKNOWLEDGEMENT 3
Chapter 1- Introduction 6
1.1 Background of the study 7
1.2 Rationale of the study 9
1.3 Research Aim, objectives and questions 11
1.4 Potential significance & Importance of the study 11
1.5 Analysis and framework 12
1.6 Structure of the dissertation 13
Chapter 2- Literature review 15
2.1 Concept of price wars 15
2.2 Importance of Customer Loyalty 17
2.3 Managing Customer Relationship 20
2.4 Impact of price wars on customer loyalty 21
2.5 The concept of retail marketing mix 23
2.6 Impact of German discount retailer on Asda and Tesco 24
2.7 Analyzing retailer pricing strategy 25
2.8 Impact of price wars on staff 26
2.9 Impact of price wars on customers spending 27
2.10 The future of discount retailers 28
2.11 Industry Analysis & Industry Trends 29
Chapter 3 Research Methodology 31
3.1 Introduction 31
3.2 Research design 31
3.3 Research Philosophy: 32
3.4 Research Approach 33
3.5 Data Collection 34
3.6 Data Analysis 35
3.7 Sampling 36
Chapter 4-Data analysis 37
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4.1 Introduction 37
4.2 Data analysis of Asda 37
4.3 Data analysis: Tesco 56
Chapter 5- Conclusion and recommendation 65
5.1 Conclusion 65
5.2 Limitation of the study 68
5.3 Recommendations 69
References 72
Books and Journals 72
Online 74
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List of Figures:
Figure 1 Existing level of competition in the UK supermarket industry.................................40
Figure 2: Effect on Loyalty of Customers.................................................................................41
Figure 3: Factors affected competition....................................................................................41
Figure 4: Effect on Price Behavior of Food Retailers.............................................................42
Figure 5: Price Strategy Adopted by Different Retailers.........................................................42
Figure 6: Result of Price War on Employee’s Turnover..........................................................43
Figure 7 : Challenges in terms of increasing rate of customer loyalty....................................43
Figure 8 Result of price war and effect on the customers........................................................44
Figure 9 Effect of price war on the sales, margin and subsequent profit.................................44
Figure 10 : Impact of German’s Retailers on Competition......................................................45
Figure 11: Effect on UK’s Retail Segment..............................................................................45
Figure 12 Existing level of competition in the UK supermarket industry is assessed by
TESCO employees...................................................................................................................49
Figure 13: Effect on Loyalty of Customers...............................................................................49
Figure 14: Factors affected competition..................................................................................50
Figure 15: Effect on Price Behavior of Food Retailers...........................................................51
Figure 16 : Challenges in terms of increasing rate of customer loyalty..................................52
Figure 17 Result of price war and effect on the customers......................................................52
Figure 18 Effect of price war on the sales, margin and subsequent profit...............................53
Figure 19 : Impact of German’s Retailers on Competition......................................................54
Figure 20: Effect on UK’s Retail Segment..............................................................................55
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Chapter 1- Introduction
1.1 Background of the study
The competition amongst the businesses operating in retail supermarket in the UK has
become furious nowadays. There are many small and big market players which are trying
their level best to grab the highest market share. The companies are trying to attain brand
value by the way of developing and employing the aggressive marketing strategies for
attracting the customers and gaining the advantage over other market players (O'Hara, 2014).
The use of modern marketing tools and techniques has improved the retailer’s vision for the
supermarkets with an aim to enhance the awareness among people in the market.
But in the last few years, it was noticed that high or intense competition is a big threat
to any organization which holds a direct impact on key 4P’s of the marketing mix, such as
product, price, place and promotion. It can be evidently seen that there was a requirement by
the supermarket retailer’s operating in the UK to lay strong emphasis on the quality of
products and services which they delivered. Nevertheless, it can be argued that in situations
where the satisfactory products are not offered, there are opportunities where a business may
start facing problems associated with customer retention and low market share.
It is important by the supermarket retailers to adopt an adequate pricing strategy while
carrying out their operations. Low prices can help in attracting more customers, whereas the
high prices will emphasize clearly on the premium quality of products and services delivered.
The issue here is related to what kind of pricing strategy should be obtained to gain higher
market share and advantage over the market players. In order to take care of the overall cost
of operations, supermarket retailers have established their own manufacturing units. It can be
said that, up to a certain extent, it has helped the retailers to enhance their existing profits.
There was a time, when the UK's retail supermarket was mostly dominated by the players
such as Tesco and Asda.
Nowadays, these brands are facing intense competition from German based discounted
retailers which are Aldi and Lidl. It is also noticed that during the initial stage, the price war
was existing between market players such as Tesco, Asda, Morrisons and Sainsbury’s.
Moreover, the problem here is not linked to attracting customers towards the store, but the
main issue is to encourage the customers to spend their money and purchase products/
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services (Ruddick, 2015). In the 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.
In the 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 have reduced their prices in order to sustain in the market and compete with players
such as Lidl and Aldi. This was considered as a very good news for the people especially who
fall under the category of LIG (low income group), but it has resulted in creating several
kinds of issues for the retailer on the other hand. For illustration, brands are required to offer
products and services at low prices by reducing their cost of operations. This has created
challenges in carrying out the smooth flow of operations along with attaining the high growth
rate (Clinton, 2015).
In the 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.
The stellar concert of the discount chains is encouraging major UK supermarkets to
encounter it out on the price front of late, while the consumers remain confused about the
validity and, at times, the sincerity of promotional tactics. The country’s supermarket retailer
was trying to optimize their promotional strategies for eventually driving their profit
(McShane, 2016)
It was noticed that the Britian supermarket has considered this as the foremost and the most
lowest sales drop in the last 20 years in the food prices. The aggressive price war has slashed
the amount customers spend on the groceries and affected the customer loyalty. Though, they
have faced and suffer from a decline in the UK grocery sales by value. There are forged price
wars, and this was considered as a biggest price war for the customers. It was also noticed
that the principal grocers were “losing the market share hand over fist”. The whole big
chains have pledged to spend billions of pounds for cutting prices in an effort for stemming
the growth of German discounters Aldi and Lidl. The decline in food price inflation has also
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contributed to the retrenchment. The decline in sales in grocery market has become a big
concern for the retailers as they were gearing up for the upcoming year.
In fact, The fight for the biggest share of sales has ignited a price war, which reflects an usual
basket of the daily goods such as milk, bread and vegetables, which was now costing 0.4%
less than it was in the time last year. This was a very bad news for the retailers, but good
news for the shoppers as the price depreciation was projected to be continued in the year
2015 as well. A research carried by Goldman Sachs also reflected that 20% of the UK
supermarket space were superfluous to the necessities following the rise of discounters
including Aldi and Lidl, the ruin of the weekly shop and the increase in online grocery
shopping (Euro Monitor, 2017).
The UK grocery market shown worth £150.8billion for the calendar year 2010 which have
shown an increase of 3.1% in the year 2009. The stores in the UK are split into four
categories, such as Convenience Stores, Traditional Retail, Hypermarkets or supermarkets
and online channel. The UK's four biggest retailers (Asda, Sainsbury's, Tesco and Morrison's)
were holding over 70% of the grocery market (Kanter, 2016). This situation has made the
market situation in an oligopolistic market in nature. The Oligopoly market situation occurs
when a few firms allocated a huge percentage of the industry. Given that, the market is
indomitable by the key 4 players, they are likely to struggle on the cost and non- price
activities whereby either being interdependent or dependent on price and output. This may
create obstacles to the entry which in turn may affect the miniature players in the market by
reducing the range of shops such as professional stores or sovereign small grocery shops.
1.2 Rationale of the study
It can be stated that at the time of formulating pricing strategy or while deciding the prices of
products and services, there are a large number of factors which needs to be taken into
consideration. This includes cost of operations, product’s quality, market demand, customer
buying behaviour and level of competition existing within the marketplace. Any kind of
changes in prices of products and services has a direct impact on the sales, profits and market
share of a particular business enterprise. The main reason behind carrying out the present
research is to identify how price war prevailing among UK supermarket or retail industry has
affected companies such as Asda and Tesco (Fairtrade UK, 2014)
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It has been observed during the study that the sales of Asda and Tesco has dropped down
drastically, but at the same time Lidl and Aldi's sales have been improved drastically. This
means that the German based supermarkets are forcing these brands to lower down the prices
of their products and services in order to attract more customers and stay competitive in the
marketplace. The present research study explores the impact of price wars on brands like
Tesco and Asda in the UK.
With the key issues written above, the focus on the UK food retail sector and specially of the
loyalty programs tends to formulate a good rationale for the project. This may probably lead
to fascinating insights to the collision of the loyalty programs on the consumer perceptions in
a better aggressive sector. This reflects that each advertising initiative would create a big
impact on the performance of the businesses.
For this purpose, the researcher is required to carry out in-depth investigation and analysis of
the varied pricing strategies which has been adopted by different supermarket retailers
operating in the UK. Another key rationale behind carrying out the present research is that till
now very few studies have been carried out on the price wars among retail supermarkets in
the UK. There are certain studies done specifically on the price wars, but they don’t normally
put a strong emphasis on the impact of the wars basically on the overall operations of
supermarket retailers in the country and what factors have led to the creation of such situation
in the UK (Gunnarssona, 2015)
Another key reason for carrying this project is that it doesn’t seem that anybody has done
critical research on the specific topic and outcome occurred due to this situation. In terms of
gaining the detailed information on the subject, the review of associated literature on this
issue has facilitated premature indications, which was resultant as the outcome of the project.
Also, literature review has helped in collecting the relevant contribution’s of the information
made by the scholar, so that the existing knowledge in the subject matter can be obtained and
analysis can be done in an effective manner. Due to the reason of limitation in the research
work, it was noticed that directly handling the issue of loyalty card programs, such as club
cards was not included in the report to assess the effect of the price war on the customer
loyalty (Watson, et al., 2015)
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