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What to make of all these price-match guarantees in the supermarkets? A profit guarantee for the shops offering them, suggests the Economist . In a column last month it says price guarantees were a way of stopping a price war rather than participating in one. This is because when a newcomer offers lower prices it is trying to win your customers. If you promise your customers that you will match these prices then they will stay with you. The newcomer then has to give the price cuts to its existing customers without winning new ones and loses money. In real life it is not as simple as that. However, the Economist says that most consumers believe that price-matching signals genuinely lower prices. The consumer is wrong as it is more expensive supermarkets that are offering to match each other’s prices. The lower prices are at Aldi and Lidl. The response of wholesalers and consumer packaged goods suppliers is to price mark product for independent shops to signal value. There are ...

People jump to conclusions often with little evidence to back up their decisions, Daniel Kahneman observes in his book Thinking Fast and Slow. “For some of our most important beliefs we have no evidence at all, except that people we love and trust hold these beliefs,” he writes. Independent retailers must bear this in mind as they read national newspapers. Expect to see all sorts of self-interested story-telling dressed up as truth. Some of this will damage your business. For example, discount retailers are now in fashion. “The more consumers are led to focus on price, the more we benefit,” Roman Heini, joint managing director of Aldi UK told the FT this week. Is it true? I don’t know. You have to make your mind up. Worse. Greens newsagents in the heart of Mayfair has shut its doors. After nearly 20 years of buying his newspapers and magazines there, Tyler Br û lé, the FT’s Fast Lane columnist was forced to shop elsewhere. “This small drama on Marylebone High Street repre...

Eric Anderson and Duncan Simester published a paper* on pricing in 2003 that showed that $9 price endings increased demand in three experimental settings. The benefit was greatest when the products were new and not previously sold. They were less effective on sale items. And they should not be used on every item. This obviously predates the prevalence of round pound and price-marked packs in the UK convenience channel. I think the point to note is that you need to mix it up. Earlier this year I suggested to one retailer that he did not have any promotions in his shop. He said it was because it was so hard to change prices on his IT system. My reply was to just keep the prices the same but to promote one SKU harder where his shoppers would expect to see a promotion. I have not yet been back to see what he did. This has no scientific evidence to support it. But I have appended it to a report about a scientific study so perhaps you will be persuaded to act on it like you were ...

Just three days before Christmas the Times published a spread under the headline: "Domination on the edge of town: crisis aids the march of the supermarkets". This weekend, the Financial Times said: "End of space race. Tesco change marks turning point for UK food retailing". The truth will be somewhere between the two stories. In December, experts were telling the Times that the scramble for grocery space would run and run. One reason for this was because local authorities in deprived areas believed the supermarket brands would create jobs (a claim disputed by the Association of Convenience Stores based on its analysis of supermarkets' own figures). Leading City retail analyst Dave McCarthy warned for most of 2011 that the supermarkets had got their sums wrong. While opening new space made sense for each group separately, the collective volume of space would cut like-for-like sales in both value and volume terms. Think of it this way. You have a shop with...

Fiona Dawson, president of Mars Chocolate in the UK, says that local shops need to get behind the big brands in their confectionery displays and support countlines as affordable treats. The price of treats cannot go up and up and up, she says. However, as retailers know, the rise of promotions means that shoppers are flip-flopping from brand to brand in search of the better deal. This poses some big problems for confectionery sales. So it cannot help when shoppers at Reading station are faced with variable pricing for Snickers bars on platforms 4 and 5. At the shop called WHSmith on platform 4 a Snickers Duo costs £1.05. At the WHSmith on 5, it costs 99p or two for £1.50. The secret? The WHSmith on platform four is operated by SSP, the Euston based "food travel experts". The one on platform five is operated by WHSmith itself. A problem for the retailer's brand more than for Mars? However, a real challenge for the countline snack people may be coming from a differe...

Jim McCarthy, the man who developed T&S Stores into a chain that once sold to Tesco gave the UK's biggest supermarket a huge lead in the convenience channel, is now heading Poundland, which provides a whole new set of challenges for local shops. How does the magic work? "What we look for is the cash gross margin," Mr McCarthy tells the FT. "It's all about volumes, not percentages." Gold products are those with high margins and high volumes, such as fizzy soft drinks. Bronze products are those with very low margins but very high volumes, such as Maltesers. Most of the products they sell are neither leftovers or short dated, Mr McCarthy says. It is simply about trading off volume and price. In five years he says only three SKUs have been loss leaders, of which the most recent were Christmas selection boxes. What they are good at is selling well known products in different pack sizes to achieve the £1 price point. A 600g loaf costs £1. The 800g loaf...

Independent retailers who shop at cash and carry wholesale depots are often characterised as less disciplined business people than their peers who stick to the delivered wholesale route. However, hard times are resulting in price wars between suppliers in some areas and this provides some opportunities. One London retailer I spoke to this week says he is selling bottles of a leading soft drink for 99p, compared to £1.19 in the multiples. The cheapest buying price he can find from a delivered wholesaler is 89p, which would lose him 6.5p on every bottle sold at a 99p price point, due to sales tax. But a new cash and carry depot next to two others near his shop means he can buy the product at 69p, which makes the price point achieveable and he is shifting volume at a 19.5 per cent mark up. He welcomes the battle between cash and carry companies to win his business but also reflects that if they can afford to sell it to him for 69p, then the big supermarkets are probably buy...

My local Co-op c-store managed for a period of two week's to offer the same product at two different price points by two different tills. When I took the photographs, the sales assistant ran the 75p product through the till and it read £1.02. This means either no-one picked up a product from the 75p display in two weeks or no-one noticed that they were charged 27p more for the gum! Either way, the picture shows the power of clear labelling and bar codes in creating confidence that the price is correct - even if it is not.

Asda's price guarantee, that it will be 10 per cent cheaper than rival supermarkets, was clearly a marketing stunt from the off. Few people are going to have the energy to complete a major shop in Asda and then check what price the same products were across town at Tesco. However, Tesco has said that it will protest to the Advertising Standards Authority about the "confusing and misleading claim". "It is vitally important that the whole industry acts in a way that deserves the trust of customers," says UK chief executive Richard Brasher. "In our view customers are being misled by false Asda claims." What is remarkable about this is that Tesco is getting twitchy - following on from last week's weak results statement. Local retailers may take comfort from the inference that the market leader is finding things as difficult as they are - whatever you think about the actual issues of the way that supermarkets represent themselves to the media and ...

Planning for his speech at the Independent Achievers Academy last week, Theo Paphitis asked an assistant to buy a basket of six essentials from a Tesco, a Londis (independent operator in a symbol group) and a One Stop (Tesco's CTN/convenience chain). Tesco was cheapest by a big margin. Second came Londis. The most expensive was One Stop. Mr Paphitis understands the power of the supermarkets and he says the way to counter them is to focus on how to make the experience of shopping with you more relevant to shoppers or more enjoyable for them. John Heynan, sales director of Molson Coors, told Retail Newsagent at about the same time that occasional beer buyers will pay 13 per cent more for their beer in an independent convenience store, provided the retailer targets them appropriately. Tesco has carved itself out this 13 per cent head start. Looking at pricing, if Tesco is 100, then Tesco Express is 108, One Stop is 112, a good symbol group is 115 and non-affiliated independents ...

Higher taxes give tobacco companies the "cover to raise prices" which means the tobacco industry is in rude health, an analysis in the FT's Lex column today shows. For local shops, which depend on tobacco sales to generate footfall, this means that they do not have to rethink their strategy anytime soon. In the US in 2009, a 25 per cent rise in cigarette prices caused consumption to fall by 8 per cent, which was "bang in line" with the impact of the 87 per cent rise in prices since 1969 (adjusted for inflation). Based on this, investment bank UBS argues that tobacco manufacturers can sustain price increases of 4 to 5 per cent a year (8 to 9 per cent for retail prices) for the next 10 years, while absorbing consumption declines of 3 to 4  per cent. What is good news for the tobacco manufacturers may not be good news for tobacco retailers, who might read into these numbers that the former could afford to be more generous with margins. However, they also need t...

Getting the price proposition of your business correct involves careful consideration of what your customers want to buy. For local shops this means thinking about what is important to the shopper. If you are on a busy high street or near a train station, will shoppers value speed of service? So that if you have what they want and they can get it quickly they will not notice that it is 10p more expensive. If it is available and your service is good, what else do you need to consider? Keeping the shop clean and the lighting bright may be important in that it will help the shopper trust you as a supplier. If you have a shop on a local estate, where shoppers appear to be price conscious, then your pricing policy may be more challenging. Obviously, you can price compare with Tesco and tell people where you charge the same price. It may not be a pint of milk for 45p. It could be McVitgies Digestives at 50p. Michael Jackson, writing in Business XL, argues that "assumptions about prod...

Shopkeepers should make a note to regularly visit the supermarket dotcom stores and check prices. Supermarket groups raise and lower so many prices that shoppers are left confused, analysis by The Guardian last week suggests. Former competition watchdog head John Bridgeman claimed this could add £15 to a £100 shopping basket. The stores studied said most of the increases were because promotions came to an end. For local shops, it is the sheer scale of price volatility that will be the major challenge. The study, for a three week period ending 22 December, saw Tesco increase prices on more than 1,500 shop keeping units (SKUs) and lower them on more than 2,600. At Asda, 2,000 went up. (A separate study by Paul Dobson of Loughborough University has found the most common price cut is 1p.) The newspaper notes that Asda increased the price of four Duracell AA batteries by 103% to £2.98, up from £1.47. Local shops would find it difficult to buy this pack for much under £2 and are being ...

Reports last week say that Walmart has cut the prices on 100 popular toys to below $10 as they expect US shoppers to put a value-for-money focus on Christmas presents. Three multiples, the other two are Target and Toys R Us, determine what happens in the toy market and the major suppliers are ensuring that most of their toys are priced at less than $30. In the UK this week, Tesco talked up the optimism of shoppers and Sainsbury talked the optimism down. We have become accustomed to taking a lead from across the Atlantic and it appears that retailers who get the "value for money" proposition right can make some money.

I am briefly in Marrakech and the price of most things varies. There is a tourist price and there is a local price and you have to bargain hard, which takes time and adds purpose to the transaction. What is clear is that for most local people this is not a time poor society. If you can spend all day discussing the price of some oranges, because there are more sellers than buyers, then you are prepared to chance your arm with a fresh faced visitor. The quality of retailing, within these parameters, is good. Abundant service, lots of validation, lots of charm. We can learn from their energy.

Andy Bond runs Asda, the UK arm of Wal-Mart, and recently agreed to a lengthy interview with the Financial Times newspaper about his views on whether he was the right man for the Marks & Spencer top job. I find it hard to believe that his US employers would be happy for him just to chew the fat with a newspaper about his career options so it was interesting to read what else he was talking about. So when he says that 2010 will be a tough year, he must be talking to someone other than his shoppers. He notes that the 2.5% rise in VAT and other tax increases in the pipeline will be putting presure on the amount of money that households have to spend. Is it a message to suppliers that they will have to trim their prices so that Asda can cut the cost of its products to shoppers? Probably. For many local shops, an upward nudge in January is possibly being pencilled into their business plans now. But don't assume that the multiples will make it easy for you. Think about how it will lo...

From the US we now have the concept of the smart shopper who will not spend, spend, spend on credit cards but will save up for major items. This shopper looks at price and value and quality, says Mike Duke, chief executive of Wal-Mart. One outcome is that US shoppers are using cash more and credit cards less, which is a big reversal of shopping trends if it continues. Thinking about price and value and quality, most shoppers build an approximate idea of what they are looking for and are quite imprecise at the point of sale. Mr Duke is obviously building up a picture of a shopper hot-wired to Wal-Mart values and paying less attention to his list of attributes. Value, we know, is what is left over when you take away the product (or service) experience from the price paid. If the product over-delivers, that creates value. If it under-delivers that destroys value. Price, we know, is also hard to pin down. Most local shoppers will buy bread and milk but they would struggle to tell you ...

I read a good post (http://www.newsagencyblog.com.au/2009/08/28/what-do-newsagents-charge-for-faxing.html) asking what price local shops charge for providing a fax service. The blogger had attached a photograph of his sign with his prices on it. What struck me was the message on the sign. "You drop, we fax," it said. "Pressed for time, drop your documents with us and we'll do it for you at no extra charge." That is a message that will persuade most shoppers that you want to give them good value, even if they stay to do the copying or faxing themselves.

In thinking about how shoppers see your shop there are five areas where you control the dialogue: the prices that you charge; the quality of the products that you sell; the quality of the service you will provide; the depth of range and availability that you will provide; and the atmosphere of the shop. All are levers that an independent retailer can use to engage the loyalty of shoppers. In thinking about which are the most important for your shop, you need to think about who your key customers are; the 20% who generate 80% of the profits (note I say profits and not sales). What are they looking for and how do you match your offer to meet their interests? For example, if you have children buying trading cards, how do you make this a great buying experience for them? What other products with high margins will appeal to them? Would you put up a poster in store with a countdown to the launch of a new collection? Would you set up an in-store event so that children could swap cards w...