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If It’s The Same, Only Price Matters

07/16/2012

Competing On Price Is A Race To The Bottom

An ad airing by ALDI gets right to the heart of retail 101 in less than half a minute. The spot is effective as a marketing lesson. Whether or not it communicates the brand’s marketing message is up for discussion.

In the ad, a guy in a business suit is milking a cow. On the other side of the cow another guy, dressed like a farmer, is milking the same cow. After touting ALDI’s “identical quality” the voice over announces something to the effect, when the product is the same – the only thing that matters is price.

Truer words have rarely been spoken on TV. All things being equal, price reigns supreme. Just ask the management team at Best Buy, who have been scrambling to cope with “showrooming” product for Amazon. Or ask management at Super Valu (grocers) who have been clobbered by Walmart, Target and other grocers who have the size, infrastructure and cash on hand to beat down prices and still make a little profit.

The majority of retail brands that have seemingly lost their ability to explain their uniqueness to consumers is stunning. And, it is likely the majority of these brands are in serious trouble.

Competing on price is a downward spiral. Retailer A lowers its price of widgets, Retailer B matches that price. Or worse, retailer B reduces its price below A’s. Where does that leave Retailer A? No man’s land. Retail brand A has two options, lower its price again or get out-of-the-way.

That is not a sound business plan, is it?

Brand’s basing their relationship with the consumer on quality or service will outperform those competing on price. Think of Nordstrom, REI, Starbucks or Apple. These brands focus on customer service to sell quality products. This is a difficult strategy to execute. Often those words find their way into a discounter’s positioning, but the promise turns out to be hollow.

ALDI, short for “Albrecht Di’scount”, is a discount supermarket chain based in Germany. ALDI positions itself as a discount grocery chain that operates over 1,000 stores in 31 states. According to their website, “Almost 95% of our premium products are sold under exclusive ALDI select brands. These items are produced to meet our stringent quality standards, and are sold only in ALDI stores.”

Here’s where ALDI’s plan runs amuck. As none of their own brands our recognizable to the vast majority of consumers…the product is not equal and comes across as inferior and cheap. Not a desirable place to be. I hope ALDI continues to crank out marketing lessons clothed as commercials. It will keep me watching TV.

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