Tesco to Charge Customers Based on Income
By Laura Elliott.
Struggling supermarket giant Tesco is considering new plans to tailor its prices according to how affluent an area their stores are located in. The new pricing strategy will see customers in poorer areas pushed to buy items from the Tesco Value range, through a range of promotions and discounts, while those living in more affluent areas will see more promotions on higher-end goods, such as those from the Tesco Finest range.
The retailer has recently begun talks with suppliers which aim to launch price promotions in less well-off areas, where it faces competition from budget retail chains such as Aldi, Lidl and Iceland, according to retail magazine The Grocer. The strategy, is set to involve up to 300 stores initially, and is being spearheaded by UK chief executive Richard Brasher – the man behind Tesco’s Big Price Drop campaign – following disappointing Christmas sales and plummeting share prices.
The retailer delivered its first profit warning in 20 years earlier this month, admitting that growth was likely to come to a shuddering halt next year as it fights to win back shoppers. The news wiped almost £5bn off the value of Tesco’s shares. The new pricing strategy shake-up would help the supermarket compete with low-budget supermarkets in less affluent areas, as well as target customers in well-off areas who have defected to Waitrose and Sainsbury’s.
Sources at the retailer confirmed that up to 100 stores had been earmarked in poorer areas and up to 200 stores had been identified in affluent postcodes, the magazine said. Suppliers are nervous that the retailer will pass on the cost, however.
Tesco already tailors its ranges to the demographic and shopping habits of its customers, based on market research and information gathered through its Clubcard loyalty scheme. The new pricing strategy is set to take this one step further, basing promotions and discounts on the incomes of families who live near its stores.
However, the retailer said on Monday that it would not be using a “dual pricing” strategy, where the price of goods, excluding promotions, varied depending on which location of the UK they are sold. This means that everyday items like bananas and baked beans should be the same price throughout Tesco supermarkets.
The retailer also admitted during its Christmas trading update that its Big Price Drop campaign failed to attract customers, causing a 2.3pc drop in UK like-for-like sales in the six weeks to January 7, excluding fuel.
Philip Clarke, Tesco’s chief executive said at the time that “We will continue the process of change that we started nine months ago to address long-standing business issues, building on the important steps we have already taken in the US, in Japan and at Tesco Bank, as well as those we have begun to take in the UK. The Big Price Drop is an important first element in this process but there is much more we can do to further improve our shopping trip for customers.”
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