Tesco is continuing its shift towards a simpler pricing strategy with a rationalisation programme taking place that will see further reductions in product promotions such as BOGOFs and money-off deals.

A report by The Times said the retailer is using data from its customer research business, Dunnhumby, to decide which offers are most effective in driving sales and those that are not, and should be dropped. The move is part of Tesco’s drive to win back customers from the discounters with the chain looking to focus on more stable and lower pricing, instead of various promotions that change on a regular basis. 

The Times said that producers have been informed of Tesco's new pricing strategy, although some small suppliers fear it might lead to a loss of market share to bigger brands. One unnamed supplier is quoted as saying: “When we agreed our deal with Tesco we were asked for the lowest possible price. They said, do not include any promotion funds as they would finance promotions. Until recently, they had kept to this agreement. We have just been told they will not be promoting our products as they have found some Dunnhumby research which shows them our products do not need promotion.” 

The report added that the supplier was also unhappy because he said he had sacrificed his margins to Tesco in the belief it would promote his product. 

Tesco has already made moves to simplify pricing in BWS categories with Chief Commercial Officer Jason Tarry said to be leading the pricing review of other products. The report added that suppliers would have the right to challenge the removal of promotions. 

NAM Implications:

• A supplier tempted to agree to move some back-margin to net-net pricing obviously has to anticipate the possibility of reduced/zero promotion by a retailer...
• More importantly, one needs to consider the possibility of a retailer later concluding that the brand/category needs a little more excitement in store via some incremental spend by the supplier…