P&G pricing policy

Canadian supermarket chains are reacting cautiously to rumblings Procter & Gamble is preparing to introduce an 'everyday-low-price' policy on some of its brands.Such a move would represent a sharp break with the traditional feature, or 'high-low,' pricing strategies Canadian manufacturers and...

Canadian supermarket chains are reacting cautiously to rumblings Procter & Gamble is preparing to introduce an ‘everyday-low-price’ policy on some of its brands.

Such a move would represent a sharp break with the traditional feature, or ‘high-low,’ pricing strategies Canadian manufacturers and retailers have worked together on to develop over the course of several decades.

Canadian p&g officials declined to comment on the company’s pricing strategy.

But it is well-known that in the u.s., where high-low pricing is also standard industry practice, p&g, last year, began initiating everday low pricing on a variety of brands, including such core brands as Luvs and Pampers.

p&g contends stable pricing is good for brand image, and industry watchers here predict it will be only a matter of time before p&g’s Canadian division adopts the same approach.

Most Canadian supermarkets, including Food City, Loblaws, a&p and Miracle Food Mart, are known as high-low retailers.

Typically, they rely on short-lived price promotions on selected products in order to attract customer traffic.

In Canada, The Price Club and Loeb are the primary chains operating on an everyday low price strategy.

In the u.s., everyday low price chains, such as Wal-Mart Stores, are more common.

High-low retailer promotions are largely funded by the manufacturers, which agree to periodically sell goods to the retailer at less than the normal cost, so the retailer can, in turn, sell the goods to consumers at an advertised discount.

Tim Carter, director of public affairs for The Oshawa Group, which owns Food City, Food Chopper and part of the iga chain, points out that manufacturers gain from high-low pricing because, in return for the periodic price cuts, retailers put together packaged promotions that shine a spotlight on particular brands.

Carter says the ‘system of packaged promotions has worked pretty well for manufacturers and for retailers.’

But he says that if p&g wants to move away from regular promotions, the ball is in its court.

One supermarket executive, who asked not to be identified, says he wonders whether high-low retailers would continue to give p&g the support it enjoys if p&g terminated its promotion allowances.

He says ‘we would obviously not delist p&g products because they are too strong a player.’

But he explains p&g’s secondary brands might be given less prominence on the shelf than they received previously, and ‘there would probably be a reluctance to list new items.’

While retailers are resistant to everyday low pricing by manufacturers because it runs counter to their traditional way of doing business, the issue is also a financial one.

They earn considerable profits by buying large quantities of stock at promotional price levels, selling only a portion of it at a discount price during the store feature and then selling the balance at regular price.

Understandably, most retailers would be loath to lose a source of profit.

Garnet Kinch, vice-president of sales and advertising for Zellers, says that in today’s economic climate, retailers depend on price breaks from manufacturers just to make ends meet.

Kinch says ‘customers are more and more refusing to pay the regular prices and they are waiting for the sale prices.’

He says that ‘if we as a retailer cannot deliver a product our customer can afford, or a product that is competitive in price, ultimately the manufacturer will suffer.’

But Kinch points out that p&g creates so much demand for its brands through its advertisng, that customers are likely to demand them regardless.

And he adds that because of its dominant position, p&g has never been, in comparison with its competitors, all that active in promotions.

Commenting on p&g’s move to everyday low pricing in the u.s. and the possibility that it might soon bring the strategy to Canada, Peter Elwood, vice-president of marketing for Toronto-based Lever Bros., says ‘this is a complete change in approach as to how products have been promoted in the past in a lot of categories.’

Elwood says p&g ‘is suggesting, instead of giving you deals all the time, we’re going to lower the price halfway between the deep cut feature and the regular price,’ noting that for retailers ‘this requires a significant change in the way products have been promoted.’

Elwood will not say how Lever might react in the marketplace to such a move by its arch rival, but in the u.s. the company, in some instances, has stepped up its promotion allowances, thereby enabling retailers to run even more frequent price features on Lever brands.

Mike Jolliffe, vice-president of marketing for Jergens Canada, says Jergens does not have the clout to battle p&g head on.

Jolliffe says he would wait to see what prices p&g’s competing brands settled at and then price his brands accordingly.

Max Roytenberg, president of the Canadian Council of Grocery Distributers, says everyday low pricing also has its advantages.

Roytenberg says high-low pricing creates major headaches for retailers in the areas of buying and storage, noting problems would not arise if prices were stabilized. PA