1.

Introduction

According to McGoldrick (2002) in most sectors of retailing, pricing decisions are

regarded as being among the most crucial and difficult aspects of retail marketing.
Smith et al. (2000) support the above argument and state that managers
continuously test new strategies and tactics that will provide them with a long or
short-term competitive edge. Price promotion is considered as the most influential of
these tactics and varies from one retailer to another. In the following research, seven
stores from different industries will be critically analysed and compared in order to
assess their promotional pricing strategies.

2. Range and diversity of retail price promotions

During the fieldwork the great diversity of retail price promotions has been observed
between the shops. The most frequently used strategy by retailers was multiple-unit
pricing, where stores try to attract customers by enabling them to buy in a bundle
(Berman and Evans, 2004, p.434).The above strategy was spotted in Tesco (‘2 for
£2’and ‘3 for £3.50’ offers), Sports Direct (2 for £5) and HMV (2 CDs for £10). Mix
and match strategy that is similar to the one of multiple-unit approach was the core
pricing method adopted by Boots (2 Gillette products for £8, 2 cosmetic items for
£18). Another commonly employed tactic was loss leader pricing, where retailers
price selected items below the cost to encourage more customer traffic (McGoldrick,
2002, p.371ff). It was one of the main strategies chosen by HMV, Tesco and Sports
Direct, however it was also common in Boots, where markdowns were widely used.
A further strategy that was adopted by most retailers was odd-pricing (e.g. £X.99,
£X.88), which makes people psychologically believe that the product is cheaper.
Additionally the field research discovered that, firstly, all retailers were applying
variable rather than customary pricing and regulated prices depending on market
fluctuations and buyer’s demands, instead of maintaining them for extended periods
(Berman and Evans, 2004, p.431f). Secondly, the extent to which strategies were
adopted differed between stores. Adidas and Apple did not use any price promotions
at all while Curry’s Digital used promotions, such as competition-oriented strategy
(where competitors’ price is a guide (Berman and Evans, 2004, p. 430), but to a
lower extent than Tesco, Sports Direct, HMV and Boots. Lastly, most of the

1
strategies observed were short-term tactics and were related to the seasonal sales
(Varley and Rafiq, 2004).

3. Difference between retails’ price promotions

The observed retailers were from different sectors, namely: sportswear, grocery,
cosmetic, electrical products and music industry. Food and cosmetic retailers
encouraged multi-buys (e.g. any 2 items for £X), a strategy which is effective for
introducing a new product, boosting sales and increasing the value of each
transaction (Ellickson, 2008). On the other hand, sportswear, electrical and music
stores tended to have more seasonal sales to catch attention of the customers. The
following is an effective tactical step as, according to Andy Jarvis (2010), Christmas
is the time of the year where consumers permit themselves to spend a little more.
The above difference in tactics adopted by retailers may be a result of difference in
market sizes as small markets are less likely to support high volume of goods, while
large markets could foster more competition. Larger retailers (Boots, HMV) tended to
have more price promotions since they almost certainly have more advertising
allowances based on high volume of sales. Besides that, economies of scale and
cost efficiency also allowed them to set a lower price for their products. Additionally,
Tesco and Boots are more likely to benefit from supply chain efficiencies and cost
reductions associated with an everyday low pricing policy (EDLP) (Glenn B., 2003).
The case of Apple and Adidas, however, shows that large supply chain can also not
engage in price promotions strategies and maintain high prices. The effect of market
size is therefore two-folded and would depend on overall retailer’s strategy.
Market position is another variable that may have had an influence on retailers’
promotion pricing strategies. As mentioned earlier, Apple and Adidas tend to have
fewer or no promotions at all as they do not want to ruin their ‘high-end’ brand image
(Smith and Sinha, 2000) by lowering prices. They have already established a
successful brand image, which is appealing to customers. According to Varley and
Rafiq (2004), this kind of premium pricing is a long-term strategy, which used as a
differentiating tactic along with other marketing mix elements. As a result,
consumers’ perceived value of the brand will not be deterred by the high price
associated with symbolic status of shopping in such stores. Therefore Apple and

2
Adidas display a superior price lining than stores like Tesco, Boots, Sports Direct
and Curry’s Digital.

4. Analysis of promotion pricing of two retail stores and recommendations

In order to compare promotional pricing strategies, Adidas and Sports Direct have
been chosen, as even though they are both large sports wear outlets, they represent
different kinds of department stores and are therefore expected to possess different
pricing strategies. Adidas is a high-end sports retailer while Sports Direct is a cheap,
lower-end outlet. Sports Direct is engaged in a heavy promotion and almost all of its
merchandise sold under a markdown, Adidas on the other hand, uses premium price
strategy but does not have any promotions.

It has been found that Sports Direct offered wide range of promotions, as multiple-
unit price offering for example ‘2 for £10’, percentage reductions as ‘50% OFF’ or
‘only for £10’ promotions. The reason for such strategy is to attract as many
customers as possible. The following strategy had been made possible by the
market position of Sports Direct, which is the largest retailer in the UK
(sportsdirect.com). The store is therefore able to purchase stock at a very low price
and then to offer it at a cheaper price than its competitors. Usage of such various
promotions is potentially beneficial for the retailer. Wide range of promotions enables
the it to attract price sensitive consumers and deal-seekers, and increase sales
consequently. As McGoldrick (2002) argues, for consumer getting a bargain can
contribute to a ‘transaction utility’ adding to the ‘acquisition utility’ of owning the item.
This means that consumer feels rewarded if he/she buys something at better price
than expected. Moreover Mulhern and Francis (1995) indicate additional benefits
from promotions, which are add-on sales and converting incremental, deal-prone
shopper to a regular customer (who buys at regular price). However, Sports Direct
does not enjoy this advantage as it could since most of its items are being promoted.
Nevertheless, strategy of using a lot of promotions can have disadvantages as well.
First of all, items with significantly reduced price can not provide substantial margin
for the retailer. As McGoldrick (2002) states, excessive price promotions can worsen
pricing integrity, due to the fact that when prices fluctuate, consumers can get a
feeling that original prices are not fair. Price promotions can as well damage store
credibility and cheapen store image (Kent & Omar, 2003). This is not only a result of

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lower prices but also these promotions can evoke larger crowds in the store and
attract lower class shoppers, which leads to further worsening of the store image.

On the contrary, Adidas’s strategy is to not use any promotions but to rather maintain
its exclusive position. As Kent and Omar note (2003) such stores may delay
markdowns to preserve the store image. Thus we can assume that Adidas applies
some seasonal dimension to its pricing strategy, as there is a possibility of
promotions after Christmas. At the same time pricing has to be consistent with other
parts of retailers’ marketing mix (Kent and Omar, 2003). For Adidas to be able to
charge higher prices than other stores, it has to provide better store atmosphere,
better in store services or more convenient location. Buying in such shops brings
better experience and provides psychological advantages to consumers. The
strategy adopted by Adidas allows it to charge higher prices and maintain high
margins, and not to lose its market competitiveness by lowering its image. The
promotion price strategy of Adidas might not only bring positive effects, but also
potential problems such as possibility of lower sales, smaller number of customers
and difficulty to cover the costs of a premium service. If, however, Adidas changes
its promotional strategy, it may lose its desired image. In addition, more discounts
may facilitate less trust. High-end retailers’ clients may not react to promotions since
they are not price sensitive but are loyal instead. It is hence essential for the retailers
to understand their customer, the way they view the shop, and if they want any
promotions in the first place.

5. Conclusion
The above analysis of data collected has shown the promotion pricing strategies are
being adopted by the vast majority of retailers and play an important role in their
marketing approaches. The degree of adoption as well as type of promotion,
however, varies according to strategies and market sizes. Promotional pricing is
therefore an individual tactic of each shop.

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Reference List

 Berman, B. and Evans, J. (2004) “Retail Management: A Strategic Approach”,

Ninth Edition, Prentice Hall, London

 Ellickson, Paul B. (2008) “Supermarket Pricing Strategies”, Vol. 27 Issue 5,

p811-828.

 Glenn B. Voss (2003) “Exploring the effect of retail sector and firm
characteristics on retail price promotion strategy”, Journal of Retailing 79,
p37–52.

 Jarvis, A. (2010), “Christmas promotions have to be perfect” Available from:

http://www.marketingweek.co.uk/sectors/retail/christmas-promotions-have-to-
be-perfect/3020354.article [Accessed 8/12/2010].

 Kent, T. and Omar, O. (2003) “Retailing”, Palgrave McMillan, Basingstoke

 McGoldrick, P. (2002) “Retail Marketing”, Second Edition, McGraw-Hill,

London

 Michael F. Smith, Sinha, I. (2000) “The impact of price and extra product
promotions on store preference”, International Journal of Retail & Distribution
Management, Vol. 28 Number 2, pp. 83-92

 Varley, R. and Rafiq, M. (2004) “Principles of Retail Management”, Palgrave

McMillan, Basingstoke

 www.sportsdirect.com