Woolworths' Pricing Strategy

Pricing Strategy

Approach to Price Setting

Woolworths' approach to price setting is inherent in their mission to provide "the finest quality fresh food at everyday great value". This statement alone demonstrates Woolworths' commitment to offering a combination of high product quality with low prices, a 'Superb-Value' strategy according to Kotler's Nine Price/Quality Strategies Model (fig.1). This value-based approach to pricing is demonstrated by Woolworths' pricing of its own private label products. The introduction of private label products is a strategic pricing move, as it enables Woolworths to mediate control over shelf space, improve bargaining power over manufacturers and ultimately position themselves as the highest value providers (Nenycz-Thiel, 2011). However, despite Woolworths' large market share and value offering, the threat of substitutes available to consumers, for example Coles Supermarkets, increases the price sensitivity of consumers. The elastic demand for the products that Woolworths provides means that their approach to price setting is highly competitive.

Pricing Strategies

Woolworths employs a combination of cost-based pricing and competition-based pricing. Woolworths uses the standard cost-plus pricing strategy to mark-up the prices of products, particularly premium brands, such as Woolworths' own organic Macro label, and perishable products. By contrast, target-profit pricing is used to set the prices of Woolworths' private label products as low as possible. The low prices of Woolworths' private label brands reinforce the positive consumer value-perceptions of the company. Despite the fact that Woolworths uses mark-up strategies to price some of their products, the company's large market share and ownership of private label products enable them to have increased bargaining power over manufacturers. As a result of this bargaining power, Woolworths is able to significantly lower the prices of their products, giving them an edge over their competitors. Additionally, competition with other grocery retailers, such as Coles, has also forced Woolworths to employ competition-based pricing. For example, in 2011 Coles reduced the price of home-brand milk to $1 per litre. ¬In response to Coles' highly successful pricing of this staple food item, Woolworths' employed a going-rate pricing strategy to match Coles' milk prices. This decision was destructive to the dairy suppliers and manufacturers working with Coles and Woolworths, and also to smaller independent retailers. Furthermore, Woolworths' action to match the prices of Coles has ignited a 'price war' that has resulted in the company using going-rate pricing more regularly in order