Retailers resort to price ‘challenges’

Retailers resort to price ‘challenges’

Mumbai: Since 1 October, Big Bazaar, a unit of Pantaloon Retail India Ltd, the nation’s biggest publicly traded retailer and part of the Future Group , has been offering huge discounts, ostensibly to celebrate its opening of 101 stores.

The budget retailer has been dangling a “once in a lifetime" offer before customers in a five-day extravaganza similar to its annual sale.

The offer comes with the ultimate sales pitch: the lowest possible price. In the past, the budget retail chain has offered price challenges, assuring consumers that they would not find a better bargain.

“It’s really a matter of perception," says Ranjan Malhotra, president, strategy and convergence, Big Bazaar. “As marketers we want to tap into emotions such as fear and greed."

Fear, because the offer is only available for a limited period and greed because this is probably a good opportunity to stock up on the best offers. The strategy has worked well in the past, where sales promotions such as the price challenge raised sales volumes between 60% and 300% depending on the strength of emotional hooks and how the promotions was created and packaged, according to the company.

Similarly, eBay India Pvt. Ltd, the online auction site, launched the “Lowest Price Challenge" in September. Initially billed as a month-long promotion, the programme is now likely to be extended to the end of October. It includes deals on gadgets such as mobile phones, digital music players and cameras. Through this promotion, Ebay challenges buyers to find gadgets at lower prices elsewhere with the reward of double paisa vapaas, or twice the amount back. Those who find prices lower than those advertised by Ebay within 48 hours can get twice the difference refunded.

In a milieu where everyone is announcing deep discounts, price challenges are helping retailers be heard above the overwhelming noise.

“Middle income consumers, especially in recessionary times, get extremely value conscious," says Arvind Singhal, chairman, KSA Technopak Advisors Ltd, a New Delhi-based retail consultancy. Global value retail chains such as Wal-Mart Stores Inc. and Tesco Plc. have attracted more value-conscious customers recently.

Singhal maintains that consumers have been known to cut down or postpone discretionary spending during tough times. So, retailers are offering hefty discounts to entice consumers to spend now.

While price challenges could increase footfalls and sales volumes, could they crunch profit margins? “Price challenge offers are usually put on mass products such as commodities. So margins are definitely under pressure," says Gibson Vedamani, chief executive of the Retailers’ Association of India, adding that average profit margins for commodities are 1-2% and 7-8% for packaged goods.