Right under where I currently live, there’s a Waitrose. Next door, there’s a Tesco Express. And a little down the road, there’s a Sainsbury Local. The day I got here, a week ago, I drove myself nuts trying to figure out which of these stores is the cheapest.
And after one week of random primary research, I think I have the classic economist’s answer – it depends. On what I’m looking to buy that is.
Each of these chains has built a reputation of sourcing excellent products and selling them to customers at a cheap price. The only thing is that each of them does it on a different kind of products. So there is a set of products that Tesco is easily the cheapest at, but the chain compensates for this by selling other products for a higher rate. It is similar with the other chains.
Some research I read a year or two back showed that while Amazon was easily the cheapest retailer in the US for big-ticket purchases, their prices for other less price-sensitive items was not as competitive. In other words, Amazon let go of the margin on high-publicity goods, and made up for it on goods where customers didn’t notice as much.
It’s the same with British retailers – each of their claims of being the cheapest is true, but that applies only to a section of the products. And by sacrificing the margin on these products, they manage to attract a sufficient number of customers to their stores, who also buy other stuff that is not as competitively priced!
Now, it is possible for an intelligent customer to conduct deep research and figure out the cheapest shop for each stock keeping unit. The lack of quick patterns of who is cheap for what, however, means that the cost of such research and visiting multiple shops usually far exceeds the benefits of buying everything from the cheapest source.
I must mention that this approach may not apply in online retail where at the point of browsing a customer is not “stuck” to any particular shop (unlike in offline where a customer is at a physical store location while browsing).
Variable pricing need not be boring at all!
I’m in a similar situation in the US, living equidistant from local grocery-chain A and local grocery-chain B. First couple of times I visited A, it seemed incredulously cheaper than B. Then I realized what was going on. B’s model is based on a free ‘B club card’ that’s easy to get and comes with substantial discounts applied each time you shop, directly to the bill. So, B is costlier only for those who don’t know the ‘club card’ hack. Getting the ‘club card’ isn’t a big deal for customers who know the hack because there’s no limit to the number of replacement ‘club cards’ one can ask for and the cards aren’t even attached to your name or phone number (http://www.safeway.com/ShopStores/Club-Card.page).
Grocery-chain A also has a ‘rewards card’, but the discounts that come with it are meager since it is based on a points system and points accumulate very slowly.
Grocery-chain A is distributing wealth and benefits. Grocery-chain B (Safeway) rewards only those who know the trivially simple hack.
Not sure if competing grocery chains in UK also differ this way.