Supermarket discounts: do they offer genuine benefits or are they “buying traps” Name: HU LIXIANG Student Number: 200908448 MSc Major: Consumer Marketing 1. Project Title Supermarket discounts: do they offer genuine benefits or are they “buying traps” 1. 1. Introduction Generally speaking, people believe a discount in the supermarket is something that will help to save their money and which is a profits sharing activity of supermarket company.
However, less people ever think about the real value for them when a discount product purchased. Therefore, Tesco, a well-known neighbour will be a good case for this study. Since 1919, when Jack Cohen began to sell surplus groceries in East London, a supermarket which later would become known as Tesco has gradually become one of the main companies where United Kingdom consumers like to buy their groceries. Today, the company’s advertising slogan “every little helps” is embedded in most British people’s minds.
Today, roughly three thousand Tesco stores provide services in the United Kingdom and Tesco products are on sale everywhere. Behind the rapid development of Tesco is UK consumers’ notable purchasing capacity, which has greatly increased over the last half century, and also their preference to make use of Tesco as the main provider of their groceries. Consumer behaviour is affected by both internal and external factors. Specifically, internal factors include consumer demand itself (“What do people want? ), while external factors include product quality, advertising methods and marketing structures. From a psychological point of view, while consumers’ interests would often be best served by “shopping around” (selecting the best price for similar products from among many different outlets), the fact of being in a typically encourages consumers to make their decision to buy within a short period of time. More and more sales promotions (discounts and the like) can have a significant psychological impact on customers’ purchasing decisions.
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Most existing research has paid attention to the question of whether discount activities will bring a company more benefits, while a smaller amount of research has questioned whether consumers purchasing discount items obtain real value. However, there has been little research to explore changes in consumers’ psychological activities when they buy merchandise at a discount in supermarket, or looking at the question of whether they really need discount products or if the temptation of the promotional advertising alone has prompted the decision to buy.
This research proposal starts with a literature review aim to set up the hypotheses that customers will be influenced by the sales promotion which leads to purchase products they do not actually need. The methodology and data collecting methods are followed by analysis and ethical issue. At the end of research proposal, implications for someone may concern will be provide. 1. 2. Aims This research aims to thoroughly explore the supermarket sales promotions provided by Tesco, and then measure their impacts on consumer psychology as the company pursues its ultimate goal of growing sales.
An additional aim is to investigate the method that TESCO carries out to influence customers’ psychology via variety sales promotions and ultimately to change customers’ initial decisions, in the mean while, provide a reasonable recommendation for people who willing to purchase discount goods in supermarket. Furthermore, the final contribution will abound knowledge about sales promotion activities and find some more practical effects. 1. 3. Objectives The research will address the following questions: . 3. 1. Do supermarkets offer a variety of promotions normally, and if so, how many major methods do they adopt? 1. 3. 2. Do customers prefer items for promotion to products at a regular price? 1. 3. 3. What do customers think about this kind of marketing strategy, is it a profit sharing by supermarket or just a kind of advertising? 1. 3. 4. Are customers influenced by sales promotion activity, and if so ,will they change their initial options? 1. 3. 5.
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What do customers feel when they choose items for discount but not their original choices, satisfied or not satisfied? In addition, the research will seek to identify that consumers made purchase decision due to the psychological change or based on their sane thinking and to provide rational suggestions to consumers when they are choosing items for sales, and to provide a means to identify the real value of many kinds of discount. 2. Literature 2. 1 Review of the relevant literature
There is a large amount of literature about the pricing strategy or consumers’ behaviour for different sales promotion but there is surprisingly little research about the contributing factors that prompt customers’ buying behaviour. However by analysing consumers’ reaction to sales promotions, we can determine whether customers make their purchasing decisions based on internal or external factors. The internal factors would be customers’ initial needs, while external factors would include the influence of promotion advertising.
The retail industry increasingly used sales promotions (Felgate et al. 2012).
Previous research (e. g. Webster 1971; Kotler 1988; Blattberg & Neslin 1990) sees sales promotion as a method that directly or indirectly influences customers’ purchasing behaviour – via limited purchase time or a price drop, or some other way to enhance the prospect of sales. The use of such sales strategies in supermarkets has dramatically increased in the UK in the past ten years, with nearly one third of all supermarket branches supplying items as part of a “sale” (Nielsen Wire 2009).
Gilbert and Jackaria point out (2002) that there are four major promotional methods frequently used in British supermarkets: coupons, direct price discount (price drop), samples and so called “buy one get one free” (BOGOF).
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Based on data analysis of 160 respondents, indeed, there is a relationship between these four commonly used sales promotion types and customers’ buying behaviour – with direct price discount proving to be the most efficient method of influencing consumer behaviour. It is obvious that sales methods are highly relevant to consumers’ purchasing activities.
Many researchers have investigated how consumers’ responses relate to a variety of promotion methods which also provides reliable evidence to show that external reasons have provoked customers to change their initial idea. Five main responses (namely brand switching, purchase acceleration, stockpiling, product trial and higher spending) have been subjected to a correlation analysis with sales methods through 206 supermarket customers in Hong Kong, which has a similar marketing environment to the UK.
Direct discounts and BOGOF were considered to be the tools that most significantly influenced customers to change their original choices, leading to purchasing acceleration, stockpiling or spending more (Prendergast, et al. , 2005).
Not only do these traditional methods work, but also some newer concepts like gift promotion can help sales to increase. Gifts can be help to change their attitudes and purchase objectives, and to keep and boost purchasing behaviour by existing customers (Bodur and Grohmann, 2005).
Another research related to gift promotion conducted by Montaner (2011) has also proved that gift promotional sales will effectively accelerate sales by upgrade consumers’ purchase willingness. Another study suggests that even children also will bring sales promotion into their simple buying decisions, even though sales promotions may not always give them the best value for their budget (Boland et al. , 2012).
Consumers purchasing decisions have a positive correlation to sales promotion, as discussed above.
However, a small amount of research has focussed on the psychological evolution of customers when they are faced with two items with the same function – one at a regular price and the other at a discount. Chen et al (2012) predict that if customers ignore the basic value of products but are swayed by the percentages of sales promotion, they tend to prefer multi-buy items for sale than price discount, based only on their simple mathematical calculations. For example, an item may have a direct discount for one third of its original price, while the multi-buy sales promotion can bring customer a fifty percent discount.
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Most people will prefer the 50% discount to the 33% discount, without being concerned about the amount they have purchased, or the basic value of the products. Chen et al. proved this prediction with experiments, showing that it was hard for customers to combine price and quantity when they are surrounded by many kinds of promotion advertising. For further consideration, sometimes direct discount is not actually all that direct: people may not choose a T-shirt sale for ? 20 but will prefer to buy the same T-shirt which has a ? reduction, if they are told that the original price was ?
All consumers like a bargain, and therefore some sales promotions like to match people’s willingness to buy at a supposed discount (Saini et al. , 2010).
Sales promotion methods may help consumers save money. Some main methods include discount, coupons or BOGOF, and are usually intended to encourage customers to purchase some new products that possess high quality or advanced functions. These promotional methods are normally considered to be a profit sharing by retailer or manufacturer.
Of course, there is another way to look at such sales promotions techniques, and discounts can be seen as a trap for those people who want to purchase great value products from promotions. Wallace (1996) points out that the most generally sales promotion method is by offering a limited-time discount, which does not permit consumers enough time to think deeply about the necessity of this specific item nor gives them the chance to compare the price with other supermarkets. Hence it is easy for a customer to switch his favourite brand to an unfamiliar brand, without realising that the discounted price does not offer genuine value for money.
Pricing strategies are part of marketing strategy, which has been carried out in many companies. New products – which are not worth their high prices – are often offered at a great discount to attract customers’ attention in a short period. However the main reason for this phenomenon is because customers normally focus on the prices but not the actual value (Hogan and Lucke, 2006).
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Discount pricing traps still remain popular, along with other kinds of sales promotion methods. 2. 2 Summary
The literature review above shows that there exists a connection between customers and sales promotion, and also promotion methods indeed boost the company income. The existence of external factors influences customers’ mental behaviour. Purchase by sales promotion may not offer the value it claims to: this research will collect data on the attitudes of customers who have bought products for sales and will analyse whether these customers gain real benefits from purchasing items via sales promotion. 3. METHODOLOGY 3. 1. Hypotheses
The study assumes that consumers who purchase discount goods have been influenced by the impact of promotional advertising, and so are provoked into making irrational decisions. 3. 2. Research design and sampling This methodology will be applied for the research to obtain data and deduce the answers to questions that have been put forward previously. It will help to propose research about the customers’ real benefits when they select products at a discount, when influenced by promotional advertising. This research will be use both qualitative and quantitative methods by means of secondary data, surveys and interviews.
The purpose of this research is to examine if customers can obtain real value from discounted products. Thus it is necessary to select samples as customers who have responses for sales promotion in supermarket and the secondary data will contribute to testing correlation between outcome of data analysis collect by questionnaire and existing theory. Further interviews with people who have bought items through sales promotion will help to analyse the psychological evolution of customers. In this way, it will draw a conclusion about reasons for people to purchase discounted products and to define the real benefits of items at discount price.
In another words, the main purpose of this research is to acquire an insight into the real needs of customers and provide rational recommendations for people who prefer discounted products. As explained above, the research will adopt a descriptive approach. Sekaran and Bougie (2010) explain that a descriptive study is carried out when there already exists a specific hypothesis and a prior plan can be abided by. The objective will test the hypothesis and acquire a clear understanding of this topic. 3. 3. Data collection procedures To achieve the aim of the research, primary data and secondary data will be collected and analysed.
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The secondary data will be able to help format relevant background information which will help both researchers and readers. This will help researchers to bring the plan to completion and readers to profoundly understand the results of this investigation. Choosing an appropriate sample is necessary for researchers to achieve accurate outcomes, and it is a portion of composition, which is treated as the delegate of entire population (Black and Champion, 1976).
Graph 1: As shown in the graph 1, the first phase, a longitudinal designs questionnaire will be used to collect primary information.
The amount of sample between thirty and five hundred is proper for the majority of research (Saiful, 2012).
Based on these limitations, the number of sample will be constituted of 168 questionnaires for customers picked up randomly in each branch. Questionnaire work will be carried out in four Tesco branches of different sizes: Tesco Express, Tesco Metro, Tesco Superstore and Tesco Extra. This is in order to ensure that the investigation data is varied. Each branch located in the area does not face fixed customer groups in case samples are not universal.
The questionnaire section is scheduled to last seven days from Sunday to Saturday to ensure that all types of customers are included in research and this phase will conduct on three periods as morning, midday and also evening. Researchers will gather the primary data via two methods. At the beginning, questionnaire surveys will be carried out with customers shopping in branches of Tesco supermarket in Liverpool. The duration of each survey and artificial costs are within an acceptable extent. The questionnaire is consists of four different aspects to gather sufficient data for analysis.
To achieve the objectives proposed before, first part is design to collect respondents’ personal information such as gender, age, occupation, income level and so on. The second part of questionnaire is about diverse sales promotion methods provided by Tesco and it is aim to find consumers’ awareness of this sales strategy. The third part is relevant to respondents’ purchase behaviour which purpose is to collect different choice made by customers after influenced by sales advertising. And the last part is designed around by customers’ psychology evolution, this section is used to analyse people’s attitude of purchase a product for sales.
To some extent, last part can surmise the factors which driving consumers purchase discount merchandise. Followed by the first step, interviews will undertake by email to customers who fill in questionnaires and also purchase products for sale in specific branch at that time. To make sure receive enough reply, there is a need to confirm in advance that respondents are willing to accept an interview via email after use of discount merchandise. Combining the analysis of questionnaire and interview, the researcher will draw a conclusion and supply answers to the main objectives previously outlined. 3. 4. Data analysis
The data collected in the first stage will process through univariate analysis. Elements in the questionnaire are all independent variable while four different sample supermarkets been selected are eager for enhance the universality of data. After collecting stage, data will be entered into SPSS and an Excel spreadsheet. Categorical data used to calculate frequencies and percentages which could describe tendency of customers. Result of quantitative analysis will provide an explanation of what sales promotion methods did Tesco supermarket adopt and in what ratio of customers will prefer a product at discount.
NVivo software will be used to analyse qualitative data collected from interview phase of this research. It means that individual feedback can be assorted meticulously to make sure that diversity respondents have been interviewed. Even analyse quantitative data does not make sense of research completion as it does only provide an objective view of the hypothesis, questionnaire refinement and further investigate on mental changing of customers’ will fulfil the demands of the research. 3. 5. Expected Results
Analysis of the qualitative and quantitative data collected from questionnaire survey and email interview, suggests that changes of customers’ behaviour related to promotional methods, and customers normally are not able to get real benefits or value products from these methods. To some extent the results are evidence to speculate mostly that sales promotion methods do not amount to great value. 3. 6. Ethics Members in research team may need to address a variety of ethical issues such as answers of questionnaires will be involved personal privacy issues of respondents.
However, it is believed that respondents participate in the long time periods will comprehend the true significance of this study and also will benefit from the achievement of this research. The outcome of this research will not generate negative impacts by targeting Tesco in this research. The products relevant to this research are only being treated as study cases which will not be influenced by the conclusion of hypothesis. 3. Planning and other 4. 1 Treatment of the Data
The researcher will hold a daily diary to involve the original questionnaire papers contained the questionnaire, further explanation of specific paper and some new findings for daily work. And data will be recorded in computer to avoid unintentional damage. 4. 2 Risks analyses 4. 2. 1: data lost: keep by particular person in research team and make sure to backup periodical 4. 2. 2: Lack of co-operation with supermarket staff: guarantee the outcome of research is not used for Commercial use of competitors, seek for understanding of branches before conduct questionnaire survey.
