On paper, it sounds like a totally reasonable price strategy from the market leader in an oligopolistic market - after announcing their worst sales figures in nearly 20 years, Tesco’s came out with a price cut promotion “The Big Price Drop”. The supermarket – which has pledged to spend £500 million on the high-profile promotion – has promised customers that it would reduce the price of 3,000 essential products across its stores.
But it is actually an interesting case study in imperfect information and the use of anchoring price expectations… since research by the Times found that actually Tesco is not playing fair - it increased the price of its products over August… to then “cut” them in October, but still at levels higher than they were before the August hike…
But the phrase “Big Price Drop” probably will anchor people’s price expectations and work as a stimulus for sales, given the imperfect information problem that most consumers will face.
In one example, Tesco 750g Fruit and Nut Museli went from £1.28 on August 16 to £1.89 on August 23 - before ‘dropping’ to £1.75 on September 26.
After the price drop campaign launched it was revealed that a basket of 33 staple items from Tesco now costs £58.37 – up by £1.34 since the campaign began.
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