OK, it’s taken me a while to get my head around the far-from-simple subject of platform rebates, and without the expert guidance of the fragrant Holly Mackay it would have taken a much longer while. Â Still, I think I now more or less understand the movements of all those basis points, and how everyone in what I’ve learned to call the Value Chain ends up making a few bob.
Not so, I have to say, with Shreddies – or, indeed with all the other groceries offered by leading supermarkets at deep, deep discounts. (As it happens, I noticed Shreddies on a half-price promotion at Sainsbury’s at the weekend.)
It’s a long time now since I worked in food retail advertising, and if I ever knew how this sort of promotion works I’ve long since forgotten. I don’t think it can simply be a good old-fashioned pile-it-high-sell-it-cheap volume-vs-margin trade-off, where manufacturers sell so many more units that they’re better off at the end of the day despite the tiny margin: I don’t think that can work when you’ve reduced the price by as much as half. But equally, I don’t think it works as a conventional loss-leader, even if only for the obvious reason that no-one’s promoting it as a reason to visit the store.
If I had to guess (which I suppose I do), I’d say that it’s a somewhat more grown-up and sophisticated kind of loss leader. I’d guess that to maintain customer loyalty, Sainsbury’s needs to be seen to be offering big savings on customers’ journeys round the store. And to do so, it leans on big suppliers who need the distribution (Shreddies, for example, are a Nestle brand, aren’t they?), saying that it’ll be generally nice and helpful to them across their range if they’ll do a silly price on at least one of their lines for a couple of weeks in February. To add to the overall effect, Sainsbury’s may throw some of their retail margin into the pot too, to get the price down even lower.
It’s still not easy to see how anyone makes money out of this. If selling Shreddies at half price is actually loss-making for Nestle, then even if the volumes are huge it’s not doing them any favours (and, what’s more, we can safely assume that sales of other, full-priced Nestle breakfast cereals, especially Shreddies variants, will fall during the promotion). And even if Sainsbury’s are still making a margin, it must almost certainly be less than they make on full-price cereals, and I’d be surprised if, overall, total sales of cereals rise during the promotion: I’m pretty sure that most shoppers, like me, see the half-price offer as a straightforward substitution, buying Shreddies when otherwise we’d have spent twice as much on Crunchy Nut Cornflakes.
In the longer run, though, I suppose maybe Sainsbury’s need positive consumer price perceptions, or else they’ll lose market share to Tesco. And if promotions like this contribute to that bigger picture, then maybe they’re worthwhile.
Enough of these ill-informed speculations. I’d be grateful if anyone can explain it all to me. And meanwhile, let’s take a little comfort from the fact that financial services is by no means the only consumer market where pricing strategies are oblique, and opaque, in large and equal measure.