February 3, 2018
MAR 4803 - Marketing Strategy
Dr. P Sergius Koku
Hi-Value Supermarket Case Analysis
James Ellis, senior vice president of Hall Consolidated and president of Hi-Value Supermarkets was preparing to meet with the district manager who oversaw three Superior stores in Centralia, MO in April of 2006. His agenda consisted of the districts progress on the goals set back in 2005 and to address any concerns related to the district manager's supermarkets. Of the three supermarkets owned by Hall Consolidated, Hi-Value is the smallest contributor with sales of $192.2 million in 2002, ranking one or two in its trade markets.
II. Problem Definition/Issue
With an evaluation of Hi-Value Supermarkets state, it is palpable that their future success is dependent upon the implementation of everyday low pricing in the three stores based in Centralia, Missouri.
The purchasing behavior of the demographic must be contemplated in Central Missouri since the primary trade market is Centralia. The area is home to around 41,000 residents with an average income of $36,000 and an average age of 35 years old (Exhibit 1). While Hi-Value offers the highest level of convenience, their prices are the highest overall. Studies have shown that 77.9% of their customers have been brand loyal for 3+ years. Due to the income range per household at $35,000-$74,999, families prefer lower price pointed items. With 51.5% of Centralia's residents employed by manufacturing and service establishments (Exhibit 7), price becomes the number one determinant; therefore, Hi-Value Supermarkets pricing structure needs to be reevaluated.
With price as the most important determinant in stores, Hi-Value's main weakness could be sought as their highly perceived prices. Consumers have concluded that Hi-Value Supermarket's prices were "above average" compared to their local competitors. In addition to their above average pricing, Hi-Value Supermarket executives have admitted that their product line is more limited and variety is also perceived as one of the weakest components of the store falling behind Missouri Mart by 72%.
The largest opportunity for the supermarket is the growing price consciousness among the Centralia consumers. When developing a new strategy, an increase on price elastic customers should be carefully considered. The company's records revealed that customers are willing to spend more on fresh meat, poultry, and seafood. 14.32% mark up on the meat is forgivable to customers if the quality matches. However, Hi-Value Supermarket's must improve the quality of the butcher in order to attract those willing to purchase meat at that percentage mark up.
Since Hi-Value Supermarket's prices were perceived as "above average", this could be considered a major threat since the Centralia shoppers are becoming exponentially price sensitive. The 2002 research recognized Harrison's for the best quality for their prices and services. Regarding customer perception, Hi-Value faces yet another problem since produce is the third most important determinant for a store. Research showed that Harrison's is considered to be the "produce" store in Centralia which is ultimately compromising Hi-Value's profitability and customers loyalty.
Competition also impacts Hi-Value's next strategic move. Their competition is divided into two segments; 85% of food sales coming from Harrison's, Grand American, and Missouri Mart and the other 15% composed primarily of other convenience stores and specialty farmer's markets. Each competitor has developed their own strategy to attract and retain their consumers. Since the crash in the late 90s, Hi-Value has been salvaging but hit a sudden market share gain which could be due to a change in consumer preferences.
Alternative courses of action include implementing "Everyday low-pricing" to all of Hi-Value Supermarkets products and/or implementing it into their seasonal product and merchandise only. By implementing everyday low prices among all their products, they will generate direct competition against Harrison's pricing which was the market leader at 36% according to the Association of Store Characteristics with Major Food Stores in Centralia. Centralia's consumers are generally becoming more price conscious with 13,500 households retaining an average income of $36,000 per year. Since price seems to be the more important store determinant, this strategy should be considered by Hi-Value Supermarkets executives.
By implementing the "Everyday low-pricing" strategy, Hi-Value would commit to a low price without the need for promotional sales to bring in customers. The strategy has been proven to work well with a store of Hi-Value's caliber if their advertising supports its claims. Since Hi-Value is considered the "most convenient" with three stores in the Centralia area, they should capitalize on this in their advertising efforts. Their current positioning strategy, Hi-Value = Superior Value, falls short in the pricing category since they typically spend .11% less on annually advertising. This strategy can create confusion but if it is implemented as "Everyday low-pricing" it will have the potential to reduce costs and in turn increasing profit.
If Hi-Value chose to implement "Everyday low-pricing" to only seasonal merchandise and products, they would be limiting the pricing strategy to all of their product lines (including dairy) and general merchandise such as beauty and household items. These categories represent 57% of their annual sales therefore the "Everyday low-pricing" strategy should suggest that they want to enter into a different segment of reasonable pricing. It would generate more direct competition towards Grand American, Harrison's, and Missouri Mart however, it may create confusion with their current positioning statement, "superior value and convenience."
One could argue that 77.9% of all Hi-Value Supermarket customers have been brand loyal for three or more years, according to the Hi-Value Supermarket Shopper Interview Results. Of those consumers, 51.7% purchase only about half of their food needs, and then of that percentage, 36.9% purchased solely groceries and 23.4% purchased a combination of grocery, meat and produce. 27% of those who were interviewed stated that they liked the prices best when shopping with Hi-Value. From this, we could draw a conclusion because of the strong brand loyalty, that the seasonal implementation of "Everyday low-pricing" could be successful.
Lastly, Hi-Value Supermarkets executives have the opportunity of not implementing the "Everyday low-pricing" strategy at all. They would simply maintain their positioning strategy as "greatest convenience". The three: one ratio of Centralia located stores gives them a competitive advantage to other stores in the area. By deciding to focus directly on their current strategy, they would typically not worry about consumers switching brands. However, executives should be concerned with the fact that their customers like other stores' pricing such as Harrison's. If Hi-Value changed their positon, it may also change the aesthetic of the brand that keeps customers coming back.
In order for the "Everyday low-pricing" to work efficiently in the market area, Hi-Value does not have to offer the lowest price. This allows for the consideration to only slightly lower pricing. Currently, Hi-Value's pricing is 7-10% higher than competitors in the area, and if executives considered lowering that percent to 2-3, they could maintain their current positioning strategy while meeting the needs of the price conscious Centralia consumer.
After analyzing Hi-Value Supermarket's possible courses of action, the most appropriate course would be to not implement the "Everyday low-pricing" strategy by any means and increasing their advertising efforts to 1% of the annual revenue to maintain the convenience and aesthetic of the company.
Kerin, R. A. (2013). Hi-Value Supermarkets: Everyday Low Pricing. In Strategic Marketing Problems: Cases and Comments (13th ed., pp. 500-511). Pearson Higher Education.
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