Poundland: is £1 really a bargain?

Whilst the death of the high street continues to plague UK retailers and the Tesco powerhouse begins to show signs of floundering, earlier this month, discount store Poundland announced a 13% rise in sales and record profits. CEO Jim McCarthy marked the occasion by unveiling plans to double the number of UK stores beyond 1,000 – which begs the question; how can a store offering products at the inflation busting price of a measly pound continue to profit?

You know the saying; if something appears too good to be true, it probably is – and the case of Poundland is no different. Therefore, this article attempts to unpick the clever marketing tactics that make you think you’re getting a bargain when sometimes you are not. Firstly however, Poundland has not arisen through deception alone, so it’s important to acknowledge the clever business sense that has contributed heavily to the firm’s success:

1. Strong Purchasing Power:

When addressing profitability, retailers focus on maximising both profit (margin) and volume sold (asset turnover). Whilst a single price-point hinders opportunity for the former, Poundland’s reputation for making quick decisions and rapid payments allows vendors like Cadbury to conveniently shift excess stock – albeit at a discounted price. These lower input costs, combined with Poundland’s acceptance of smaller profit margins, means the retailer can sell products at prices others simply cannot – driving volume and leaving manufacturers falling over themselves to trade with Poundland.

2. Ever-Changing Stock:

Given Poundland’s “pile ’em high, sell ’em cheap” sales approach to ensure rapid turnover of stock, one key differentiator is a portfolio of stock that changes every week. On top of a few firm favourites, customers are faced with a treasure chest of products about to pass their shelf life, brand lines set to be refreshed and unfamiliar foreign brands – meaning you never know what you might find. Every day, a shopper likely goes into Poundland to buy cheap batteries and ends up leaving with a basket full of things they didn’t know they needed.

3. Single Price-Point:

According to occupational psychologist, Gorkan Ahmetoglue, entering Poundland creates an environment of cheapness where consumers relax in the knowledge that they can afford anything. This triggers consumers’ reward system, making them feel positive and more tempted to spend.

 

But here’s to the more subtle marketing and clever psychology, arguably verging on deception, that is changing the face of UK retailing.

1. Brands:

Even though Poundland is very much a discount store, it has managed to broaden its market appeal to the extent of 22% of UK customers now coming from the richest AB demographic. Retail consultant, Neil Saunders, has suggested that the location of big brands at the front of Poundland stores leads consumers to believe it’s like a normal supermarket, just much cheaper. Seeing these familiar brands instils trust amongst passers-by that it’s okay to shop in Poundland, encouraging them to delve inside. In reality however, once inside, a larger proportion of products on sale constitute “phantom brands” – essentially own-brand products that do not feature Poundland’s name, such as Sweet Heaven Brazil Nuts or a Kitchen Corner Knife. Through phantom brands, the retailer avoids potential negative assumptions about the quality of a ‘Poundland’ knife and further adds to the impression of a wide variety of brands on offer – in line with customers’ bargain hunt mentality.

2. Smaller Pack Sizes:

Poundland’s bold claim of “The same amazing value since 1990!” is not strictly true. Whilst the £1 price point has clearly remained, the same cannot be said for the amount of product you get for your quid! For example, whilst in 2007 you’d get two packs of Cadbury Chocolate Fingers for £1, since 2012, you now just a single pack. The same goes for multipacks of Wotsits, which halved in size from 10 to 5 in 2012. Perhaps more worrying however is vendors including Nestlé and Warburton’s liasing with Poundland to make special smaller packs of their products. Often, customers don’t realise they’re buying a smaller version of the product they’d buy at a supermarket, and therefore unknowingly pay a higher price per gram of Nutella in the example below.

Poundland - Nutella

3. Fake Offers:

A common yet very dubious tactic of Poundland is to once again work with vendors to adapt product packaging by adding an apparent offer – to appear like you are getting more for your money when you’re actually not. Comparing two eight-packs of Nestlé Kit Kats biscuits – one sold in Tesco and the other in Poundland – despite both costing £1, the product sold in Poundland claims “60% Extra Free” making it appear better value than Tesco’s, even though they cost the same price! Gorkan Ahmetoglue suggests an offer triggers an emotional reaction that the consumer cannot actually control and making them more likely to part with their cash.

Poundland - Kit Kat

 

Despite the improving economy, many consumers have got used to spending less and finding a bargain has almost become a badge of honour, leaving Poundland well-positioned moving forward. But if there’s one thing to take from this article… look carefully before you buy!

 

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One thought on “Poundland: is £1 really a bargain?

  1. Pingback: Aldi & Lidl: Future Market Leaders? | the Marketing Agenda

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