Superior Supermarkets Case Study

I. Business Metric and Marketing Tool

In the Superior Supermarkets case the business metric is sales because the executives at Superior Supermarkets will be able to use sales to measure if implementing an everyday low pricing strategy will be successful by comparing their sales in 2002 and 2003. The marketing tool to solve this problem is pricing because the objective of the case is to decide if a new pricing strategy should be used for Superior Supermarkets.

II. Recommended Solution

Superior Supermarkets should implement an everyday low pricing strategy for the grocery and general merchandise only. If they lower their grocery and general merchandise by 4.2% in both of these categories their market share will go from 23% in 2002 to 24.2% in 2003 for the 3 Centralia stores and their sales will increase by 10%. Everyday low pricing is also beneficial because the Superior Supermarkets Controller estimates that it will save the company a total of 110 basis points (p.480). These extra savings allow them to spend more money on advertising, as Randall Johnson states (p.480).

To calculate the increase in sales by implementing everyday low pricing I first found out the market share for the company by using data from the case to determine the share needed for different sales increases (Appendix Exhibit #1). Next I analyzed the profit margins (Appendix Exhibit #2). I found the amount for additional expenses and divided it by 1.011 because of the 110 basis point savings. This gave me the expense number of $3,813,375. For each level of sales I calculated the minimum contribution dollars, which was the expense number added to 1% net profit margin and the additional 1.2% for advertising. I found that at a 10% sales increase 4.2% price cuts on grocery and general items would result in a market share increase from 23% to 24.2%, which is possible for Superior Supermarkets to reach (Appendix Exhibit #4).

Superior Supermarkets should go ahead with implementing...