As the curtain draws on the price war between Unilever and
Tesco, independent observers must consider the question on how strategic
alliances affect the pricing policy for specific organisations. In this case,
Unilever was allegedly demanding for a 10% price hike for some of their
products including Persil, Marmite and Ben&Jerry’s ice cream. The row had
led to Tesco pulling these products from their shelves hence denying Unilever a
significant portion of their distribution channel. It can be expected that Unilever's customers must have been frustrated when they failed toget their favorite product on the shelves as expected.
Unilever had cited the weakening of the pound after the June
Brexit referendum as the reason for it raising its prices. The pound had fallen
by 17% before Unilever felt compelled to review its prices to cover the price
implication of these costs. The option they considered was to raise the prices
of their products. These were being distributed through major retailers such as
Tesco hence the latter would be the one to implement a pay hike. Reports from
other major retailers such as Sainsbury and Asda indicated that they too had
received such demands and were unhappy with them. This provides a typical case
study of hitches and disagreements that are bound to arise in strategic
alliances.
The main difficulty in strategic alliances is that
priorities tend to be in conflict with each other. When this happens,
disagreements and bound to happen that could lead to the alliances being
broken. The agreement between Tesco and Unilever can be termed as a strategic
alliance in which the giant retailer gives shelf space to the latter at a fee.
But the concern of Tesco is not purely about stocking the products. It also has
standards to maintain.
Tesco has for a long time focussed on offering consumers the
best prices possible. Over time, some form of psychological contract has
developed between Tesco and its customers. In exchange for patronising the
brand, the consumers expect it to offer the best prices in the market. This
means that where the brand is seen as going against this promise, it is likely
to lose the loyalty of its members. This psychological contract can be fragile
and once broken, it may take long for the brand to recapture its lost clients.
This reasoning could have informed Tesco’s reluctance to hike prices as demanded
by Unilever.
On the other hand, Unilever must have felt not only
constrained but also vulnerable. To start with, the price row led to its
products being pulled down from Tesco shelves. This means that millions of
their customers had to either go without the products or face inconvenience of
searching for them elsewhere. This was certain to make Unilever vulnerable to
competition because most consumers would opt for the best available substitutes
instead taking time to search for their products elsewhere. This is the reality
of strategic alliances: one is never too sure or in charge. A disagreement or
misunderstanding between members of the alliance could disrupt operations and
delay crucial decisions.
In this case, Unilever was forced to reconsider its decision
to hike its prices. But the option of developing own distribution channels
would be too expensive under the circumstances hence the inconvenience of
alliances must be borne by the company. The alternative therefore is to ensure
that members of the strategic alliance are allowed to engage with each other
before significant changes are made. Consensus building is an imperative in
strategic alliances as can be drawn from this case.
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