After deriding the Asda Price Guarantee as misleading and overly complex, is Tesco’s version better in any way, asks James Halliwell

Speculation had raged for weeks that Tesco was preparing for a major attack on Asda.

On Sunday, Tesco dropped its bombs: £200m worth of price cuts and a price guarantee website that promised: “If you find your comparable grocery shop cheaper at Asda, we will happily refund double the difference.”

A spokeswoman for Tesco denied it was replicating Asda’s Price Guarantee, which Tesco had labelled confusing, cynical and misleading. “This is more of a response to the APG,” she said. “This is Tesco putting its money where its mouth is.”

Meanwhile Asda’s amused PR team tapped out tweets highlighting the similarities between the two. “As we all know,” said a cheerful Asda spokesman, “imitation is the sincerest form of flattery.”

So are they the same? Both guarantees work by checking your receipt on a website. If your shopping is cheaper elsewhere, both refund the difference in the form of a voucher redeemable at their store. Tesco will redeem Asda’s vouchers. Asda has refused to comment on whether it will do the same.

The key differences between the two favour Asda. Although Asda shoppers have to wait until the following morning to enter receipt details, Asda will then provide a result instantly. Tesco requires up to 36 hours to deliver a score, which comes via email.

And while Asda claims to be 10% cheaper than Tesco, Morrisons, Sainsbury’s and Waitrose, Tesco limits its claim to matching Asda. Another difference is the source: Asda uses to compare prices, while Tesco will use daily web scans of the Asda Home Shopping site.

“The fact that Asda has an independent checker makes them more transparent,” says Dave McCarthy of analyst Evolution. “And this is all a bit embarrassing for Tesco,” he adds. “Tesco said Asda had gone ‘Lady Gaga’ with the APG. They had a go at the 12 steps to check the price, calling it a complex and unwieldy 12-step gimmick. Ironically, there are more steps in the Tesco procedure.”

The lack of original thinking is typical of Tesco promotions in recent years, he says. “Tesco used to have a mantra. If you do something first, the consumer thinks you have done it for them. If you do it second, the consumer thinks you have done it for yourself. This is Tesco being beaten on innovation by the competition in a way that didn’t used to happen. When was the last meaningful innovation from Tesco?”

However, Neil Saunders of analyst Verdict suggests Tesco will shrug off any embarrassment, despite the very public u-turn.

“Tesco will be quite comfortable with saying something to criticise and belittle Asda and then doing something that appears very contradictory the next day,” he says.

“Business isn’t a place where emotion rules. Rationality and cold hard facts rule Tesco. The Tesco guarantee is a very clear way of blasting Asda’s uniqueness in that area out of the water. It neutralises any competitive advantage Asda might have had by offering a very similar system that reassures the consumer. It is a very effective and clever move on Tesco’s part.”

On why Tesco timed its move for this week, Saunders says: “It is a convenience of timing rather than anything more significant. They will have decided to make it coincide with the new man at the top, but it is not a change of direction. It is nothing that Tesco would have done differently under Sir Terry.”

However, McCarthy believes it was a hasty rush job. “This feels like a work in progress rather than a finished job. Maybe the APG is hurting Tesco more than they like and they are trying to knock it on the head. And the only reason you might do it at the start of the financial year is if you think it’s going to cost you a lot of money.”

The Grocer 33 will be a useful indicator in coming weeks as to how effective Tesco’s cuts will be. Asda has come out cheapest for the last six weeks in a row, averaging 5.7% cheaper than Tesco. “Tesco still has some way to go before it can match our low prices,” says the Asda spokesman. And McCarthy adds: “If the best that Tesco can do is say they will be equal to Asda on a basket weighted to Tesco promotions, then it indicates their underlying price must be higher than Asda.”

“Asda has always been one of the cheapest,” says Saunders. “It is where Tesco chooses to invest the cuts that is important. Knowing Tesco, they will invest in strategic areas where they know they have to be more competitive, but it is not about Tesco beating Asda on every single price. This move is more to do with beating Asda in the price headlines and media wars than it is to do with the price of a basket.”

Read more
Tesco launches new assault on Asda (28 February 2011)
Tesco tipped to gun for low-price rivals as Clarke takes helm (28 February 2011)
Tesco in multi-pronged Asda attack over ‘misleading’ ploy (analysis; 22 January 2011)