Why Bunnings prices are so damn clever.

Bunnings is more than a gigantic hardware store. Its canyon-esque aisles whisper to you of self-reliance and ruggedness, if not quite suggesting a log cabin of your own construction then at least the sort of Barbecue a man can be proud of.

Once you’re over about 26 it seems to slowly turn into a refuge, a bit like Thoreau and his woods.There’s always a sausage sizzle out the front on weekends and it has become an Australian institution.

Nevermind that it is based on an American big-box retailing model, or that it has only been a national chain since 1994, after it bought out McEwans hardware, closed most of the outlets, then sold itself to mega conglomerate Wesfarmers.

The reason there are now around 280 Bunnings nationwide is that the store is so good. We don’t begrudge the many hours spent lost in its chasms and nooks.  It’s like that because it is cheapest. Right?

A tentative Google suggests, um, well, :

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At Bunnings, $34.99

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Online, $27.50!

There are three big tricks that Bunnings uses to reinforce the widely-held belief they are so cheap.

1. They often choose prices that to the first glance look odd. For example, they sell hammers for $8.45, $37.97, and $62. Apparently the theory is a range of irregular and specific numbers make customers think the price has been ratcheted down as low as it possibly can be.

Rather than having all the prices in the format $X9.99, the prices imply Bunnings takes the trouble to price everything at its minimum.

2. Using people from the stores in the ads. (I thought they might be actors but the internet says no. There are 33,000 staff so I guess some must be able to pass a screen test).

The point is, this is signalling. Bunnings has ads on during high-rating shows – they are not stinting on their marketing budget.

But if they deploy great cinematography and a highly polished vibe, like you might see in a car ad, it creates the impression they are wasting money on ads. Instead the ads look cheap and cheerful. The same motivation is behind The Good Guys using their staff in ads even though they too are a heavy-hitting national chain. (Baker’s Delight use their staff in ads to signal something else – that the bread is made by real people, not a factory.)

The signalling effect even flows through to the way stores are designed. Here’s Cotsco founder Jim Sinegal talking about his store’s budget vibe.

“We try to create an image of a warehouse type of an environment … I once joked it costs a lot of money to make these places look cheap. But we spend a lot of time and energy in trying to create that image.

3. “Lowest Prices guaranteed” / “Lowest Prices are just the beginning.”

This slogan seems to have moved away from using the word “guarantee” recently. But the claim is still a strong one. The only way Bunnings can get away with it is their price-beat guarantee: “Find a lower advertised price and we’ll beat it by 10 per cent.”

That is an extremely clever business plan. While anyone might think they could mock up an ad that offers something very cheaply and trick Bunnings into giving them a deal, the reality is the store would happily accept being tricked to get the benefits of such an offer. They would probably rather more people took them up on the price-beat guarantee.

Let me explain:

The effect of the price-beating offer is to permit price discrimination. They can sell things at a higher price to people that don’t bother shopping around, and at a lower price to those that care about price. That means they charge different prices to different types of people, just like a hotel or airline does, maximising yield.

But the real killer of a price guarantee is the way it discourages other chains from discounting and promoting. If I run Think Engine Hardware, why would I put an ad in the paper telling everyone Cordless Drills – Now 30 per cent Off!? I know customers can and will still go to Bunnings. Offering to beat advertised prices is very close to being anti-competitive behaviour, as it can cause all firms to raise prices.

From the great knowledge fount:

“While a store with price matching guarantees has no fear of losing customers to rivals’ price cuts, it has every incentive to raise its own price to charge a higher price to its loyal customers. It is an anti-competitive tactic that warns competitors not to attempt to steal market share by undercutting prices.”

So, Bunnings is like any other retail operation, playing clever psychological games to disguise healthy mark-ups.

It had earnings of $900 million on revenue of $7.7 billion last year, and contributed 26 per cent of Wesfarmers earnings before tax, etc. Wesfarmers is currently working on “conversion of the property pipeline into trading locations at a higher rate than historically achieved” in order to help Bunnings contribute even more to its annual profits, which were, last year $2.2 billion.

12 thoughts on “Why Bunnings prices are so damn clever.

  1. Interesting article. I’m a bit of a Bunnings addict, they have for the most part destroyed the alternatives. Unfortunately I have found out the hard way that a lot of what they sell is completely useless crap and although some products are cheap (so chewp you have to wonder how it’s possible for anyone to make a profit making it) a lot of the products are surprisingly expensive.

    I think Bunnings makes a lot of money off things like screws, fixtures and other tertiary products, in the same way JB Hifi probably makes more profit selling HDMI cables, mounts and adapters than TV’s and Blue-ray players. How can two HDMI cables equal the price of a blue-ray player?

    Still, DIY as tragic and expensive as it is, it’s still often cheaper than getting any qualified tradesmen do something for you.

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  2. Bunnings price matches catalogue specials from other stores as the catalogues come out. They also have quite a few store brands (though you wouldn’t necessarily know it) and exclusive brands ie Ozito and Ryobi are both exclusive and jumbuck is store brand. That said, even if the product is own brand, they will still price match a substantially similar item from a competitor.

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  3. I too have spent a fair proportion of my income at the big green shed. One thing I’ve noticed, is most of the higher cost items (think, Mowers, Pressure Washers, Power tools, etc) are actually “exclusive” to Bunnings.

    I used quote-marks around the term “exclusive”, because the only thing exclusive seems to be the model number. I assume this stops customers being able to price match, or even directly compare prices with other retailers.

    The most telling thing about Bunnings, is that the place seems to be totally devoid of real tradespeople. I assume that tradespeople have found better places to shop, and leave the Osito drills for rest of the population.

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  4. Bunnings is too successful, if you need to get something done its a shit fight in the carpark & exhaustion by the time you get home, shop local and pay $2 for convenience

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  5. You forgot to add that their “beat it by 10%” guarantee is only 10% of the difference. This usually only amounts to around 20 cents but makes people think they are getting the best deal around.

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  6. I was once in a way involved with JB Hifi shop fit outs.

    They deliberately make their stores “messy” and “crowded” with tatty hand written signage.

    The sales psychology is that it gives the impression of them being cheap.

    Same way Michael Moore can afford nice clothes but dresses like a slob.

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  7. To Neiltheseal85,

    You are totally incorrect, Their bet it by 10% is off the total price. If you can buy a drill at a store for $150 and Bunnings sells it for $151 you will get $15 taken from the price meaning you buy the product from Bunnings for just $136. Don’t know where you got your theory from but it’s incorrect.

    Bunnings also has dedicated people in each store as well as at a state and national level who spend their days trawling catalogues, papers and anything else they can lowering prices to ensure it IS the lowest price, sometimes they miss some and that’s where you win with the 10% off.

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  8. And just a final note to add. The cheap looking black and white matt paper catalogues.. Actually cost twice the price of a high gloss colour one but it keeps the theme going!

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    • And I bet the cheapo animation for their TV ads required millions of dollars worth of coke-addled advertising geniuses.

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  9. And they’ve never changed that ad tune, never mind the format, since we came to Australia in 1996! And those pictures that look like something from a 1902 trade catalogue – they must pay someone to do them for every single item, and I bet it would be cheaper to photograph the things!

    Having said all that, I have been an extremely budget-conscious bargain-shopper all my life, but there is something comforting about Bunnings, even though I’ve always been perfectly aware that they’re not the cheapest. The feeling of space and airiness is strangely attractive.

    And I will give them something else – I’ve always been impressed at how helpful and knowledgeable the staff is, at least in my local outlet. You would think they wouldn’t be and it would just be random working in the aisles, but in my experience they really do hire people who know a bit about the trades! I’ve always wondered how well they pay and look after their staff, because you’d think it would be hard to attract such clued-in people, or perhaps they’re just trained extremely well for what they’re selling.

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