by EDLP, which stands for Every Day Low Prices, is a pricing strategy in which firms promise consumers consistently low prices on products without having to wait for sales events. In such a pricing strategy, a firm sets a low price and maintains it over a long time-horizon (given that product costs remain unchanged).
It is common for competing retailers to segment the market by choosing different pricing strategies. The segments consist of two different sets of customers with different buying patterns, both for purchases and for pre-purchase research. Price-vigilant consumers, often referred to as “cherry pickers,” tend to be attracted to discounts. They are willing to do the research to learn about discounts, and to stockpile products when discounts exist. These consumers are better reached by promotional pricing strategies. In contrast, “expected price shoppers” are unwilling to do as much pre-purchase research and less likely to stockpile discounted items.
EDLP strategies generally result in lower fixed costs, since they require less advertising for promotional prices, less labour to execute price changes, and simpler pricing and inventory management systems with lower overhead. EDLP can also result in more predictable consumer demand and therefore fewer stocking and supply-chain problems. High-low pricing strategies generally result in lower variable costs, since promotional retailers can sell more products by offering discounts. They are able to take advantage of surplus at the wholesale level and also eliminate excess inventory at the retail level. This is particularly useful in markets for perishable goods, such as groceries.
If the market is sharply segmented by cherry pickers and expected price shoppers, then EDLP retailers have no incentive to switch to high-low pricing strategies, and vice versa. However, there are circumstances which motivate some retailers to change. In the last several decades, consumers have been less able and less willing to spend time reading circulars and newspaper ads to find the best prices.
Retailers lose more in case of price decrease than gain on price increase. Price variation in high-low pricing strategies may benefit shoppers who visit stores frequently because they are better able to exploit the fluctuating prices; however, many consumers are shopping less frequently now than in previous decades. These buying trends would predict that many grocers would switch from high-low pricing to EDLP, if the cost to switch was minimal. However, total costs for EDLP are higher in many markets, and it is extremely expensive for retailers to switch strategies. Not only is the initial cost high, but the EDLP strategy must be maintained long enough for consumers to associate lower prices with the brand.
Advantages of Everyday Low Pricing
Marketing costs
Advertising is less expensive as stores do not need to individually promote each sale item and advertise sale events. For example, it was noted that in 1994, Walmart, which used an EDLP strategy, would only need to purchase advertisements in a newspaper on a monthly basis while competitors would advertise every week of the year.
Demand forecasting
EDLP helps stores reduce demand fluctuations that would normally occur during sales promotions. Demand forecasting becomes much easier.
Staffing efforts
Stores save the time and effort in having to individually mark down items during sale events.
Disadvantages
- If there are sudden fluctuations and prices go high, then there is a risk of losing customer’s trust as they are used to lower prices.
- It is not practical sometimes to keep offering low prices on a daily basis.
- It is mostly applicable to large retail stores as compared to small retail brands.
Importance of EDLP pricing strategy
Traditionally, retail stores used to keep regular pricing discounts, coupon clipping promotions, etc. to promote their sales and increase the footfall in their stores. But, this needs a lot of effort in terms of monetary aspects and physical aspects making it difficult to sustain the competitive advantage. The strategy of EDLP helps to convince the consumer that they will get better and low prices than other competitive stores everyday even though the promotions of competitors at regular intervals might provide lowest prices but they will not be available everyday.
EDLP also helps the retail stores to reduce their demand fluctuation that would occur due to promotions on some days, and also reduces the probability of consumers receiving time degraded products. Everyday Low Price strategy cuts advertising costs as well as the customers don’t need to be informed about occasional discounts but they are well aware that they will get the best price whenever they go to the store or retail channel. It also helps building brand image and trust in minds of the customers as they perceive the brand to be trustworthy and economical every time.
It is also assumed that sometimes the sales events and promotions are for stock clearances hence the prices have been dropped but in EDLP, that trust is maintained as products are consistently priced lower but perceived quality is always high.
