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You've probably heard the phrase "everyday low pricing" (EDLP) before it's possibly lodged in your subconscious, especially if you live in North America. That's because EDLP is the pricing strategy Walmart used to become a retail powerhouse, and Amazon has followed suit in e-commerce. But is it right for your business too? It's tempting to simply slash prices to rock-bottom levels, but it's not that simple. Factors like inventory and supply chain management, marketing, and customer behavior all come into play, and you may need to pair EDLP with other pricing strategies, which requires getting your pricing ducks in a row.
Over the last decade, price optimization technology has helped hundreds of global businesses build more profit and streamline operations, including putting the right pricing strategy in motion for their business.
To begin, though, you must first determine your business goals, whether that's maximizing profits, gaining market share, clearing inventory, or some combination. From there, you can choose the pricing method that fits.
After reading this, you might decide EDLP isn't your organization's cup of tea or, like many large retailers, you might think it's exactly what you need to attract more customers and cut promotional costs. Others may prefer EDLP short-term but combine it with its close relative, the high-low pricing strategy.
Let's break down what EDLP is, how it compares to high-low pricing, look at famous EDLP examples, and explore whether it's right for your business.
What is Everyday Low Pricing Strategy? – The Definition
EDLP is a pricing strategy in which companies promise customers that their prices will always be consistently low. And when we mean ALWAYS LOW, that means without intermittent sales, one-off discounts, or timed promotions. In other words, the low-priced goods will remain low-priced over a long timeframe and sometimes even remain at their original low price as production costs rise.
There are several factors that a business must weigh before deciding if everyday low pricing is the right pricing strategy for them. However, to understand precisely what EDLP is and how it works, it helps to compare it against some other similar pricing strategies.
Everyday Low Pricing Strategy vs High Low Pricing Strategy
High-low pricing is a strategy where a business starts with a high price for the introduction of its products and later decreases the price through promotions, markdowns, or clearances. Beginning with high prices allows your business to create the perception (some might say "illusion") of a bargain once discounts are applied. High low pricing strategy is used as a method to drive foot traffic and use the "buzz" of a sale to cross-sell other items in-store that may have a higher profit margin.
Everyday low pricing strategy, with its non-stop and perpetual nature, is quite different. EDLP is constant, while on the other hand, there is a method and timing strategy in the nature of high low pricing. Determining which strategy makes the most sense for your unique set of business objectives requires an honest, open journey of self-reflection in understanding your products, your product category, and where you see yourself as a brand.
Having said that, it doesn't need to be a black-or-white or all-or-nothing decision between EDLP and high low pricing strategy. Some companies choose to take a hybrid pricing strategy approach, where some products on their product list have EDLP applied, while other products use dynamic pricing, high low pricing, competitive pricing, or other strategies. Pricing software will come in handy if your business is taking that hybrid pricing strategy approach, which we will discuss later in this article.
Why EDLP Works for Some Customers
Many consumers regularly indicate that they are more content with consistently low everyday prices instead of sporadic discounting and what some of them perceive as "wild price swings."
This is perhaps the psychological motivation for why EDLP works so well for some companies. Always knowing an everyday low-price leads to customers:
Making simplified decisions, Consumers always know the prices they are getting and do not have to worry that their favorite products may only go on sale in a few weeks.
Spending less time and energy on researching prices Customers spend less time comparing prices across different businesses and trying to track down the best deal.
EDLP promises customers price consistency. However, to deliver that consistency in price, some businesses may need to switch between similar products from time to time in order to maintain the EDLP due to product supply. That kind of "product substitution" can only work between products of similar type or quality. In other words, you can only substitute "apples for apples" or "oranges for oranges."
How Can an EDLP Strategy Increase Your Profit?
An EDLP strategy relies on the volume of products sold. Both the supplier of your products and yourself as a retailer can benefit from the volume increase that EDLP can drive, however, in different ways.
Single-item volume is the biggest benefit to the supplier of your products, while the volume of items in the customer's basket at the checkout assists your business as a retailer.
Even though your profit margins will be lower with EDLP, the larger volume of items sold will eventually make greater profits for your business.
Looking at the famous EDLP examples below, it is worthwhile to note that you may struggle to find either a small shopping trolley or a 12-pack of soda at Walmart or Tesco. Such is the focus on volume with an EDLP strategy; you may have noticed that both Walmart and Tesco will focus on 24-packs of soda and have large shopping trolleys available only.
To further underline the importance of volume in an EDLP strategy, you may also struggle to find a Walmart in the built-up area of a city's Central Business District. Walmart branches are generally located in suburban areas where you require a car to drive to the store. The result: you are tempted and inclined to buy more as you fill up your vehicle with Walmart products.
Everyday Low Pricing Strategy Examples
1. Walmart Pricing Strategy
Perhaps the most famous of all the businesses that choose to use an EDLP strategy is the monster North American-based retailer, Walmart.
Walmart offers storewide lowest prices to customers throughout all seasons of the year, across more than 10,000 bricks-and-mortar stores worldwide (plus its online retail arm). As Walmart's own leadership has stated, customers want everyday low prices above all else, and the company continues to invest in price as a core growth driver. Using an EDLP strategy, Walmart's customers are empowered to trust the retailer, purchase more (and more often), and achieve high consumer satisfaction levels.
It's worthwhile to note that high customer satisfaction and increased sales and profits tend to go together. The EDLP strategy creates a win-win situation for the Walmart company and its customers while consistently maintaining a strong brand reputation.
With its EDLP strategy, Walmart regularly beats competitors across the industry. Even if the company does not usually boast a premium product selection, the everyday low pricing strategy keeps attracting customers, leading to higher revenues and frustration for their competitors.
2. Tesco Pricing Strategy
The UK-headquartered multinational retailer, Tesco, is the third-largest retail company worldwide, with more than 7,000 stores worldwide and millions of loyal customers. Tesco is one example of a company that has been flipping between different pricing strategies throughout its more than 100-year history as a business.
However, in 2016, Tesco decided to implement an everyday low pricing strategy and switched to making all products available at low prices. Tesco has since expanded this commitment, promising consistently low prices on thousands of branded products without requiring customers to wait for promotions.
Using a slightly different EDLP strategy than Walmart, Tesco is less aggressive in its marketing of the strategy, focusing a little more on the quality of its products and maintaining strong relationships and an excellent loyalty program with its customers. Tesco does not spend a lot of money on marketing or promotional campaigns, allowing their everyday low prices to do the talking for them.
3. Trader Joe's Pricing Strategy
Trader Joe's also uses a no-frills design like Aldi, a European grocery chain while at the same time using an everyday low pricing strategy in combination with what is perceived to be quality merchandise. The minimalist in-store design helps provide customers with lower prices. However, Trader Joe's has successfully pulled off an EDLP pricing strategy where consumers perceive the brand's products to be high quality but inexpensive. Trader Joe's secret is that it sells its own private-label products instead of well-known brands.
According to Trader Joe's own marketing team, more than 80 percent of the products the chain sells are private labels, which the company says helps keep its costs low. This means that customers can't get those products anywhere else. The originality of some of Trader Joe's in-house products (like Tri-Color Spaghetti, Unexpected Cheddar Cheese, or Creamy Cauliflower Dip) is also important.
Not only are many of the Trader Joe's products novel and original, but they are also inexpensive to put on the shelves. The grocer buys those goods directly from suppliers, cutting out the middlemen to keep costs down.
Trader Joe's also maintains its EDLP strategy by spending less on marketing, instead depending on word of mouth to attract customers.
The Pros & Cons of Everyday Low Pricing Strategy
The Pros of Everyday Low Pricing Strategy
Think about these advantages when you are considering if an everyday low pricing strategy may give your business a sales, volume, or profit lift:
1. Shorten sales cycles
With businesses using EDLP providing the lowest prices in the marketplace, customers have no need to compare prices to find the best deal. If your company has built brand awareness as the price leader that can't be beaten, customers choose your business every time, and your products will spend only a short time on the shelves.
2. Predictable product demand
An everyday low pricing strategy provides your business with easily predictable demand for how many products to have on your shelves. By contrast, a high low pricing strategy will see you running irregular promotional campaigns that result in unstable demand, and it can become tricky to forecast sales volumes.
3. Minimal advertising costs
Everyday low pricing strategy does not require expensive advertising campaigns, as consumers already know who the lowest price seller is. Compare that approach to high low pricing strategy again, where investment in advertising is continually required to inform customers about upcoming sales.
The Cons of Everyday Low Pricing Strategy
While the range of pros are very tempting for the implementation of an EDLP strategy, it does come with several disadvantages to be wary of:
1. Smaller net profit per item sold
The lowest price will almost always have a low markup. The flip side is, of course, that big retailers using an EDLP strategy will usually have an enormous range of products. That ensures huge sales volume and drives revenue.
2. Few opportunities for discounting
Companies using an EDLP strategy usually cannot offer discounts because their prices are originally the lowest to begin with. What's more, offering further discounts may make clients distrustful of their everyday low prices of branding, resulting in a bad brand reputation.
3. Small budgets for additional infrastructure
Many businesses with an EDLP strategy in place keep the purse strings so tight that they simply do not have the budget for additional services and infrastructure (such as top-class customer support or additional in-store customer liaison). Only large corporations like the ones mentioned above can typically afford additional overheads.
How to Decide if an Everyday Low Pricing Strategy is Right for You
So how can you decide if everyday low pricing makes sense for your business? Here are a few tell-tale signs:
You Have Products & High Brand Penetration
Usually, those companies that experience the most success with an everyday low pricing strategy offer mature products that tend to require little marketing support, as they are well known, as is the company.
Newer or less well-known products usually require a lot of marketing investment to fuel market penetration and growth, which can make them a poor candidate for the everyday low pricing strategy.
Your Brand is Already Based on Low Prices
One of the major concerns any business should be aware of when considering an EDLP strategy is the risk of being perceived as low quality. If you are already competing in a low-price environment, this may not be a problem for your business. However, if your brand image is not that of lower quality, you may want to consider another pricing strategy than EDLP.
You Honestly Have the Lowest Prices
If you are considering an EDLP strategy, be sure to use data wisely and make use of pricing software that will ensure your prices really are the lowest possible without cannibalizing your own business and profits.
Remember, as mentioned above, you might want to employ everyday low pricing on only one section of your business whilst using high-low and/or competitive pricing strategies across different areas of scope in your organization.
Conclusion
AI pricing intelligence can assist you in implementing whatever pricing strategy you like and bring it together in a unique mix of pricing strategies specifically designed for your business. If you're ready to put data-driven pricing decisions to work, PriceIntelGuru offers tools to help you analyze, monitor, and optimize your pricing strategy with confidence.
