Claiming “Low Prices” is the newest call to action for many retailers. While low price as a call to action and differentiator is nothing new, the advent of price transparency tools for shoppers and price optimization tools for retailers has changed the game. Shoppers with pricing transparency tools have become a big concern for store-based retailers in recent months. They not only have to claim low or competitive prices, but the shopper can test the validation of that claim 24/7 before the trip choice and in the store. The result is a fundamental change in the role of shelf price and the need for new retailer positioning strategies. The Walmart approach, or “Every Day Low Prices” (EDLP) pricing model seems to be a common outcome in many retailers’ rebranding efforts today. Price Optimization tools have become ubiquitous in retailers but are only useful for the shelf prices that are visible inputs. But will this be enough?
The two factors that have played a major part in fueling the necessity to create actionable plans include: (1) Continued high percentage of distressed and budget conscious consumers seeking value for money (2) High smartphone adoption rates, ease-of-access to retailer information through mobile devices, and access to applications like the Amazon Price Check App mean that consumers have become incredibly knowledgeable.
Retailers that do not win in a price comparison war lose the trip or the sale (if comparison is done in-store) to a store-based competitor with a lower price or perhaps as likely to a pureplay e-commerce retailer like Amazon with a pricecheck app.
With Price as the traditionally most forceful positioning element for retail, these shifts have understandably left retailers uneasy about their current strategies, and as a result we are seeing many begin to turn to their pricing models as a focal point for change. The solution touted by these retailers below is to shift price positioning to fit the more transparent environment.
JCPenney, Food Lion, and Ralph’s, are three retailers that have made a shift from a high-low pricing model to one that is closer to an EDLP approach in recent months. Will their models be similar to those of the leading U.S. EDLP players like Walmart, Home Depot, Toys ‘R’ Us, and Office Depot?
- Ralph’s announced on Wednesday that it would be offering Every Day Low Prices (EDLP) at its stores in Southern California. Ralphs will supplement the EDLP program with promotions and checkstand discounts for holders of its “Rewards” loyalty cards. (According to Supermarket News)
- Food Lion is lowering prices throughout the store in an attempt to “lure bargain hunters to use the store as a one-stop shop.” The grocery retailer announced on Wednesday that it would roll out the lower prices to 268 stores in Virginia, West Virginia and in the Outer Banks of North Carolina. The strategy saw success in Raleigh and Fayetteville in North Carolina last year and will be rolled out to 600 to 700 stores by the end of the year. Food Lion’s new brand strategy offers customers lower prices on 6,000 items throughout the store and access to quality store brand products at lower prices, including the company’s my essentials private label brand. (According to GoDanRiver.com)
- Walmart, the largest EDLP retailer in the world, has announced today that it is committing to lowering its grocery prices by an additional $1 billion this year. (According to Duncan Mac Naughton at the CIBC Retail Conference)
- JCPenney’s new CEO, Ron Johnson (former head of Apple’s stores), began Penney’s corporate turnaround with a shift to an EDLP pricing strategy from a High-Low approach in January 2012. In addition to investing in lower prices throughout the stores, JCPenney has made the strategic decision to round prices off to the nearest dollar. (For example: $10 as opposed to $9.95) Prior to the switch, JCP was the most aggressive coupon retailer next to Bed Bath & Beyond. Every day, the store was on sale with 20% off coupons, incremental savings for credit cardholders and ‘private’ savings events.
EDLP Used to work well at Walmart and Home Depot, can it work for every one? (Is it enough?)
The high purchase frequency for grocery products means that shoppers are more aware of price differences between retailers, and factor that into trip choice. Generally this will be more on a basket basis, with the cost of the trip (gas prices) being factored in as well. On the other hand, the traditionally higher priced general merchandize items used to allow greater margins and price realization which is quickly being neutralized by price transparency and aggressive efforts by Amazon and others. So, the Low Prices/ EDLP approach will be beneficial for retailers like Food Lion and Ralph’s in helping to become closer to the lowest average price, but it is only a necessary starting point to a more complex capability for engagement and activation.
The Future will be a Surprise for Many Retailers
The surprise for many retailers will be that in the near future low shelf prices will no longer be a point of differentiation. Shopper Engagement programs with personalization of deals and pricing will replace shelf price as the differentiator and negate shelf price as a meaningful call to action. What does this mean for Retailers?
- All retailers will have to invest and make every effort under the glare of transparency to be competitive at shelf to win new trips from shoppers not yet in the loyalty programs, and for items not in the deal list that week.
- Discounters where shelf price is their primary point of differentiation will have to shift more to proximity and fresh as their distinctions.
- Personalization programs will be key to future success – with shopper segmentation, attributed shopping behavior and preferences, activated with personalized offers paid for by retailer and brands. See Safeway’s perspective on this report from RNG (free with registration)
- Retailers will segment and tier their suppliers on their willingness and capability to support these programs as well as provide non-comparable SKU’s and build and innovate category leading brands. No small order, are you ready?