Why So Many Retailers are Claiming EDLP

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?

Driving Factors

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.

The Solution?

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)
  • 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.

Advantages of EDLP and High-Low Pricing Strategies

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?

 



About Sean Deale

Sean is a Retail Industry analyst at RetailNet Group LLC. His focus is on tracking the leading retail growth platforms and the strategies behind them.

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2 Responses to Why So Many Retailers are Claiming EDLP

  1. John Domino March 30, 2012 at 9:25 AM #

    The consumers took a sharp shift toward a need for value in 2007 (high gas prices) and 2008 (the recession) and 5 years later there is little evidence of a shift back away from value for most consumers. Even Whole Foods has been able to grow comp store sales at 8+% by shifting to a higher emphasis on value in their stores.
    The EDLP format not only offers shoppers lower prices, but also the convenience of knowing that they do not have to shop 3-4 stores to get the best values for their families. EDLP also offers retailers significant labor savings by minimizes price changes and the need to totally redo endcap and feature displays every week. These labor savings can get plowed back into better pricing, which ultimately allows the retailer to establish a stronger price position and grow sales. Ultimately, EDLP allows the retailer to minimize its merchandising staff, since it is setting prices for longer periods of time. It also allows the vendors to better plan production and service to the retailer and reduce the sales staff needed to support the retailer. When a retailer provides benefits to the vendors, they are rewarded with better pricing and a more favorable position for new products or programs.

    • Sean Deale March 30, 2012 at 10:43 AM #

      Thanks John! It is certainly interesting to see that there are many benefits to an EDLP approach. I think it is most important for retailers like Ralph’s, Food Lion, and JCPenney to realize that if we consider a shift to EDLP as a strategy to meet an increase in pricing transparency, it is not enough by itself. Things like non-price comparable SKU’s will be another big focus for example.

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