February 19, 2007
EDLP or Promotion: What is the correct strategy?
By Larry Kagel, Competitive Promotion Report LLC
More and more manufacturers are responding to retailers’ requests for everyday low pricing (EDLP). Last year, about two-thirds of all HBC promotions carried an EDLP notation. In many cases, accrual allowances were added.
Much of this industry trend has developed as a result of Wal-Mart’s EDLP strategy. Much of the mega-retailer’s ability to make an everyday low price strategy work flows from the fact that it has flushed a great deal of costs out of the distribution system. These lower costs enable Wal-Mart to pass savings onto the consumer. Many others, however, have not been as successful in reducing costs and do not have the financial foundation for an effective EDLP policy.
Indeed, it has been suggested that by attempting EDLP on this basis, a company is shortchanging itself and its customers because it is not in a position to promote brands or its banner as deeply or as well.
Promotion is a key part of brand success and many retailers believe it can be done better by promoting products or, put another way, by lowering prices on a scheduled basis. Doing so, it is argued, will bring consumers into the store for promoted items as opposed to everyday low prices.
It is clear promotion is necessary to keep the store and brands in front of the consumer. Just consider Sunday newspaper ads and coupons.
Consumers look at both EDLP and promotional retailers when they go shopping. Where is it more fun for the consumer to shop? Many retailers believe it is in a store where shoppers have come to expect the excitement of special offers and promotions, not one where the environment is always the same.
If a merchant wants to develop an environment that creates this level of excitement, one way to do it is initiate programs that invite consumers to come in and look around to find what is new, different and interesting that day. Unless a retailer can really compete with everyday low prices, it’s important to find other ways to get the consumer into the store. Heavier promotion is a tried, true and viable alternative.
Discussions Questions: Is EDLP compatible with non-price competition programs or does a retailer need the excitement of price promotion to make those initiatives work? How do retailers and their supplier partners make EDLP a more exciting competitive program?
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In 1992 Procter & Gamble went to EDLP, scrapping their previous high-low promo strategy. P&G suffered financially in the short term, but reduced costs and recovered their margins after a while.
Very few companies, retailers and consumer product manufacturers both, feel they can afford the short-term hit that P&G sustained. Their fears are probably justified. Very few brands are as strong as P&G brands and very few companies are capitalized as well as P&G. Furthermore, many retailers have announced new EDLP policies in the past, only to revert to high-low promotions after a few months. It’s not reasonable to expect that an EDLP announcement will be taken seriously. It takes a long time to get customers to believe you. During that time, what will you do to achieve sales goals?
I think you can make the shopping environment exciting without making it all about sale prices. Costco, Trader Joe’s, Wild Oats, and Stew Leonard’s all make the in-store experience interesting and fun without making it all about price. Sampling is a big thing for Costco and Trader Joe’s. Obviously, this is harder to do with HBC and GM but you can certainly create related-item events. Costco provided inexpensive ($18) flu shots this year which had people standing in line in the pharmacy section to get them. And, of course the “treasure hunt” aspect has worked great for TJ’s and Costco. With Wild Oats it may be more about unique, upscale, natural/organic items that are harder to find elsewhere. So, I think it’s really about creating a unique experience that can’t be found at competitors.
To be effective, promotions of any kind need to have a compelling call to action. Simply because a thing is “new” in most retail formats will not be a sufficient call to action. High fashion, trend setting retail…OK. Grocery stores? Mass merchants? With very few exceptions, new product introduction in and of itself is insufficient to stimulate store visits. Which, of course, is the purpose of the promotion.
Retail formats with relatively slow-to-change assortments have a great deal of difficulty creating compelling calls to action which do not involve limited time price discounting. Already pointed out tactics include in-store demos, events, and other limited time-act now ideas. These work, and are independent of EDLP.
Another factor to be clear on is that promotional pricing allows for variable price changes throughout the life of the item. Many stores have invested in optimizers such as ProfitLogic which flexibly adjust price discounting over time to maximize total return.
Why do promotions work? In theory, EDLP has the advantage in establishing for the consumer that when the need arises, Store X is the place to go. Problem: the “need” rarely just arises. It is more often helped along by the impacts of marketing and advertising. One can argue that promotions provide the tipping point in moving from purchase intent to purchase behavior. By supplying the tipping point, Store X becomes the most likely place to buy. And face it, price is without exception, the most effective tipping point lever for the vast majority of consumers.
What I haven’t read here is, “It’s about the product.”
Promotions work best when they have a great product to run; then everything else ties into that.
I think Ben Ball had it pretty much correct right near the top of this discussion–promotion is not necessarily price. The obverse is also true–price is quite often not really promotion.
I had some years of experience at Hannaford, now part of Delhaize, a very effective retailer that has been EDLP since somewhere around Lyndon Johnson’s administration. And there was never a shortage of promotional vehicles, opportunities, and messages for consumers to receive. The weekly circular continued to guide shoppers to items of special value, and although data from IRI indicates that the amount sold with “any merchandising” is lower than the national average it is not even close to “zero.”
EDLP has enormous cost cavings inherent in operations; a number of years ago we estimated that as much as 4% of the total labor of a high low retailer goes to support the endless pricing, re-pricing and build up-tear-down weekly display cycle.
In addition, for those retailers who have tried it, it seems to be working. Although EDLP is a small fraction of the grocery industry overall, the aggregate growth rate of those who are EDLP is considerably higher than those who are High-Low. Those with hybrid programs, predictably, fall somewhat in the middle. the differences are NOT small–they are multiple hundreds of percent annually.
For the life of me I have never completely understood why that data hasn’t caused those retailers who have seen it to reconsider their entire marketing approach.
And of course, I know at least part of the answer.
It’s hard to see how to get “clean” when the drug of promotional money is so embedded in your business process that even the idea of allocating it differently is terrifying.
As often as we might point that finger at retailers, however, it is just as true of suppliers who really do not know how they would “make the number” if they stopped relying on price promotions. Sadly, most are afraid to be the first in their category to try it–and the madness continues.
I sincerely hope that retailers are not retaining high-low promotional strategies simply because they need to cover for their supply chain inefficiencies. Whether positioned as EDLP or promotional, every retailer must attend to operational excellence if it wants to end the day with a net profit.
We understand well that effective in-store promotion is not all about price. Displays sell. Sampling works. More significantly, the growing use of price and promotion optimization applications (now in more than half of top 25 supermarket chains) is proving every day that consumers are not always price-obsessed. They require positive shopping experiences, a feeling of success and an overall sense of value.
Are EDLP and promotion incompatible? For your answer, take a walk down any Wal-Mart power alley and count the number of off-shelf displays. I say every retailer is a hybrid. It’s merely a question of balance.
I agree with many of the previous comments. It’s not really an all or nothing strategy question, but a continuum from true EDLP to highly promotional, with most retailers being somewhere in between. For many retailers, their strategy differs by category.
What is at least as important as the given strategy is how well that strategy is executed. Does the retailer/manufacturer accurately understand what the total impact of any promotion is on the overall business? Can they forecast accurately and ensure the right product is on the shelf, displayed properly, etc.? Do they have the capability to reliably improve promotions that aren’t effective?
There is today still vast room for improvement on the analytics and execution front and the gains to be had here are as significant as from any change in strategy.
EDLP works in certain situations while a combo effort works in others.
A&P loves to offer an entire 1/2 off circular flyer several times a year. This gets customers in their stores, and for the most part, is a pleasant shopping experience.
Their Food Basics is strictly EDLP. In the markets where they operate,this is a success because they tend to compete against ShopRite and Acme, conventional supermarkets.
Consumers would like to see something of both. Lately A&P and Safeway have introduced their own redtag temporary price reduction promotions. Here the consumer can have the best of both worlds. It seems to be working for them. A win-win situation.
I think it all depends on whether the consumer perceives there is value–beyond the product. This could be a “fashion” element or a “sense of discovery,” as well as a tangible value such as time savings in the use of the product. Many products struggle to convey such a message through traditional media or packaging, so it is often best conveyed by the retailer or through promotion. EDLP assumes the consumer already knows what the value beyond the product is. It also assumes that the consumer has a “reference” price for every product selected. Neither of these are true. For EDLP to be sustainable it needs to be based on a trust (perhaps blind trust) between the consumer and the retailer. Is this even possible?
I have to concur with Al McClain and Frank Dell–the answer is neither solely EDLP nor solely (price) Promotion.
Nobody who has shopped Costco, Trader Joe’s or Whole Foods would call the experience boring. First and foremost it’s about the merchandise and presentation as well as the price consistency. In all three cases (despite the differences among these 3 in dollars spent per trip) customers appreciate that they can walk in at any time and don’t have to schedule their shopping around the retailer’s weekly ads (i.e. last week’s, this week’s and next week’s) to have a great experience. The longevity/financials of these companies would also seem to suggest that they have a sustainable business model.
I think Al McClain is right on! Study after study has shown that shoppers are largely clueless about what they are paying for CPG. The tiny number who actually know are wagging the dog. The issue is all about perception (and excitement) not price. Price is a VERY costly way for anyone to promote their business.
Since 40% of all supermarket sales (across the category board) come off of endcaps and other promotional displays, retailers have erroneously concluded that this is because of the pricing there. WRONG! It is because the offer is being made conveniently to the shopper there. Location, location, location!!!
The best compromise I have ever seen to the “sell it with price” vs. “sell it with location” was at Publix, where every endcap had a vertical (one foot wide) slice of relevant high margin product bisecting it. But then, that’s probably just too much work for most retailers. (Don’t even pretend retailing is rational. That will lock you into ever failed thought patterns and practices of the past. :>)
The consumer has shown that they generally prefer EDLP by making Wal-Mart the largest retailer in the US and the world.
We have also been trained not to buy a clothing, jewelry or housewares item in most department stores unless it is at least 50% off or a P&G product at a grocery store without a $1.00 off coupon that will presumably be doubled.
People that comb through the Sunday ads and FSIs and shop strategically no doubt save some cash, but the number of consumers that have time for this is declining. With the cost of fuel trending upwards, driving all over town to cherry pick the best deals is a less attractive enterprise also.
I think that each supplier and retailer needs to find their formula, but that the general trend will go more in the direction of EDLP.
Mr. Kagel hints at a fundamental question for our industry–“when did ‘promotion’ become inextricably linked with ‘price reduction’?” P.T. Barnum is often referred to as the world’s greatest promoter. I don’t recall a single mention of “price” in his repertoire of tactics.
To the question of EDLP’s compatibility with non-price promotion activity, one could argue that it is the most compatible format because it theoretically removes price from the occasion from the start. Shoppers either believe they are in the store with the lowest prices (Wal-Mart’s forte) or they don’t. So the customer should be able to pay more attention to other messages in the store instead of price tags.
On the other hand, almost every “EDLP” retailer (including Wal-Mart) still employs some price promotion tactics. And a preliminary look at the poll on this question shows an even split currently between those saying price and in-store presentation are the most important elements of merchandising. So clearly there is no clear answer here.
One last thought. In one of my corporate marketing/strategy stints, we spent a lot of effort on the concept of “share/price equilibrium.” The idea is to find the price point at which price neither helps nor hurts your market share. In other words, you try to make price neutral so other elements of your marketing mix can work. But you don’t give up margin by making your price unnecessarily attractive. I wonder if any retailers have some version of this concept in place?
It is not as simple as EDLP or Hi/Lo. Supermarkets built their price image on low prices and then lost the battle to Wal-Mart. This has more to do with loss of customer trust on prices. The automobile manufacturers learned this the hard way.
Where we are today should best be looked at by category. Some categories are effectively EDLP because there are no real product changes and many trade channels selling the products. On the other hand, EDLP is boring from a merchandising perspective. The more successful retailers are using both pricing approaches depending on their competition and where they have strategic strengths.
This is difficult and it depends on a number of variables — of course you must have a compelling product that is desired — be it toothpaste or a Bentley. EDLP works well for some — i.e. WalMart — but other venues may need the “excitement” of promotion, mid tier Department stores for example.
We now have a large part of the population that over the last twenty years has been trained to wait for and look for the “sale” to obtain greater perceived value — and many consumers apparently like and enjoy this prospect. I truly believe that a large portion of the population doesn’t want the price to always be $29.99 but prefers to see a price sticker of $59.99 — reduced several times — ending up at $19.99 rather than -always- and dependably $29.99.
Again, this varies depending on the venue and the product variety being considered. I do not think we will ever see the calm waters of EDLP replace the supposed “excitement” of promotion. I think for a lot of the retail world, promotion will drive sales.
EDLP is an excellent strategy if it’s implemented consistently and if retailers and suppliers each have the understanding that almost any exception put in practice will erode the consumer’s perception. However, EDLP does not replace the need to create and maintain an exciting brand and retail store environment for consumers and it’s not a replacement for having points of difference between competitive brands and competitive retailers.
David Biernbaum is on target. EDLP takes courage, committment and of course the financial strength to execute for the long haul.
Today’s consumers are astute. Consumers size up retailers, manufacturers, their brands and various attributes – be they EDLP, HI-LO, value for the money, superior product, etc. They sort out retailers & products which deliver as promised vs. those that over promise. Sure they factor in convenience, price & promotion, but most importantly want the product to deliver as promised.
What I’ve noticed missing from most of the dialogue concerns “product”. Not all product is driven by promotion – some is need driven, some is results driven; both real or perceived (yes – the perceived value can be created and nutured through promotion – this is effective in subjective products – such as anti-aging, wrinkle, shampoo’s, conditioners, and many of the HBC offerings). However, in the need driven categories – driving the business with promotion – be it coupons, TPR’s or splashy ad’s – throws away margin for both the retailer and the manufacturer.
Let me temper this by saying brand promotion (not necessarily – price reduction) does create consumer awareness of brands and when the need driven application arises it does steer the consumer to the brands which have educated and informed the consumer.
This education can and most often does occur at retail – at the shelf level. One of the greatest advertising executives ever (David Olglvey of BBD&O) believed the best ads and copy on packages were those which educated and informed the consumer. He was never afraid to dense up an ad with copy – going against conventional wisdom – “No one has the time to read”!
The truth is different from this – it is all about the product and the drivers which take a consumer from passive to active.
Selling Pasta – less is probably more!
Selling a new medical or personal care breakthrough – a higher price will lead the consumer to a higher perceived value and superior treatment – coupled with copy both on the package outside and reinforced inside, with a well written informative educational brochure – bringing the consumer to the conclusion they received great value and they made a well informed purchase.
However, for this to be effective and create a loyal repeat consumer the product MUST deliver on all it promises – the truly good ones deliver even more (ease of use, consistency, quick acting, what-ever!)
When products are need driven, a better spend by the manufacturer is to educate consumers, pharmacists, pharmacy techs, doctors, clinicians, nurses, specialists – via promotion in radio, TV, magazines, etc (not necessarily coupled with price reductions) aimed at the audience for whom the product was developed.
When manufacturers are required to spend promotional dollars with retailers for ineffective TPR’s, co-op advertising, etc which does not educate and inform the consumer it drains the promotional well – and in the long run does not serve the retailers and manufacturers common goal – moving product off shelf!
Retailers and manufacturers should partner to formulate effective educational/promotional efforts which achieve this goal. When done successfully everyone wins – consumers get superior performing products, manufacturers have solid sales and the retailer’s image is enhanced by satisfying consumer needs!
Reliability and meeting consumer needs is in fact what drives them back into the store – over and over!
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In 1992 Procter & Gamble went to EDLP, scrapping their previous high-low promo strategy. P&G suffered financially in the short term, but reduced costs and recovered their margins after a while.
Very few companies, retailers and consumer product manufacturers both, feel they can afford the short-term hit that P&G sustained. Their fears are probably justified. Very few brands are as strong as P&G brands and very few companies are capitalized as well as P&G. Furthermore, many retailers have announced new EDLP policies in the past, only to revert to high-low promotions after a few months. It’s not reasonable to expect that an EDLP announcement will be taken seriously. It takes a long time to get customers to believe you. During that time, what will you do to achieve sales goals?
I think you can make the shopping environment exciting without making it all about sale prices. Costco, Trader Joe’s, Wild Oats, and Stew Leonard’s all make the in-store experience interesting and fun without making it all about price. Sampling is a big thing for Costco and Trader Joe’s. Obviously, this is harder to do with HBC and GM but you can certainly create related-item events. Costco provided inexpensive ($18) flu shots this year which had people standing in line in the pharmacy section to get them. And, of course the “treasure hunt” aspect has worked great for TJ’s and Costco. With Wild Oats it may be more about unique, upscale, natural/organic items that are harder to find elsewhere. So, I think it’s really about creating a unique experience that can’t be found at competitors.
To be effective, promotions of any kind need to have a compelling call to action. Simply because a thing is “new” in most retail formats will not be a sufficient call to action. High fashion, trend setting retail…OK. Grocery stores? Mass merchants? With very few exceptions, new product introduction in and of itself is insufficient to stimulate store visits. Which, of course, is the purpose of the promotion.
Retail formats with relatively slow-to-change assortments have a great deal of difficulty creating compelling calls to action which do not involve limited time price discounting. Already pointed out tactics include in-store demos, events, and other limited time-act now ideas. These work, and are independent of EDLP.
Another factor to be clear on is that promotional pricing allows for variable price changes throughout the life of the item. Many stores have invested in optimizers such as ProfitLogic which flexibly adjust price discounting over time to maximize total return.
Why do promotions work? In theory, EDLP has the advantage in establishing for the consumer that when the need arises, Store X is the place to go. Problem: the “need” rarely just arises. It is more often helped along by the impacts of marketing and advertising. One can argue that promotions provide the tipping point in moving from purchase intent to purchase behavior. By supplying the tipping point, Store X becomes the most likely place to buy. And face it, price is without exception, the most effective tipping point lever for the vast majority of consumers.
What I haven’t read here is, “It’s about the product.”
Promotions work best when they have a great product to run; then everything else ties into that.
I think Ben Ball had it pretty much correct right near the top of this discussion–promotion is not necessarily price. The obverse is also true–price is quite often not really promotion.
I had some years of experience at Hannaford, now part of Delhaize, a very effective retailer that has been EDLP since somewhere around Lyndon Johnson’s administration. And there was never a shortage of promotional vehicles, opportunities, and messages for consumers to receive. The weekly circular continued to guide shoppers to items of special value, and although data from IRI indicates that the amount sold with “any merchandising” is lower than the national average it is not even close to “zero.”
EDLP has enormous cost cavings inherent in operations; a number of years ago we estimated that as much as 4% of the total labor of a high low retailer goes to support the endless pricing, re-pricing and build up-tear-down weekly display cycle.
In addition, for those retailers who have tried it, it seems to be working. Although EDLP is a small fraction of the grocery industry overall, the aggregate growth rate of those who are EDLP is considerably higher than those who are High-Low. Those with hybrid programs, predictably, fall somewhat in the middle. the differences are NOT small–they are multiple hundreds of percent annually.
For the life of me I have never completely understood why that data hasn’t caused those retailers who have seen it to reconsider their entire marketing approach.
And of course, I know at least part of the answer.
It’s hard to see how to get “clean” when the drug of promotional money is so embedded in your business process that even the idea of allocating it differently is terrifying.
As often as we might point that finger at retailers, however, it is just as true of suppliers who really do not know how they would “make the number” if they stopped relying on price promotions. Sadly, most are afraid to be the first in their category to try it–and the madness continues.
I sincerely hope that retailers are not retaining high-low promotional strategies simply because they need to cover for their supply chain inefficiencies. Whether positioned as EDLP or promotional, every retailer must attend to operational excellence if it wants to end the day with a net profit.
We understand well that effective in-store promotion is not all about price. Displays sell. Sampling works. More significantly, the growing use of price and promotion optimization applications (now in more than half of top 25 supermarket chains) is proving every day that consumers are not always price-obsessed. They require positive shopping experiences, a feeling of success and an overall sense of value.
Are EDLP and promotion incompatible? For your answer, take a walk down any Wal-Mart power alley and count the number of off-shelf displays. I say every retailer is a hybrid. It’s merely a question of balance.
I agree with many of the previous comments. It’s not really an all or nothing strategy question, but a continuum from true EDLP to highly promotional, with most retailers being somewhere in between. For many retailers, their strategy differs by category.
What is at least as important as the given strategy is how well that strategy is executed. Does the retailer/manufacturer accurately understand what the total impact of any promotion is on the overall business? Can they forecast accurately and ensure the right product is on the shelf, displayed properly, etc.? Do they have the capability to reliably improve promotions that aren’t effective?
There is today still vast room for improvement on the analytics and execution front and the gains to be had here are as significant as from any change in strategy.
EDLP works in certain situations while a combo effort works in others.
A&P loves to offer an entire 1/2 off circular flyer several times a year. This gets customers in their stores, and for the most part, is a pleasant shopping experience.
Their Food Basics is strictly EDLP. In the markets where they operate,this is a success because they tend to compete against ShopRite and Acme, conventional supermarkets.
Consumers would like to see something of both. Lately A&P and Safeway have introduced their own redtag temporary price reduction promotions. Here the consumer can have the best of both worlds. It seems to be working for them. A win-win situation.
I think it all depends on whether the consumer perceives there is value–beyond the product. This could be a “fashion” element or a “sense of discovery,” as well as a tangible value such as time savings in the use of the product. Many products struggle to convey such a message through traditional media or packaging, so it is often best conveyed by the retailer or through promotion. EDLP assumes the consumer already knows what the value beyond the product is. It also assumes that the consumer has a “reference” price for every product selected. Neither of these are true. For EDLP to be sustainable it needs to be based on a trust (perhaps blind trust) between the consumer and the retailer. Is this even possible?
I have to concur with Al McClain and Frank Dell–the answer is neither solely EDLP nor solely (price) Promotion.
Nobody who has shopped Costco, Trader Joe’s or Whole Foods would call the experience boring. First and foremost it’s about the merchandise and presentation as well as the price consistency. In all three cases (despite the differences among these 3 in dollars spent per trip) customers appreciate that they can walk in at any time and don’t have to schedule their shopping around the retailer’s weekly ads (i.e. last week’s, this week’s and next week’s) to have a great experience. The longevity/financials of these companies would also seem to suggest that they have a sustainable business model.
I think Al McClain is right on! Study after study has shown that shoppers are largely clueless about what they are paying for CPG. The tiny number who actually know are wagging the dog. The issue is all about perception (and excitement) not price. Price is a VERY costly way for anyone to promote their business.
Since 40% of all supermarket sales (across the category board) come off of endcaps and other promotional displays, retailers have erroneously concluded that this is because of the pricing there. WRONG! It is because the offer is being made conveniently to the shopper there. Location, location, location!!!
The best compromise I have ever seen to the “sell it with price” vs. “sell it with location” was at Publix, where every endcap had a vertical (one foot wide) slice of relevant high margin product bisecting it. But then, that’s probably just too much work for most retailers. (Don’t even pretend retailing is rational. That will lock you into ever failed thought patterns and practices of the past. :>)
The consumer has shown that they generally prefer EDLP by making Wal-Mart the largest retailer in the US and the world.
We have also been trained not to buy a clothing, jewelry or housewares item in most department stores unless it is at least 50% off or a P&G product at a grocery store without a $1.00 off coupon that will presumably be doubled.
People that comb through the Sunday ads and FSIs and shop strategically no doubt save some cash, but the number of consumers that have time for this is declining. With the cost of fuel trending upwards, driving all over town to cherry pick the best deals is a less attractive enterprise also.
I think that each supplier and retailer needs to find their formula, but that the general trend will go more in the direction of EDLP.
Mr. Kagel hints at a fundamental question for our industry–“when did ‘promotion’ become inextricably linked with ‘price reduction’?” P.T. Barnum is often referred to as the world’s greatest promoter. I don’t recall a single mention of “price” in his repertoire of tactics.
To the question of EDLP’s compatibility with non-price promotion activity, one could argue that it is the most compatible format because it theoretically removes price from the occasion from the start. Shoppers either believe they are in the store with the lowest prices (Wal-Mart’s forte) or they don’t. So the customer should be able to pay more attention to other messages in the store instead of price tags.
On the other hand, almost every “EDLP” retailer (including Wal-Mart) still employs some price promotion tactics. And a preliminary look at the poll on this question shows an even split currently between those saying price and in-store presentation are the most important elements of merchandising. So clearly there is no clear answer here.
One last thought. In one of my corporate marketing/strategy stints, we spent a lot of effort on the concept of “share/price equilibrium.” The idea is to find the price point at which price neither helps nor hurts your market share. In other words, you try to make price neutral so other elements of your marketing mix can work. But you don’t give up margin by making your price unnecessarily attractive. I wonder if any retailers have some version of this concept in place?
It is not as simple as EDLP or Hi/Lo. Supermarkets built their price image on low prices and then lost the battle to Wal-Mart. This has more to do with loss of customer trust on prices. The automobile manufacturers learned this the hard way.
Where we are today should best be looked at by category. Some categories are effectively EDLP because there are no real product changes and many trade channels selling the products. On the other hand, EDLP is boring from a merchandising perspective. The more successful retailers are using both pricing approaches depending on their competition and where they have strategic strengths.
This is difficult and it depends on a number of variables — of course you must have a compelling product that is desired — be it toothpaste or a Bentley. EDLP works well for some — i.e. WalMart — but other venues may need the “excitement” of promotion, mid tier Department stores for example.
We now have a large part of the population that over the last twenty years has been trained to wait for and look for the “sale” to obtain greater perceived value — and many consumers apparently like and enjoy this prospect. I truly believe that a large portion of the population doesn’t want the price to always be $29.99 but prefers to see a price sticker of $59.99 — reduced several times — ending up at $19.99 rather than -always- and dependably $29.99.
Again, this varies depending on the venue and the product variety being considered. I do not think we will ever see the calm waters of EDLP replace the supposed “excitement” of promotion. I think for a lot of the retail world, promotion will drive sales.
EDLP is an excellent strategy if it’s implemented consistently and if retailers and suppliers each have the understanding that almost any exception put in practice will erode the consumer’s perception. However, EDLP does not replace the need to create and maintain an exciting brand and retail store environment for consumers and it’s not a replacement for having points of difference between competitive brands and competitive retailers.
David Biernbaum is on target. EDLP takes courage, committment and of course the financial strength to execute for the long haul.
Today’s consumers are astute. Consumers size up retailers, manufacturers, their brands and various attributes – be they EDLP, HI-LO, value for the money, superior product, etc. They sort out retailers & products which deliver as promised vs. those that over promise. Sure they factor in convenience, price & promotion, but most importantly want the product to deliver as promised.
What I’ve noticed missing from most of the dialogue concerns “product”. Not all product is driven by promotion – some is need driven, some is results driven; both real or perceived (yes – the perceived value can be created and nutured through promotion – this is effective in subjective products – such as anti-aging, wrinkle, shampoo’s, conditioners, and many of the HBC offerings). However, in the need driven categories – driving the business with promotion – be it coupons, TPR’s or splashy ad’s – throws away margin for both the retailer and the manufacturer.
Let me temper this by saying brand promotion (not necessarily – price reduction) does create consumer awareness of brands and when the need driven application arises it does steer the consumer to the brands which have educated and informed the consumer.
This education can and most often does occur at retail – at the shelf level. One of the greatest advertising executives ever (David Olglvey of BBD&O) believed the best ads and copy on packages were those which educated and informed the consumer. He was never afraid to dense up an ad with copy – going against conventional wisdom – “No one has the time to read”!
The truth is different from this – it is all about the product and the drivers which take a consumer from passive to active.
Selling Pasta – less is probably more!
Selling a new medical or personal care breakthrough – a higher price will lead the consumer to a higher perceived value and superior treatment – coupled with copy both on the package outside and reinforced inside, with a well written informative educational brochure – bringing the consumer to the conclusion they received great value and they made a well informed purchase.
However, for this to be effective and create a loyal repeat consumer the product MUST deliver on all it promises – the truly good ones deliver even more (ease of use, consistency, quick acting, what-ever!)
When products are need driven, a better spend by the manufacturer is to educate consumers, pharmacists, pharmacy techs, doctors, clinicians, nurses, specialists – via promotion in radio, TV, magazines, etc (not necessarily coupled with price reductions) aimed at the audience for whom the product was developed.
When manufacturers are required to spend promotional dollars with retailers for ineffective TPR’s, co-op advertising, etc which does not educate and inform the consumer it drains the promotional well – and in the long run does not serve the retailers and manufacturers common goal – moving product off shelf!
Retailers and manufacturers should partner to formulate effective educational/promotional efforts which achieve this goal. When done successfully everyone wins – consumers get superior performing products, manufacturers have solid sales and the retailer’s image is enhanced by satisfying consumer needs!
Reliability and meeting consumer needs is in fact what drives them back into the store – over and over!