What Is Everyday Low Price (EDLP)?
- What EDLP is
- How it differs from high-low pricing
- The advantages and disadvantages of EDLP
The term Everyday Low Price (EDLP) is familiar to most suppliers because it's an effective pricing strategy Walmart applies that enabled it to climb the ladder and become a retail powerhouse. Following the same steps, Amazon also uses the EDLP, employing the strategy on e-commerce.
Retail suppliers draw inspiration from such success stories and desire to make EDLP work for them. However, it's not an easy decision because it affects many functional areas of a business, such as marketing, customer behavior, inventory management, and supply chain.
This article helps retail suppliers understand what EDLP is and whether it makes sense for their businesses.
What is Everyday Low Price (EDLP)?
Everyday Low Price (EDLP) is a pricing strategy in which retailers like Walmart promise their customers the lowest prices on their stock. Therefore, consumers don't have to wait for sales events, use coupons, or take any other step to get a fair price on the products they purchase.
The strategy requires suppliers to consistently set low prices and maintain them over an extended timeframe, provided the cost of the product doesn't change. Before a brand can decide to use the EDLP strategy, there are several considerations to make. However, understanding its relation to other methods can make it easier for the retailer.
How Does EDLP Differ from High-Low Pricing?
While the Everyday Low Price strategy doesn't use sales events, coupons, promotions, discounts, and the like to encourage buys, high-low pricing employs these tactics to temporarily lower prices, build excitement, and in the process, encourage consumers to purchase.
In simpler terms, retailers using the high-low pricing strategy initially price products at a high price then, later on, organize a sale in which they sell the items at lower prices.
A practical example would involve two retailers selling a home theater system. The first retailer relying on the EDLP strategy goes straight to setting the price at $500. On the other hand, the supplier using the high-low pricing approach will initially set the price at $700. Then later, during a sale event, lower the cost to about $500.
Different consumers will have varying perceptions, so analyzing the target store’s demographics is vital.
Some are enthusiastic about the EDLP price and will buy the product the first time they shop.
However, a high-low strategy works too because some consumers feel that by the retailer bringing down the price of the home theater system, it’s making a high-quality item available to them at a more reasonable price.
Still, some will feel like the first retailer had to compromise on the product's quality to set the home system's price so low initially.
While none of the consumer perceptions may be true, there are times when the high-low pricing strategy is a more effective marketing strategy compared to EDLP, especially for some products.
Advantages of EDLP
The EDLP marketing strategy has several benefits for both consumers and businesses. Some of the advantages to consumers include:
Decision-making is made easy: Consumers can shop for the products they want any day, week, or month, without having to worry about their withdrawal from a sale in the coming weeks.
**It saves time: **EDLP's marketing strategy bases its effectiveness on the consistently promised favorable pricing customers. That means consumers need not spend much time searching for the best deals or comparing various store prices.
The benefits of the EDLP marketing strategy to suppliers include:
- It makes for simplified demand forecasting: Suppliers manage to control and bring down fluctuations in demand that often happen during sales promotions. With a more stable demand flow, demand forecasting gets easier for the supplier.
- It saves time, money, and energy: Imagine the staffing efforts needed to label all items during a sales promotion event. Sometimes, it may even require the store to hire extra workers. However, since EDLP involves no such sales gimmicks, the retailer needs no extra money, effort, or time to mark the already stocked items.
- It cuts down on marketing costs: EDLP saves businesses the hassle of advertising for sales events or promoting items, saving on marketing costs. For example, Walmart only needs to advertise products once a month in a newspaper while its competitors who don't use the EDLP marketing strategy have to promote weekly.
Disadvantages of EDLP
While EDLP has a handful of benefits, it comes with some disadvantages.
Of course, consistently low prices pose a few business problems that a supplier may not have anticipated. The supplier then struggles to sell higher volumes to try and make up for the reduced prices.
Some of these disadvantages include:
- It may result in poor vendor relations: A retailer may irritate the supplier by constantly haggling for lower prices to make it possible to pass the same down to the consumers. Retailers may feel that the GMROII of their product merits a higher price. This strategy is dangerous because it may result in the retailer losing valuable vendors. Worst of all, some vendors may supply the retailer with lower-quality products to meet the price requirements.
- Consumers perceive products as low quality: It's a risk running everyday low prices, as some consumers will start doubting the quality of products. Additionally, it may be challenging to introduce higher-quality or higher-priced products because consumers looking for superior quality products may already think the retailer cannot offer exceptional products.
- Reduced profit margins: If the vendors can't supply goods to the retailer at low enough prices, the retailer may have to offer them to consumers at a price that makes it meager profits. Also, retailers need to carefully monitor their sales volume to realize a return on their original investment.
Who Should Use EDLP?
Generally, the EDLP pricing strategy works best for large retailers. One such large retailer that has arguably benefited most from EDLP is Walmart.
For many years, Walmart has centered its marketing around EDLP variations such as Everyday Low Price, Low Prices Every Day, and Always Low Prices.
Small store retailers and merchandise suppliers can also employ the EDLP marketing strategy apart from giant retail channels. Any other retailer can use the everyday low price strategy provided:
- Its brand has a high level of penetration with very little room for growth. Such products need much less advertising or marketing support.
- Its products follow a low expandable consumption pattern but a high expandable purchasing pattern.
- Its market or brand is well known for or based on low prices.
- It’s sure its prices are the lowest in the market.
A Final Word
Modern consumers are exposed to more options than they were sometime back. They can search for the items they want, anytime they want them, and at the price they feel is reasonable.
Retailers and suppliers applying EDLP marketing strategy promise to offer their customers low prices. Retailers have to agree with vendors to supply the goods at reduced prices to keep their commitment without organizing sales events.
EDLP is a strategy that enables retailers and suppliers to establish sustainable brands or business models. That way, they can have constant prices, better supply chains, and build more trust with their consumers.
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Written by The SupplyPike Team
About The SupplyPike Team
SupplyPike builds software to help retail suppliers fight deductions, meet compliance standards, and dig down to root cause issues in their supply chain.Read More