What Is Everyday Low Price (EDLP)?

Learn about:

• What is EDLP?

• How Does EDLP Differ from High-Low Pricing?

• Advantages of EDLP Pricing Strategy

• Disadvantages of EDLP Pricing Strategy

The term Everyday Low Price (EDLP) is an effective pricing strategy that Walmart has implemented in its business model. This strategy has enabled Walmart to climb the ladder and become a retail powerhouse. Following the same steps, Amazon also uses EDLP, employing the strategy on e-commerce.

Retail suppliers draw inspiration from successful companies like Walmart and Amazon to make EDLP work for them. However, implementing EDLP is not an easy decision. It affects many functional areas of a business, such as marketing, customer behavior, inventory management, and supply chain.

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. This means that consumers don't have to wait for sales or use coupons, as they will always get consistent prices on the products they buy. They will get a fair price on the products they buy.

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, several considerations must be made. For example, understanding its relation to other methods can make it easier for the retailer to decide how and when to implement the strategy. 

How Does EDLP Differ from High-Low Pricing?

Everyday Low Price strategies encourage purchases by avoiding sales, coupons, promotions, and discounts. High-low pricing employs these tactics to temporarily lower prices, build excitement, and, in the process, encourage consumers to buy the product. In simpler terms, retailers using the high-low pricing strategy initially price products at a high price and then, later on, organize a sale in which they sell the items at lower prices.

EDLP and high-low pricing are examples of different pricing strategies used by retailers. A practical example would involve two retailers selling a home theater system. The first retailer, relying on the EDLP strategy, sets the price at $500. On the other hand, the supplier using the high-low pricing approach will set the initial price at $700. Then later, during a sale event, the cost will be lowered to about $500.

Different consumers will have varying perceptions of each tactic, so analyzing the target store's demographics is vital. Some may be enthusiastic about the EDLP price and will buy the product the first time they shop. However, some will prefer the high-low strategy because they may feel that by lowering the price of the home theater system, the retailer is making a high-quality item available to them at a better price.

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 seasonal or slow-moving products

Advantages of EDLP Pricing Strategy

The everyday low-pricing strategy has several benefits for both consumers and businesses. Some of the advantages for 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 withdrawing from a sale in the coming weeks.

• It saves time: EDLP's marketing strategy bases its effectiveness on the consistency of promised favorable pricing to customers. That means consumers don't need to spend much time searching for the best deals or comparing various store prices.

• No need for promotional prices: EDLP eliminates the need for promotional prices, allowing consumers to always find low prices without waiting for sales events.

Some benefits of the EDLP marketing strategy for 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 doesn't involve as many sales gimmicks, the retailer does not need 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.

Disadvantages of EDLP Pricing Strategy

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 compensate 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 that reduces the return on 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. Walmart has arguably benefited most from EDLP compared to other pricing strategies. 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 little room for growth. Such products need little 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 a few years ago. They can search for the items they want anytime, at the price they feel is reasonable. Retailers and suppliers applying the EDLP marketing strategy promise to offer their customers low prices. To keep their commitment, retailers have to agree with vendors to supply the goods at reduced prices without organizing sales events.

EDLP is a strategy that enables retailers and suppliers to establish sustainable brands or business models. This allows them to maintain constant prices, have better supply chains, and build more trust with their consumers.

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