Every Day Low Pricing: Pros and Cons

EVERY DAY LOW PRICING (EDLP) is a pricing strategy that has been a remarkable success for some manufacturers/retailers and a disaster for others. 

                        Despite some rather high-profile failures, the strategy attracts attention among all types of marketers. 

                        Recent reports indicate that 27% of consumer non-durable manufacturers and 23% of consumer durable manufacturers have adopted an Every Day Low Pricing strategy. 

                                                The key question is: “what conditions are most critical for successful implementation of the strategy?”

How it works

EDLP is a low-price strategy designed to enhance the competitive position of the supplier based on the following basic premises:

·          A consistent, competitive price will lead to an even demand for products

·          Inventory and other logistical costs will drop because of better management of product flows.

·          Promotional costs and other forms of trade spending will be reduced.

·          The cost advantages of steady demand and better inventory management will lead to even lower prices.

One of the advantages of EDLP is that it often leads to more consistent or predictable demand.                 Suppliers or retailers are able to more effectively control and forecast production, inventory costs, and shipping costs thus stabilizing demand

                        Since periodic deals are replaced by a single, no-deal low price, there is no advantage to customers to postpone a purchase.

                        Successful EDLP strategies tend to generate large volume sales that allow companies to cut costs and pass these savings along to customers.

                        At the same time, retailers or manufacturers are able to leverage their own buying power to reduce their purchase price. These savings, as well, are then passed along to customers. 

Where it works best

EDLP works best under many of the same conditions that support other low price strategies. Typically, these include:

·          Consumer demand is relatively unaffected by large seasonal variations or other timing considerations

·          The company is able to sustain a low price competitive position through a cost advantage

·          Consumers place little value in waiting for —deals“ on merchandise

·          Suppliers are willing and able to provide just-in-time delivery

·          The company‘s size justifies the investment in the information systems required to manage inventory turns precisely

                        Purchases that can be delayed or timed to coincide with price discounts are often less amenable to an EDLP strategy, while repetitive purchases lend themselves particularly well to this type of pricing.

                        Consumer disposables, such as toothpaste, soap, or groceries, for example, are typically purchased on a daily, weekly or – at most – a monthly basis.

                        Consequently, consumers have less ability to time the purchase of these goods in order to save money.

                        EDLP works well for these types of products, especially at a retail level, because it offers consumers a bundle of low prices on a range of goods that they buy on a regular basis.

Caution advised

                        Seasonal products and services such as tourism and snowmobiles, or highly perishable products such as flowers, have a limited shelf life and discrete time periods during which product or services must be moved. In these situations, EDLP may not be the preferred strategy.

                        EDLP often doesn‘t make sense where demand is so high that price increases are warranted, or when demand declines to the point that price discounts are needed to reduce inventories. Implementing EDLP for some consumer durables is difficult because consumers can often afford to wait for special deals or incentives to buy these products.

Article Written by

Michael Hurwich, President of SPMG