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EDLP: Everyday Low Pricing Strategy

By Priceva
on July 14, 2022
When a retailer wants to increase their customer flow, advertising seems to be the most obvious solution. However, it requires a lot of initial effort and investments, while providing temporary results. One of the best ways to streamline the sales of a product and achieve a steady demand is an everyday low pricing strategy (EDLP).

In this article, you will find out what EDLP is, how it works, and its pros and cons. We will provide guidelines to help you understand whether everyday low pricing can be efficient for your business, and take a look at a few brands that implemented it successfully.

What Is Everyday Low Pricing?

Everyday low pricing is a strategy in which a store sells products at a low or discounted price over a lasting time span instead of providing sale events, coupons and promotions. Rather than spending time and money on marketing, the seller focuses on product quality.

This tactic can be very efficient in the long term because it allows the trader to achieve a stable and predictable income. As a rule, it is used by large retail chains and marketplaces — we will explain the reason for that a bit later.

How Does It Work?

Essentially, an everyday low pricing strategy means always providing cheap prices for an item without organizing sale events. Customers love inexpensive products because they do not have to wait for discounts and can get the best value for their money. They can always count on a store that sells agreeably priced products; they know such items can be bought anytime, and keep returning as a result.

For the retailer, in turn, this is a great way to ensure a steady flow of customers without bothering about marketing campaigns, which are both expensive and time-consuming. As a rule, one series of advertisements is enough to focus customers’ attention on an EDLP product — the rest is a matter of word-of-mouth marketing.

History of Everyday Low Pricing

The concept of EDLP originated back in 1994 when Walmart founder Sam Walton came up with a simple strategy called “The Lowest Prices Anytime, Anywhere”. Since then, the company has been loyal to this motto and continues providing buyers with the best deals.

Instead of offering many seasonal sales and heavily discounted products, the retailer sets the most competitive prices. Customers enjoy agreeable prices over the long term. With this pricing strategy in place, people can rest assured that they can buy reasonably priced products anytime, so there is no reason for them to monitor competitors’ prices.

Walmart's case shows that an EDLP works best with household products, because consumers buy them in bulk regularly. This is different from occasions when people buy items out of dire necessity. With the same household stuff available at a cheap price, the retailer ensures a large and steady flow of buyers.

Why Do Retailers Use Everyday Low Pricing?

The major reasons for retailers to leverage such a strategy are:

  1. Less trouble than marketing campaigns. During promotional events, the retailer not only spends money on advertising activities, but also has to increase transportation expenses because sales volume temporarily increases. Everyday low pricing allows them to achieve a stable and lasting demand for the product without allocating an extra budget.
  2. Since an everyday low pricing strategy gives customers a chance to enjoy a good deal without waiting for promotional events, it simplifies the decision-making process for buyers. The next time, consumers will rather choose the same product instead of trying another discounted one.

Everyday Low Pricing vs. Price Skimming

Skimming or high-low pricing is a strategy in which a business introduces a product with a high price and decreases it later by using promo campaigns, sales and clearances. Starting with a high price allows businesses to make consumers believe the product is of top quality. When the seller announces sales of the product, consumers become motivated to make a purchase as soon as possible to benefit from a bargain. This method is used to attract customers and perform cross-sales of costlier items.

Everyday low pricing implies offering agreeable rates right from the start. This method makes it possible to grow the customer base gradually, but its output is long-lasting. The EDLP approach is suitable for businesses that are determined to build strong relationships with their audience and emphasize product quality over marketing.

How Can EDLP Increase Your Total Revenue?

The losses incurred by running an EDLP strategy are recovered thanks to the volume of items sold. This is beneficial for both supplier and retailer, because EDLP can trigger a volume increase in different ways.

The supplier benefits from the single-item volume in buyers’ carts (for example, they can buy many bars of soap). Meanwhile, a large number of different items in the cart is a great advantage for retailers — cross-sales serve as the major driver of profit in their case.

When customers trust a store that always offers agreeable prices on a large variety of positions, they are more likely to pick other items from the assortment, believing that they will enjoy good deals. Hence, despite a lower profit margin, EDLP can generate you more revenue thanks to larger sales volumes.

The Pros & Cons of an Everyday Low Pricing Strategy

To help you decide whether everyday low pricing is suitable for your business, let’s observe its major advantages and disadvantages.

Pros

  1. Thanks to EDLP, retailers can establish a stable flow of customers: the demand does not decrease because they can buy agreeably priced products without waiting for sales.
  2. It helps retail stores to avoid situations when the demand for a product suddenly increases, leading to challenges with transportation, warehousing and fulfillment. Accurate forecasting of demand allows reducing waste of stock because stores receive an optimal amount of items they will be able to sell during a certain period. Promotional campaigns also require providing more workforce during the sale event, while EDLP allows keeping the sales flow steady without involving more staff.
  3. With everyday low pricing, sellers can focus on the products’ quality. They can invest money in research and development instead of advertising and promotional events.
  4. Lower advertising costs can also be an advantage of EDLP. When a company organizes a sale, it has to inform potential customers every time and spend a lot of money on marketing campaigns. For low-price items, even a single series of advertisements is enough — the product’s popularity will gain traction thanks to personal recommendations.
  5. A product sales cycle shortens since products don’t spend much time on the shelves. Customers know who provides the most agreeable prices and don’t need time to compare quotes in search of the best deals.

Cons

  1. Selling cheap products means getting lower net profit per unit. As a rule, EDLP products have a low markup. To recoup losses, retailers usually offer a wide assortment for cross-sales: that ensures a higher sales volume and a bigger revenue.
  2. When a product is already priced low, there are fewer opportunities for discounting. Besides, when an affordable product becomes even cheaper, customers may start losing their trust in product quality, which results in damaged brand reputation.
  3. With lowered profit margins, some retailers cannot afford to allocate a budget for development or infrastructure or additional services. For this reason, large corporations implement EDLP strategies more often — they do not have to sacrifice a large share of their profit.
  4. It gets harder to stay competitive because some customers are discouraged by the lowest price on a constant basis: they start doubting the product quality.

How to Decide if an Everyday Low Pricing Strategy is Right for You

Low pricing is not a one-fits-all approach: for some companies, it is very risky. Below are the factors contributing to the success of the EDLP approach.

Your Brand Is Popular Enough

Practice shows that everyday low pricing works better in case of high brand penetration. A mature product is easier to sell because you already have some statistics on sales volume and, most likely, its quality has been refined after some testing. Also, these products require less marketing because they are already known by the audience and there is little room for growth.

Your Product Has a High Expandable Purchasing Model

According to Nielsen’s research, it is important to distinguish between products that have expandable purchasing and expandable consumption models. For example, the consumption of such a product as shampoo is limited: buyers will not wash their hair more often because the shampoo is on sale. On the other hand, something like milk has expandable consumption. People can buy it when it is on sale and drink more since it has a short shelf life.

However, milk has a low expandable purchasing model: you can buy many gallons and drink a few of them, but the rest will expire after a week or two. Shampoo has a high expandable purchasing pattern because it can be stored for months or years without expiring.

The above-mentioned research suggests that EDLP is more efficient for products with a low expandable consumption pattern but a high expandable purchasing pattern, for example, cosmetics, clothing, home care products and long-lasting foods.

Your Brand Is Based on Agreeable Prices

When implementing an EDLP strategy, some retailers or brands worry about reputation: they are afraid of having their products perceived as low-quality ones. If you plan to position your store as a discounter, this is not a problem. But if you do not want to risk having your brand associated with low quality, you may want to apply another pricing approach.

Your Prices Are Indeed The Lowest

If you are determined to rule the market by offering low prices, be ready to adapt your prices in the future. Once you introduce an inexpensive product, other retailers and brands will react — some of them may come up with even lower prices. Be ready to adjust your price tags in response (which implies further reduction of your profit margin).

Another critical issue is monitoring prices on the market. Without pricing intelligence, you won’t be aware of real-time market conditions, which means you won’t be able to make timely adjustments to your quotes. So if you operate in a market with dense competition, consider using an automatic price tracker.

EDLP examples

Tesco

The UK-based international retail chain runs over 7,000 stores around the world and has millions of loyal customers. Over their 100-year history, they’ve experimented with different pricing strategies and introduced EDLP in 2016.

Unlike Walmart, Tesco makes a bet on an optimal price/quality ratio rather than only low prices. The retailer does not spend much on marketing — the products’ benefits speak for themselves. Also, Tesco puts a focus on building trustful relationships with customers with the help of loyalty programs.

Trader Joe’s

This is a successful American brand that positions itself as a ‘neighborhood store’ and provides a selection of organic foods that are hard to find anywhere else. By coupling quality with inexpensive products, the company managed to both sharpen its competitive edge and maintain a reputable image.

Amazon

While Walmart is the most successful brick-and-mortar store that implements everyday low pricing, Amazon is successful in bringing this strategy to the e-commerce world. It consistently underprices the best-selling and highest-viewed items to make customers believe it has the greatest deals overall. To recover losses, it charges more for complementary items (like cables for TVs or lenses for cameras) than competitors online or offline.

We provided the examples of industry giants because it is easier for them to implement everyday low pricing. To charge less for an item, a seller needs to reduce the cost of production, warehousing and shipping — larger companies can manage it all.

Conclusion

Everyday low pricing (EDLP) can be a great strategy for long-term use. Customers get the opportunity to buy a product at an agreeable price anytime they want, which builds loyalty and makes them choose the same item over and over again instead of searching for competitors’ offers. The vendor, in turn, can cross-sell and increase revenue.

In order to implement the EDLP pricing approach correctly, a retailer should be able to handle demand, negotiate convenient conditions with warehouses and transportation companies, and set prices so as not to trigger price wars. Also, it is crucial to keep an eye on the market and adapt to ever-changing conditions.

The latter is possible with price intelligence software by Priceva, a complete solution that allows you to crawl competitors’ websites to compare quotes, get notifications about prices, and receive data in the form of easy-to-read tables. With Priceva, you can automate your market research and shift your efforts towards business development.

FAQ

Is EDLP promotional pricing?

No, as opposed to temporary sales and promotions, an EDLP strategy implies setting a fixed price that is lower than competitors’. It makes it possible to achieve stable and predictable demand for a product and build customer loyalty.

What type of strategy does EDLP refer to?

EDLP (everyday low pricing) is a type of pricing strategy in which a company offers their products at a low price on a constant basis.

Which companies use everyday low pricing?

An everyday low pricing strategy is often used by retailers, especially large ones, because they have a wider product differentiation and can afford lower prices thanks to cheaper warehousing, delivery, and/or production. Also, everyday low pricing is recommended for companies with a high brand penetration because they do not have to spend much money on advertising a mature product.

How does EDLP benefit customers?

Consumers can buy an agreeably priced product at any time they need without waiting for sales or spending time on comparing competitors’ offers.

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