What is EDLP?
EDLP (Everyday Low Price) is a pricing strategy adopted by retailers & retail chains which promises the consumer or customer to provide them their goods at a discounted price or relatively lower cost compare to market on a continuous basis instead of providing such for a specific period which can also be said as a sales event.
Everyday low pricing strategy is a strategy where the products are provided to consumers at a lower cost or at a discounted price over a longer period of time at a constant rate instead of releasing sale events so that only then the same products can be bought at a discounted price. These retailers & retail chains provide products at their store at a continuous lower price for all of their products, thus focusing on the quality of their product instead of marketing of their products.
How does it Work?
In Everyday low pricing strategy, the stores set their products at a fair price and maintain the same price of their products for a longer period of time. It helps by simplifying the decision making of the consumers as the consumer doesn’t have to think about when the sale will be coming; instead, they could buy their products at fair price anytime they want. This helps the store to focus on their products instead of focusing on their marketing of the products that require a substantial amount of funds and time to provide substantial advantages in the market.
Example of EDLP
Many large retailers like ‘Walmart,’ ‘Trade Joe’s,’ ‘Avenue Supermarket (D-Mart)’ etc. follows the EDLP model. Walmart is a well-known giant retailer that offers products at low prices every day. This may result in a lower profit marginProfit MarginProfit Margin is a metric that the management, financial analysts, & investors use to measure the profitability of a business relative to its sales. It is determined as the ratio of Generated Profit Amount to the Generated Revenue Amount. for the retailers, but it creates volume, so the retailers gained by the volume that they sell. Walmart has its branches in many countries and has millionsMillionsThe symbol MM is used to represent numbers in millions, with the symbol M standing for thousand in roman numerals. As a result, MM stands for a thousand multiplied by a thousand, which equals one million. Financial statements and other reports from large corporations often present amounts in the millions. of consumers around the world.
Rationale of EDLP
The idea of Everyday Low Pricing strategy derives from following points considerations –
- Fluctuation in demand: During the promotional events, the retailers record a huge increase in the demand for the products that increase the movement cost & activity for the retailers. Through EDLP, retailers want to achieve a continuous and profitable demand for their products.
- EDLP focuses on reducing the efforts and cost of the customer for searching for the promotional event for the sale of products for lower prices and focuses on simplifying the decision making procedure for the consumers.
Everyday Low Pricing vs. High-Low Pricing
Following are the key differences between the Everyday Low pricing and High-Low pricing –
- High-Low pricing strategy focuses on the promotional and sale event for temporarily boosting their sale by reducing the prices of their products, whereas Everyday Low pricing strategy focuses on providing their products at a fair price for a longer period of time.
- High-Low pricing events last for a very short while and may occur one too many times in a span of a year, whereas Everyday low price runs for a longer period of time and does not depend on any special event for reducing their prices for the products.
- In the High-Low pricing strategy, product prices of the retailers are kept relatively low compare to the prices of the product in case of an Everyday low pricing strategy.
- In the case of the High-Low pricing strategy, the retailers incur relatively very high cost over the advertisement of the event and their products compared to relatively low cost over the advertisement in case of EDLP strategy.
- EDLP creates a relatively constant flow of customers, i.e., demand for products by the consumers as the customers don’t have to wait for any sale event for the low price of the products.
- Retails store saves their fund and pricing over the sudden increase in movement and fulfillment of products in case of sale events and stores also save their funds by not having to provide more workforce or staff over the focused corner where the sale event would be running.
- EDLP helps the stores to focus on the quality of their products, and it does not require the stores to specially introduce their funds for the advertisement of their products, which are to be incurred in case of sale events.
- The constant demand of the products helps to forecast the demand of the product relatively close to the accuracy and make it simple, and thus a reduction in the wastage of stocks as the stores only occupy the relative amount of the products that they expect to be demanded.
- EDLP offers lower prices, thus resulting in a lower rate of margin for the retailers, which can only be neglected only if the retailer has enough retail of the products in quantity and maintaining the demand and supply of the product is not an easy task.
- Reducing the price of the products may invite price competition from the customers, which may result in bad for the retailer’s business as well as the economy of the market.
- The retailer opting for EDLP cannot introduce any sale event as it will create distrust in the customer of the retailer as the customer will come to believe that the everyday prices of the retail shop are higher than the expected price in the sale event, which could result into a bad image of the retailer.
Everyday Low pricing strategy provides its products to their consumers at a lower price comparing to the market price of the product provided by other retailers in the market. And they follow the same regime for a longer period of time. For adopting the same strategy, the retailer should have good business knowledge, the capability of handling the demand of the product at any time should have a good working relationship with their vendors and should not aggravate their market competitors to initiate any price wars. Overall EDLP strategy provides a more sustainable and stability to the business of the retailers.
This has been a guide to what is EDLP and its definition. Here we discuss rationale, example, and how does it work along with advantages, disadvantages, and differences. You may learn more about financing from the following articles –