Retail Pricing Strategy
Two Main Types of Retail Pricing Strategies
When looking to implement a retail pricing strategy, you have two main types to choose from. These two types of pricing strategies include EDLP and High/Low. You may be wondering what the difference is between EDLP and High low strategy. No worries, I am here to fill you in!
EDLP Pricing Strategy stands for "every day low pricing."
High Low Pricing Strategy means that the company is usually selling items that are more than competitors prices, but offers frequent sales to lower the prices below even the competitors prices.
There are currently four highly successful United States retailers that currently use the EDLP strategy. They are Home Depot, Toys 'R' Us, Wal-Mart, and Office Depot. Most grocery, clothing, and drug stores use the high/low strategy. Check out the following advantages of using each one.
Advantages of High Low Pricing
1. Shoppers get excited.
A great buying experience is centered around sales events where
customers get great deals. This experience makes the shopper associate
your store with a great time shopping. It will bring them back for more
2. Store service and the quality of products get emphasized. When customers see that you are charging a high price initially, something in their brain tells them that you have high quality customer service or high quality products (sometimes both).
3. You get two segments of the market. The first wave of customers that come in will be willing to spend the extra money to get the newest fashion line (or whatever product you are selling). Then you are able to service the bargain hunter market when the products near the end of their fashion cycle.
4. Helps you move merchandise. If you own a retail clothing store, then you know all to well that clothes go out of style fast, and your store requires a constant turnover of inventory. By having sales frequently, you can move out the old stuff and bring in the new designs.
5. It is an easier system to use than the EDLP. Because the EDLP strategy is set for one low price, it is hard to convince customers that it is a good deal. When you implement the high low strategy, customers can see that they are getting a deal from the original sales price.
Advantages of EDLP Pricing
1. Advertising costs are not as high.
Because your prices are always the same, you will not have to have a
weekly or monthly advertising budget set aside for sales flyers.
2. Inventory management is improved and stockouts are reduced. Using EDLP enables stores to use just in time inventory management systems. They do not have large variations in demand that sales prices can bring. They can set up systems that can make ordering inventory, deliveries, and handling more efficient.
3. Price wars are less frequent. Because consumers believe that the store already has the lowest prices, retailers can avoid a competitor's price war.
4. Profit margin is greater. Even though you get lower prices more often with EDLP, the sales can cut drastically into profit margin. Maintaining one price throughout the life cycle will allow margins to stay the same.
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