This strategy is usually used by off price retailers, who pass the savings they achieve through product sourcing and cost savings to their customers, and thereby create an attractive value proposition.
What is The Purpose of Everyday Low Price (EDLP) Strategy?
Everyday low price is a competitive strategy, whereby retailers who implement it aim to attract more customers and maintain their loyalty through lower prices.
Advantages of Everyday Low Price Strategy
Retailers use everyday low price strategy to capture several advantages, that make up for the lost margins.
1. Competitive Advantage
A lower price is one of the most attractive attributes, provided that the quality is comparable. And for certain customer segments, it is the main driver for purchasing. Off price retailers, who mainly target this segment of the market, gain a huge competitive edge just by setting their prices at a low level- all the time.
In addition to bringing more customers through the door, retailers also gain the loyalty of those customers, and this reflects on the business in the form of repeated purchases and a higher customer lifetime value (LTV) over time.
It should be noted here that, the lower prices do not necessarily mean lower transaction values (ATV). In fact, in many cases customers use those savings in cost to make more unplanned purchases and end up spending more.
2. Less Marketing Spend
Retailers that use EDLP will not need to advertise as much, because their low price strategy is already attracting customers to their stores. They also don’t have the need to launch promotional campaigns and offers, which require more advertisements to work.
3. Low Operating Costs
Customers understand that one of the reasons they are able to get these low prices, is the no frills operating models followed by those retailers. And so they are more forgiving and understanding when they don’t see more staff on the floor.
Retailers, on the other hand, can use this to operate their stores in a lean manner, and thereby save a lot on operating costs.
Read More On : Off Price Retailers
Disadvantages of Everyday Low Price Strategy
Everyday low price strategy also has its drawbacks.
1. Low Margins
Retailers that use EDLP, by design, will be having lower margins, and to make up for this they have to generate higher sales volumes, so they can be profitable. This requires them to be extremely efficient in their buying, so they can achieve more inventory turns ; i.e selling and replacing their inventory many times throughout the year.
2. No Markdowns
Because this strategy eliminates the need or expectation of launching markdowns, it takes away a very powerful tool that every retailer has.
Retailers use markdowns and promotions to create a sense of urgency to buy, so they can generate cash quickly if they needed to. They also use it to be able to sell attractive merchandise at higher margins, and only sell less attractive ones at lower prices. Furthermore, markdowns help retailers clear excess merchandise in case of any errors in Open to Buy planning, or any decline in sales due to external reasons.
Retailers who implement everyday low price strategy will have very limited margin space to implement any of the above if they needed. That’s why, one of the keys to success for such strategy is to maintain a low average inventory level that is optimized to the expected sales.
Read Also: Forward Stock Cover
3. No Sense of Urgency
As mentioned before, one of the reasons retailers use markdowns is to create a sense of urgency.
Retailers who follow EDLP don’t have this advantage, since customers know that they can come later and still find the same item at the same price.
Instead, for some product categories (such as fashion), off price retailers use their product sourcing strategy to create this sense of urgency, by stocking the items in low quantities (i.e low depth) and not having any replenishments at the warehouse. So customers know that if they find it now, they better buy it now.
This, however, can not be implemented in other product categories that are not seasonal in nature, or that have the same product stocked all-year-round.
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