What is EDLP?
EDLP, which stands for Every Day Low Prices, is a pricing strategy in which firms promise consumers consistently low prices on products without having to wait for sale events. In such a pricing strategy, a firm sets a low price and maintains them over a long time-horizon (given that product costs remain unchanged).
Rationale Behind Everyday Low Pricing
In several marketing studies, consumers have indicated that they are more content with consistently low prices instead of wild price swings. This is where the EDLP strategy works effectively:
1. Simplified decision making
Consumers do not have to worry about products going on sale in the following weeks.
2. Reduced consumer search costs
Consumers can spend less time comparing prices among different stores and searching for the best deal. EDLP promises consumers the continuity of their prices.
Advantages of Everyday Low Pricing
Businesses benefit from an EDLP strategy as well. The marketing strategy helps with:
1. Demand forecasting
EDLP helps stores reduce demand fluctuations that would normally occur during sales promotions. Demand forecasting becomes much easier.
2. Marketing costs
Advertising is less expensive as stores do not need to individually promote each sale item and advertise sale events. For example, it was noted that in 1994, Walmart, which used an EDLP strategy, would only need to purchase advertisements in a newspaper on a monthly basis while competitors would advertise every week of the year. EDLP helps stores reduce demand fluctuations that would normally occur during sale promotions.
3. Staffing efforts
Stores save the time and effort in having to individually mark down items during sale events.
Everyday Low Pricing Example: Walmart
Walmart Inc. is a company that has gained significant success due to their everyday low pricing strategy. The major retailer offers low prices to consumers throughout the year, instead of offering low prices during sale events.
The company adopted the strategy following its founding, building its reputation on being the store that offers consumers the lowest prices every day. It can be said that Walmart embodies the pricing strategy of EDLP. Although the strategy results in slim margins, the retailer is able to generate significant profits from high sales volume.
Walmart’s pricing strategy’s helped the company establish itself as a highly reputable company offering low prices. The company today operates more than 8,500 stores and serves in excess of 200 million consumers around the world.
Everyday Low Pricing vs. High-Low Pricing
Another pricing strategy commonly contrasted with everyday low pricing is high-low pricing. High-low pricing relies on promotions and sale events to temporarily reduce prices and encourage purchases. To quickly compare the two pricing strategies:
Everyday low pricing: Charges a continuously low price for a product over a long-time horizon.
High-low pricing: Charges a high price for a product and later sells it at a low price through sale events or promotions.
With everyday low pricing and high-low pricing considered the two main pricing strategies by retailers, there’s been an unending discussion about which strategy is more profitable. A 1994 study concluded that retailers made more profit in a high-low pricing strategy than with using an EDLP strategy – setting low and stable prices did not generate enough sales to sustain the lower profit margin.
Here are the key takeaways from everyday low pricing:
- EDLP is a pricing strategy in which a company charges a consistently low price over a long-time horizon.
- For the consumer, EDLP simplifies decision making and search costs.
- For the company, EDLP minimizes marketing costs, staff efforts, and helps with demand forecasting.
- A high-low pricing strategy offers greater profitability than EDLP.
CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful: