Pricing in Retail

Pricing Strategy

There are 4 main general pricing strategies, which covers both long-term and short-term pricing considerations:

1) Hi-Lo Promotion

2) Every-day-low Price (EDLP)

3) Discount

4) Premium. Some overlap is possible.

Thus a premium retailer can operate a hi-lo promotional strategy (e.g. Sainsbury’s) whilst an EDLP operator can also offer a premium product range (e.g. Asda). As the general food purchasing come from the grocery, examples of the pricing strategies from the grocery stores in the UK will be applied in the following discussion to illustrate the situations of the UK’s food retailing.

1. Hi-Lo Promotional Pricing

Retailers using this pricing strategy usually set higher standard prices on most items but offset by special promotions. The following strategies are commonly used:

1). Seasonal pricing – full price then markdown

In order to sell items when they still have some value to customers, retailer sell products at �full price’, and then �marking down’ or reducing the standard price of the product in an �end-of-seasonal sale’. This is common in clothing retailers.

2). Loss-leader pricing

This is a short-term pricing strategy that the price is cut to extremely low, even loss-making level, and then heavily advertised in order to gain consumer interest. It is only used in cases of extremely competitive action. For example, Tesco and Sainsbury’s used to sold 3p bake beans per can in response to the market entries of Netto and Aldi in the UK’s supermarkets.

Basically, there are 2 drawbacks. Such campaigns will appeal to bargain-hunting customers stockpiling all the items, making other customers feel being cheated by the advertising or publicity. Meanwhile, some supermarket groups will sell a small number of products consistently at below-cost prices, which is unfair to smaller retailers.

3). Multi-buys

This could be regular short-term price discounts and is particularly effective for introducing new products, boosting sales of certain products, increasing the vale of each transaction, and encouraging linked sales.

Consider Morrison. It is a broad-range multiple that operates from larger stores and applies a national pricing policy. To get a price advantage, it sought the lowest commercially possible prices. It also made considerable use of promotions, such as BOGOFs and 3-for-2s. Price changes were sometimes triggered by competitors. However, some of its products were sometimes sold at a negative gross margin due to market competition.

2. Every-day-low Pricing (EDLP)

Retailers offer very competitive prices across entire product range at all times, namely, prices are kept low all the time and are normally only discounted when the product line is discontinued (e.g. Wal-Mart – reliable prices with few or no promotions). The popularity of EDLP has given rise to a new category of retailers called Value Retailers, who concentrate on offering good value to customers by keeping low prices with regular product changes.

Consider Asda and Tesco. Asda is a broad-range multiple EDLP store. Its pricing policy is to introduce permanently low prices through rollback initiatives. The aim is to invest in lower prices and reduce promotions. Prices are primarily determined to be keen with regard to competitor benchmarks.

Tesco is a broad-range supermarket operating a variety of store formats and sizes. Its aim was continually to increase value for money. Its pricing policy was to track overall competitiveness, not individual product lines. It offered an �Unbeatable Value for Money’ guarantee that certain lines would not be undercut locally. Every product was checked nationally and locally against other competitors.

Compare / Contrast

Since prices at EDLP stores are always reduced, these retailers do not offer as many promotions. Furthermore, discounts at EDLP stores are typically lower than at other stores, due to the