EDLP in the UK
UK retailer strategies
As with any unique selling proposition, there is a
growing acceptance that EDLP can only be "owned" by one retailer in a market
place, for example Walmart in the US grocery trade. The UK position can
crudely characterised as this:
| Retailer
|
Strategy
|
Progress to date
|
| Tesco |
Divide product lines into Staples and
Impulse. Staples are typically not promoted and many are subject to EDLP.
Impulse lines are promoted and prices follow a Hi/Lo pattern.
|
Profits
and market share up. Some loss to Asda on certain categories
|
| Asda |
Although the consumer perception of
Asda is totally EDLP, only two thirds of categories are affected and
only one third of all items. These are generally KVI lines (known value
items) |
Market share static
|
| Sainsbury's |
There are an
increasing number KVI lines on
EDLP and it is business as usual with the rest, following typical
promotional calendars. JS has had to work hard to convince it shoppers
that they are not paying a premium in the face of more aggressive EDLP
strategies by its competitors |
Profit and market share decline
halted |
| Morrisons |
A clear Hi/Lo strategy is
increasing Morrisons shopper penetration as it digests the old Safeway
portfolio but the jury is still out whether Morrisons will be able to
build share of trade now it is a true national retailer. |
Profit and market share decline -
some signs of recent improvement |
Does EDLP work? - Topline effects
Asda appear to think so but its claim
to "own" EDLP in the UK has been steadily undermined by Tesco who
have worked hard to show shoppers that they are serious about low prices. The difficult decision
is consideration of what lines to put on EDLP, because not even Walmart cuts
all prices. If the consumer cannot recall what the price of an item was
before, how will they know it is on EDLP now? And how long will they go on
remembering that before the EDLP price becomes their "regular" price?
Instead, there is some evidence to suggest that shoppers work on the basis
of what their weekly shop costs them. By applying EDLP to many staple goods,
Asda and Tesco tend to beat the Sainsbury shopping basket on price.
Does EDLP work? - Category effects
If the price cut does not bring in sufficient extra
volume, then all the retailer has done is take value out of the category. In
this situation the manufacturer has a real need, responsibility even, to
point out the error of their ways.
Thinking logically, the highest price elasticity is
likely to be seen on high price items and on a few key staples where the
price is widely known e.g. Nescafe. The highest promotional elasticity is
likely to be seen on "impulse" categories where consumption is expandable
e.g. beer. Where EDLP has been applied to the top selling SKU in a category
(in theory the KVI line) volumes increases have rarely compensated for the
revenue cut. The root of this problem appears to be how prominent the
category is in the consumers mind.
High involvement categories are ones where shoppers
regularly visit the fixture and have a good idea of price differentials if
not the prices themselves. So an EDLP price may attract huge extra volumes
on a major SKU, at least for a while. In low involvement categories,
shoppers rarely visit the fixtures. The application of EDLP means that
promotions stop and for such categories this means an end to the key
mechanism that attracted extra consumers to shop the fixture in the first
place. Some manufacturers have been able to persuade retailers to return the
KVIs in low involvement categories to Hi/Lo pricing and then apply EDLP
either to larger pack sizes or to secondary brands.
Does EDLP work? - Brand effects
If a brand has a very tangible USP, then EDLP is
unlikely to attract sufficient extra volumes and the policy will just reduce
brand revenues. In that situation, either the brand or its category are
highly interesting (involved) to the consumer and the item is a staple.
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