Is An Everyday Low Price Strategy Realistic for Retail During COVID-19?

COVID-19 has caused disruption across the globe, and retailers and brands in particular are struggling to stay in business. Some though are seeing heightened demand and are leveraging technology and pricing strategies to address it and keep customers coming back.

Here’s where the everyday low price (EDLP) strategy comes into the picture. An EDLP strategy revolves around two core pillars: Cheap rates and consistency. The latter is where the “everyday” part comes into play – they never offer sales because they’ve already beaten industry prices. Further reductions would only undercut themselves.

Is it feasible? The answer is a resounding “yes!” Just take a look at global EDLP headliner Walmart, whose EDLP messaging has been bringing in customers for over half a century. Or how about German supermarket chains Aldi and Lidl, whose discount model has gained popularity well beyond its European borders?

But this comes with an asterisk. Such a self-limiting strategy can only work for a specific type of company and it requires a certain approach. And with COVID-19 disrupting any normalcy in retail, we need to examine whether companies embracing EDLP are faring better or worse in the current crisis.

Everyday Low Prices Require Everyday Low Costs

At the crux of a successful everyday low price framework is cutting costs, which is contingent on streamlining operations and injecting efficiency into every possible corner.

When you look at the best budget brands, you see a degree of mass production that still adheres to serviceable quality standards. Such consistency extends to inventory turns, meaning that while individual product margins may be low, the overall return on sales adds up.

With consistent price tags, the need for extravagant marketing tactics substantially dwindles. For more established products, exclusive promotions may not be particularly effective. Instead, offering a set-in-stone baseline price allows retailers to save on ad spend and minimize the fluctuations of revenue that come from price reductions.

Finally, the combination of cheap prices and stability imbues the brand with a clear value proposition: “Reliability and affordability – that’s what we’re all about!” This cultivates a strong price image which, in turn, produces a type of brand loyalty that traditional retailers may not receive.

Today, in the midst of the biggest market disruption in most of our lifetimes, we are seeing players like Walmart and Target – with their everyday low price strategy and robust supply chains to back it up – emerge as winners.

It is backing the above observations about brand loyalty that can stand the test of time. But we have to consider that there are multiple factors in play apart from the EDLP strategy that is helping Walmart cash in on the demand it is seeing right now.

EDLP Success Depends on the Sector

The sector should have overall stable demand where promotions aren’t especially effective. Quite often, this will entail daily necessities like groceries, household supplies and even gasoline. If the market price of staples changes drastically, you can still expect a similar steady stream of people buying them. This has been clearly demonstrated since the start of the COVID-19 pandemic, as demand for fashion, apparel and footwear has fallen.

Everyday low price brands typically have high price elasticity in that there’s a sea of suitable substitutes.

Additionally, these brands sell more established products, often with bulk options. They’re on the larger end and likely enjoy an ingrained market reputation. And as long as prices stick to the norm, sales activity remains fairly predictable – and this has certainly worked in favor of players like Walmart and Amazon.

This is in stark contrast to the other end of the spectrum: “High-low” pricing. Here, a retailer initially lists product A at an expensive benchmark and then uses that anchor to positively frame future price reductions as enticing discounts. High-low sees more erratic (often impulsive) consumption, constant product promotions and greater total risk.

That said, It’s a Strategy That Boxes Itself In

The problem with an EDLP guarantee is that it puts an explicit ceiling on many of your business possibilities. Sure, you can celebrate the costs you’ve cut around marketing but you’re also not benefiting from any promotional campaigns.

More problematic is that dynamic pricing basically goes out the window. You don’t have the same flexibility that traditional retailers do with adjusting prices based on competitors’ activity, market trends, or even stocking patterns. Nor can you leverage time to your advantage, either through ever-popular seasonal promos or limited-time offers.

Plus, committing to everyday low prices restricts your potential consumer base. Your business model inherently serves a defined audience and the chances at breaking through elsewhere are few and far between. Although, we can argue that in a crisis situation, these observations might not necessarily work. As consumers stock up for days or months to come, and browse through new, affordable options, they are more likely to lean on reliable, low cost options over “high-low” pricing scenarios.

Final Word: One Thing We All Agree On

An EDLP strategy only works for certain retailers dealing in certain types of goods. One cannot expect it to work as a blanket strategy across segments. For example, with certain non-essential and luxury goods, dynamic pricing is the competitive and profitable way forward.

Through the COVID-19 lens, however, players following an everyday low price playbook seem to be faring better, with certain factors playing in their favor and increasing demand for goods mostly equated with the everyday low pricing.

Sanjeev Sularia is CEO of Intelligence Node