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Everyday Low Price
(EDLP) is a term that most suppliers and retailers are very
familiar with, particularly those that keep abreast of overseas
retailing trends. Companies like Walmart in the US and Asda
in the UK have been key exponents of the EDLP strategy for
a number of years.
Now the eyes of Asia Pacific are firmly on Australia, with
major retailers such as Woolworths (and to a lesser extent
Coles) very publicly announcing their commitment to this concept.
In its purest form EDLP is as it sounds: exactly the same
low price every time you visit the store. In other words no
more price promotions, which means a re-think on how suppliers
attract consumers to their brands and maintain brand equity.
EDLP is also associated with EDLC (Everyday Low Cost) which
can have positive benefits if joint supplier/retailer cost
saving initiatives can be identified, but it can also create
further challenges if EDLC manifests itself in areas such
as range rationalisation.
In theory, it sounds sensible, yet there are a number of inherent
risks that need to be managed extremely carefully by suppliers
and retailers if these benefits are to be realised. For example,
the absence of promotions removes some of the excitement from
the shopping occasion, particularly if you are someone who
thrives on finding a bargain. “Promotion junkies”,
as they are known in ACNielsen terminology, represent 29%
of Australian consumers and suppliers/retailers alienate them
at their peril.
Promotions are not only important from a consumer perspective,
they are also necessary from a category consumption perspective
in many instances. Impulse categories (eg snack foods, confectionery,
carbonated soft drinks) have long relied on promotions to
stimulate incremental category purchase and consumption, and
careful thought needs to be given to potential category contraction
in a pure EDLP environment.
Other support mechanics such as extra catalogue or display
support can help circumvent the issue in the short-term, but
longer-term the danger is that EDLP becomes a zero sum game.
Even supply chain benefits are not always immediately recognisable,
not least because competitors' promotions that are still occurring
in transition phases will still have a variable effect on
demand planning, as well as the ongoing challenges of forecasting
demand across a variety of retailers with different regular
pricing and hi-lo promotional expectations.
To effectively manage tactics and strategy in an EDLP environment,
research is essential. Research is the key to identifying
the risks from a category perspective, assessing the profitability
of different EDLP price points, and determining the most suitable
brands for EDLP. Being in possession of the facts and insights
upfront maximises the chances of making the decisions that
will still allow brands and categories to thrive in this new
era, and it is for this reason that ACNielsen has developed
a wide range of EDLP related research and consultancy tools
that are being utilised by a number of FMCG suppliers –
such tools include syndicated studies (eg “EDLP –
how will it impact your brands?”), promotional and EDLP
price modelling, consumer profiling, building EDLP volume/profit
simulators and conducting risk analysis.
One thing is certain: EDLP is here to stay in Australia. The
ultimate success of this initiative will depend on open communication
and co-operation between retailers and suppliers, backed up
by hard fact-based research and analysis to ensure the right
decisions are made.
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