1. Retail Pricing: Beyond EDLP and HiLo
James Alford
Jeremy Keller
Matt Muller

2. EDLP Everyday Low Prices Strategy
Consistently low prices on many brands and categories
Used by Food Lion, Lucky, and of course the evil Wal-Mart

3. HiLo
Steep temporary price discounts with higher “regular” prices for many brands and categories
Used by Kroger and Safeway

4. Other Pricing Strategies
Three additional pricing strategies customized to fit brand, category, and market conditions at store level
Exclusive Pricing
Moderately promotional pricing
Aggressive pricing

5. Changing Retail Landscape
Increased competition
Retailer consolidation and growth of Wal-Mart
Consistently lower prices
IT innovations
Supply chain management innovations
Centralized buyers

6. Customized Pricing
Step 1: Identify key determinants of local store pricing
Will include market, store category, manufacturer/brand, customer, and local competition
Consistent with recent trends in retail
Wal-Mart stocks 60 SKU’s of chili but only 3 SKU’s are carried nationwide

7. Customized Pricing Step 2: Segment market by store format and cluster
Manage price and promotion by store format and clusters, including accommodations for chain size, store size, and demographics
Variable pricing easily applied to each format and cluster based on store needs

8. Customized Pricing
Step 3: Choose positions on key dimensions to neutralize price as competitive weapon
Pricing decisions influenced by competitors but also by category characteristics (storability), chain position and size, store size and assortment, brand preference and advertising, and customer factors (price sensitivity).
Set competitive price points on “known value items” and feature or display them.

9. Customized Pricing
Step 4: Manage promotion intensity to avoid head-to-head competition
Intensity of retailer promotions depends on market type, chain size, chain positioning, store size, category assortment, storability, necessity, etc…
Focus on “known value items”
Consider trade promotion management software for additional support

10. Customized Pricing Step 5: Create distinctive categories
Large category assortment targeted towards price-sensitive shoppers
Highly storable items (TP) with high price-promotion intensity
Perishable categories that require consisted pricing strategy to manage inventory

11. Customized Pricing
Step 6: Tailor prices by market, category, customer, competitor, and brand
Retailers charge lower prices when consumers are more own-price elastic and less own-deal elastic
Allow for flexibility for those brands in discretionary categories that are less price consistent (seasonal items)

12. Summary
Increased competition causes need for non-traditional pricing strategies
Successful retailers moving from EDLP and HiLo pricing strategies
Retailers need to take more of a micro- rather than macro- approach to pricing

13. From Price to Purchase
Price promotion strategy effectiveness depends on how well it is aligned with the retail offering’s assortment overlap and assortment life span
Assortment Overlap:
Degree to which retailer’s product assortments are similar to, rather than distinctive from, one another
Assortment Life Span:
Function of the speed at which a typical assortment loses value or becomes obsolete over time

14. Seven Questions First four serve to position company on the matrix
Remaining three help evaluate companies current price promotion strategy

15. Retail Price Promotion Matrix

16. Matrix Position
Which position defines our sector on the matrix? Is it clearly defined or on the boundary?
What is the promotional norm in our sector? Is it consistent with matrix?
What is our current strategy relative to price variation, promotional ad volume, and depth of discount? Does it follow sector norm?
Will our current or future merchandising strategy change our position on the matrix?

17. Current Strategy Evaluation
How well is current price promotion strategy working? How confident are we in this assessment?
If we were to fine tune any of the three promotional dimensions which would they be and why?
Is there a need or significant opportunity to pursue a radical shift in our price promotion strategy?