An important type of value pricing is everyday low pricing (EDLP), which takes place at the retail level. A retailer who holds to an EDLP pricing policy charges a constant low price with little or no price promotions and special sales. These constant process eliminate week-to-week price uncertainty and can be contrasted to the â€œhigh-lowâ€ pricing of promotion-oriented competitors. In high-low pricing the retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level. The two different pricing strategies have been shown to affect consumer price judgments â€“ deep discounts (EDLP) can lead to lower perceived prices by consumers over time than frequent, shallow discounts (high-low), even if the actual averages are the same.
In recent years, high-low pricing has given to EDLP at such widely different venues as General Motors Saturn car dealership and up sale department stores such as Nordstrom; but the king of EDLP is surely Wal-Mart, which practically defined the term. Except for a few sale items every month, Wal-Mart promises everyday low process of major brands. Itâ€™s not a short term strategy says one Wal-Mart executive. You have to be willing to make a commitment to it, and you have to be able to operate with lower ratios of expense than everybody else.
Some retailers have been based their entire marketing strategy around what could be called extreme everyday low pricing. Partly fueled by an economic downturn, once unfashionable â€œdollar storesâ€ are gaining in popularity
Dollar General Corp. Family Dollar:
Dollar stores are shedding their stigma, stocking name brands, and attracting younger and more affluent shoppers. These ultra-discounters have developed a successful formula for drawing shoppers from Target and even Wal-Mart: Build small, easy-to-navigate stores with parking handy; keep overhead low by limiting inventory; and spend sparingly on store dÃ©cor and get free word-of-mouth publicity. Rosenberg attracted more than 3,000 customers to the grand opening of his second Little Bucks store in suburban Atlanta by handling out fliers promising to sell nine televisions, nine Game boys and nine Razor scooters each for 99 cents. While most extreme value stores are still regional, chains like Bucks, Dollar Tree, Family Dollar, and Big Lots now operate in at least 40 states. The two biggest chains, Dollar General and Family Dollar, are breaking ground on new stores at pace of more than one each day. These two companies operate more than 10,000 stores nationwide, nearly twice as many as six years ago.
The most important reason retailers adopt EDLP is that constant sales and promotions are costly and have eroded consumer confidence in the credibility of everyday shelf prices. Consumers also have less time and patience for such time-honored traditions as watching for supermarket specials and clipping coupons. Yet, there is no denying that promotions create excitement and draw shoppers. For this reason, EDLP is not guarantee of success. As supermarket face heightened competition from their counterparts and from alternative channels, many find that the key to drawing shoppers issuing a combination of high-low and everyday low pricing strategies, with increased advertising and promotions.
Going Rate Pricing: In going rate pricing, the firm bases its piece largely on competitorsâ€™ process. The firm might charge the same, more, or less than major competitor(s). In oligopolistic industries that sell a commodity such as steel, paper, or fertilizer, firms normally charge the same price. The smaller firms â€œfollow the leader,â€ changing their prices when the market leaderâ€™s prices change rather than when their own demand or costs change. Some firms may charge a slight premium or slight discount, but they preserve the amount of difference. Thus minor gasoline retailers usually charge a few cents less per gallon than the major oil companies, without letting the difference increase or decrease.