The time-honored high-low promotional platform may not be completely obsolete, but it's certainly under severe challenge.
More than a few supermarket retailers are abandoning high-low in favor of a completely everyday-low-price approach, or some permutation of EDLP. Several factors are at work motivating this change. Let's take a look at some.
The most obvious reason to back away from high-low is to eliminate the "high" -- that is, to project the image of lower price points. In many instances, that's done with a hybrid-EDLP scheme, not by the full-fledged lowering of the price of every stockkeeping unit in the store to rock bottom.
Hybrid-EDLP usually involves the lowering of price points on a number of high-velocity products but retaining high-low promotional activities on most remaining SKUs.
The real challenge with any manifestation of EDLP has to do with finding the balance between margin investment and the payoff of building net sales to replace the lowered margin. Many chains now are grappling with finding that balance.
Lending further complexity to the matter is the role of manufacturers. Many trade practices have fostered high-low retailer promotions. Perhaps chief among them was forward buying, which helped manufacturers move inventory at a higher rate, but which transferred sizable storage costs to retailers.
It also handed to retailers a narrow range of product that could be promoted on the "low" side and blown out. It seems as though the practice of timing buys to bridge between vendor deals is now fading into the past, but many trade practices remain that lend themselves best to high-low activity. Maybe we'll all stick around long enough to see the perceived utility that retailers and manufacturers attach to these trade practices fade away.
Such a development would be good from another perspective, that of consumers. Indeed, consumers are voting with their dollars in ways that make it evident that EDLP is likely to win the day sooner or later.
That fact is pointed out in a news article on Page 40 of this week's SN. It's about a sizable consumer-research project, which seeks to identify various types of consumer shopping missions, such as the stock-up trip, fill-in, low-volume quick trip or higher-volume quick trip.
The type of trip that favors the EDLP approach most is the major stock-up. Consumers who engage in that activity intend to buy a large volume of product at a low price, or at least a predictable price. Stock-up shoppers won't go from store to store to ferret out deals, nor do they want to have the sense of paying too much because they haven't. Stock-up shoppers want to go to a single location to execute all purchases.
Said the author of the research: "We see bigger trips more and more driven by value and we see bigger trips migrating more to supercenters and club stores. So the center of the store shrinks accordingly for a high-low [supermarket] because shoppers are buying more of those items on [a non-supermarket] trip."
There's no reason supermarkets can't win stock-up business, but credible EDLP is at least one of the required elements.