With unprecedented times affecting retail, it’s difficult to know what is best to do in terms of pricing your products. Should you aim for everyday low pricing (EDLP) in the hope of winning customer loyalty, or should you move towards discounting strategies (also known as high-low strategies) with the potential to promote greater profitability, quickly?
EDLP is a pricing strategy where retailers offer their customers consistently low prices. This enables simplified decision making as consumers don’t have to worry about upcoming sales affecting the price of their current purchase, and increases customer loyalty as consumers are offered the promise of continual low prices and affordable goods which encourages return business. Discounting strategies and high-low pricing, on the other hand, rely heavily on promotions and sales – which temporarily reduce prices – to encourage customers and increase purchases.
However, with the increase in online shopping, the shift to digital-first marketing, and the promotion of personalised experiences during Covid, retailers’ approach to pricing and traditional strategies have been thrown into question…
Sticking with their original strategy of EDLP and always offering value, Tesco have thrived during the pandemic. They’ve managed to keep their prices low and have even used the EDLP strategy as part of their marketing. New campaigns launched under the tagline: “great prices every day” and the initiation of an “Aldi Price Match” guarantee at the peak of lockdown (in March) sees the company living up to the promise of its CEO: “We are committed to providing value regardless of the circumstances” (Chief executive, Ken Murphy.)
Murphy’s statement to Yahoo Finance shows a clear customer-focused approach to the Tesco pricing strategy during Covid. Such customer-centricity has not left Tesco unrewarded in their profit margins as the company’s half-year sales rose 6.6% to £26.7bn. As such, Tesco’s approach offers the perfect illustration of how customer-centricity is key to driving your strategic pricing decisions.
An EDLP approach to conquering the pandemic and increasing customer loyalty is not, however, without its pitfalls, such as: destruction of value which is difficult to overcome, very low or negative ROIs, potential profit loss, and customer loyalty that is based purely on price rather than the company itself – something which is short-term only. Therefore, whilst EDLP suited Tesco’s pricing strategy during the pandemic, it will not be the answer for all retailers, for example, Fortnum and Mason, which prides itself on being known for ‘extraordinary food, joy-giving things and unforgettable experiences.’
High-low pricing, or discounting strategies, can, and have, offered retailers the chance to survive – and even thrive – during the pandemic and into the post-pandemic world. Sales/discount approaches create more excitement than EDLP and the idea that you have got something of higher value for a bargain is powerful. It may also encourage customers to investigate the brand behind the product, building loyalty to the brand as opposed to just purchasing its products, so that they come back and pay full value at a later date. Examples of ‘Black Friday’ (and equivalents) have become massively popular, showing us how high-low pricing can increase brand awareness and entice future longer-term customers. Pieminister’s scheme of giving away surplus freezer stock in exchange for donations to the housing charity, Shelter, proved highly successful when, in its Bristol restaurant, it sold out all of its pies in an hour, simultaneously raising £2,000! Customers were also more likely to shop there in the future, after being emotionally won by their effort to do something charitable for ‘Black Pieday’.
As Rinetti states: “an emotional connection is critical to true loyalty, resonating with shoppers in the areas of their lives that are most important to them in the present moment,” (Andrea Rinetti, global sales director at TCC). Through aligning with your customer’s desires and using your pricing strategy as a way of managing both their needs and demands, you are placing yourself in the best position to increase your customer loyalty.
Looking at your pricing strategy through the lens of your customer offers you a way of deciding how to price your products and structure your business, whilst ensuring that you keep your customers satisfied. Customer satisfaction is crucial as, from an end-to-end (browser-to-buyer) customer journey perspective, a customer will be more likely to forgive failures around quality or service if the original price was low enough or if the brand is perceived as budget versus a brand that prices and markets itself as premium.
With online sales offering your customers easier ways to compare prices and save money, and digital-first marketing pulling online consumers in multiple directions at once, the deciding factor often comes down to customer loyalty for, as Jeff Bezos, CEO of Amazon, once said: “Focusing on the customer makes a company more resilient”, and so having your customers determine your strategy, your current offerings, your pricing technique, and what needs your business should meet, enables your company to stay resilient through these constantly changing times.
This post was originally coauthored by: Genevieve Cox