THE 8% SPREAD

David Merrefield

Whatever happened to everyday low-pricing techniques?

They are still around, but the distinction between high-low and EDLP is starting to fade and the trend at the moment seems to favor the high-low strategy.

EDLP is a very logical and efficient way to present a pricing strategy, but it's difficult to sustain. And, if the price spread between EDLP and high-low isn't kept at a level of 8% or more, shoppers tend to go for promotional offers.

As you'll see by taking a look at the Page 1 news feature this week, EDLP is under challenge for several reasons: Many manufacturers have stepped up their deal offerings in recent months and frequent-shopper programs have tended to selectively lower retail price points, as efficiency methods have done across the board. The last reason is quite important since EDLP capabilities tend to be driven by logistical efficiencies.

But at the core of the downturn of EDLP is the fact that it's difficult to get shoppers to believe that if they regularly buy a substantial amount of product at an EDLP supermarket, their total expenditures will tend to be lower over time. The lure of hot specials is powerful, even as it obfuscates the total amount being spent.

Moreover, if there is more than one EDLP supermarket in a market, they tend to start looking alike with their similar prices and bare-bones approach to store decor, as is mandated by cost cutting.

All these considerations raise an interesting question: If supermarkets are moving away from EDLP, how do membership clubs continue to enjoy success with it?

Membership clubs are using some coupon-based target marketing, but in the main they are sticking to EDLP fundamentals.

Perhaps they succeed with EDLP because they offer a compelling "buy now" story told by means of using a lot of seasonal and in-and-out merchandise.

Seasonal product tends to be offered for a short period at the beginning of a season, or even before the beginning of a season.

The in-and-out or "road show" products are clearly offered on a temporary basis only.

These factors teach customers to immediately buy any product they might find attractive for fear it won't be there on a subsequent shopping trip. Moreover, these product strategies lend excitement to the shopping experience.

Maybe there's a lesson here that could be used since what supermarket EDLP needs is a nonprice means by which different EDLP chains can differentiate from each other, and from high-low chains.

The search for methods such as those used by membership clubs that tell the "buy now" story is worth undertaking. After all, everyone wins when low-cost operations spread through the entire manufacturing, distribution and food-retail system.