Carol Spieckerman's Brain On...Promotions vs. EDLP

In Carol Spieckerman's latest contribution as a Retail Wire Brain Trust panelist, she comments on a recent study from the Stanford Graduate School of Business that makes a compelling argument against everyday low pricing (EDLP) for retailers attempting to compete with big boxes.

Here's what she had to say..."Interesting findings considering that this year, Walmart, J.C. Penney and Lowe's all made various vows to end promotional shenanigans and either return to (Walmart) or initiate (the others) EDLP-ish models. With the big guys zigging to price consistency, smaller-scale competitors would seem to have a mighty zag in moving toward promotional pricing."

Read the full discussion

Additional thoughts from Carol...

I agree with the study conclusions that pricing strategies aren't to be taken lightly since variances will tarnish consumer trust and the process of re-educating consumers about new strategies can be long and costly. Although the study focused on grocery, I see this applying to all categories and retail tiers.

Walmart learned that when last year's "atomic rollbacks" backfired. Far from being grateful, Walmart's loyalist customers questioned whether they had been getting the best deal all along and in the meantime, dollar stores' massive scale and convenience factor tugged away at Walmart's base. It's journey back to price leadership has been fraught with foibles but a recent quote from Walmart's Chief Merchandising Officer, Duncan Mac Naughton, hints at the real reasons why more retailers are abandoning promotional high-low games in favor of uniformity.

In his fourth quarter presentation in Bentonville, Mac Naughton stated that Walmart is committed to delivering price leadership "community by community, store by store, category by category." Why so specific?  Because as difficult as it has always been to manage promotional strategies across a few thousand stores carrying the same brands and products, it is nearly impossible to do so as retailers localize the brand and product profiles of individual stores, explode online offerings, and ramp up site-to-store capabilities, all under the watchful eye of smartphone-wielding consumers who can exercise their right to tap out a price comparison and/or make an online purchase on a whim...and do so while visiting an alternative retailer's physical or virtual space.

Among the most promotionally-driven retailers in the country J.C. Penney announced in November that it will move toward an everyday low price strategy beginning in spring 2012. Not coincidentally, Penney simultanously announced its plans for a significant relaunch of its e-commerce site which will include adding to its online-unique assortments and enhanced mobile interactivity.

One of my 2011 Earth-shattering Events that Escaped (Almost) Everyone is retailers' mania for online marketplaces which promises to further complicate the pricing and promotion picture. Lowe's is portraying its announcement today that it will acquire online retailer, ATG Stores as an example of its committment to provide an "endless aisle" of products. I'll say. ATG's virtual portfolio contains over 500 websites featuring 18 category divisions. Over 3.5 million products from more than 3,300 manufacturers are featured on ATG websites.

Let the limber and land-based have a go at promo. 

For the scale-busting behemonths? EDLP, please!