Is a Low Price Your Only Value Proposition?

iStock_000006139533SmallIn our competitive market, Pricing is a common focus for both  retailers and for customers.  Most shops proudly state that their products offer the same quality for a lower price than the competition.  While this may be true, a pure price focus is a dangerous marketing position for any retailer. Truth is: a shop that focuses on price can ALWAYS be beaten.  It just takes a competitor who has deeper pockets and the fortitude to suffer losses long enough to put its competition out of business.

Savvy retailers combine a low price value proposition with another key strategic point of differentiation: a wide (or focused) range of products, expert service, same day delivery, knowledgeable assistance, environmentally sustainable recycling, etc. Retailers commonly either (1) focus entirely on price and barrage their customers with a lowest price message to their own detriment or (2) attempt to claim every position listed above – and more.  A good marketing rule to differentiate and create a CLEAR position in your customer’s mind, is to focus on two strategic value propositions: price and assortment OR service OR delivery OR inventory, etc.

But certainly most customers state that given a preference, they would choose to shop with a retailer who offers their desired goods at the lowest price.  Which raises the question: how to communicate your low prices effectively?  Let’s Look at Every Day Low Price as a strategy:

Everyday Low Price (EDLP): This strategy sells product at the lowest possible price without sale pricing or other “gimmicks.”  An advantage is that EDLP retailers often have a lowered cost of advertising. It is particularly effective when selling to other businesses who can rely on re-ordering with you at the best price at any time.  It also prevents issues when customers pay full price one week to see their purchase advertised for a lower price the next.  The danger of this strategy is that it can be difficult to entice new customers without a glitzy promotion to try your location.

Additionally, it takes a disciplined manager to not be tempted to meet loss leader pricing from competition when they advertise a low price on an item knowing they can make up the profit margin on other full-priced purchases in their stores.  Finally, to be truly effective using this strategy, you must have a significantly reduced operating model to sustain your low prices.  Wal-Mart,for example, achieve its low prices with an extraordinarily efficient supply chain. If you have an owned store (no rent cost), volunteer assistance (low labor costs) or an energy efficient building that allows you to operate with extremely low utility costs- you may be able to keep and hold this position in the market.

 

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