The combination of affordability and simplicity can define a brand's identity. Everyday low pricing is a brand move, a business model, and a pricing strategy that can build customer loyalty through consistency and trust.
Everyday low pricing (EDLP) is a pricing strategy where, as the name suggests, businesses offer consumers consistently low prices. Customers do not have to wait for sales to get an especially low price. Instead, the business sets and then maintains a low price over a long period.
For everyday low pricing to work, production costs must remain relatively low and unchanged. If your business is going to use this strategy, it must also ensure consistently low marketing and labour costs.
Businesses using everyday low pricing must embrace a mentality of simplicity, minimalism, and competitiveness. Consistently low prices attract and maintain your customer base.
Everyday low pricing benefits: Why use EDLP?
Everyday low pricing offers benefits that may suit your business under the following circumstances.
New customer base attraction and retention
Many businesses choose an everyday low-price strategy to attract customer segments with a high price sensitivity. These customers prefer consistency, transparency, and frugality over other value drivers. Everyday low pricing can help retain such customers.
Simple and low-cost
As a cost-based pricing strategy, EDLP also helps you keep your costs down. Frequent price changes and complex administration can both be phased out. Instead, you can focus on maintaining stable, competitive prices over time.
Many types of customers will show a preference for simplicity and affordability. If your market research reveals such customer segments, it can make sense to consider an EDLP strategy. The benefits will include increased customer loyalty.
Competitive pressure
Low pricing may help you gain a competitive advantage over time. Customers will notice consistently low pricing in the market, and you will stand out.
Brand image
For some businesses, fostering an image associated with low costs makes sense. In marketing, this is communicated as a customer-centric and value-driven choice.
Everyday low-pricing challenges
EDLP focuses on consistently low prices over time. It’s a simple value proposition. But it’s crucial to ensure that your prices still reflect the value customers receive.
Relying solely on EDLP as a competitive strategy comes with its own risks, especially for businesses in highly competitive markets.
Lack of differentiation
Several pricing strategies rely on maintaining low costs to charge customers low prices. Other cost-based pricing strategies can also offer a path to lowering your price sustainably.
The problem with this approach is that it rarely differentiates your business from your competitors. In most situations, this means everyday low pricing is not the most competitive or profitable option.
Over many years, our results have revealed conclusively that customer loyalty can’t be achieved with low prices alone. Rather, we suggest emphasizing the worth of your products and services.
Inflexible
While everyday low pricing has merits, it leaves little room to react to changing market dynamics.
EDLP relies on maintaining consistently low prices. If your business uses this strategy, you can find it challenging to respond quickly to:
- Market fluctuations
- Seasonal demand fluctuations
- Competitive pricing strategies from competitors
This lack of pricing flexibility means that over time, you will miss out on numerous opportunities, which can translate into potential revenue losses.
Low margins
EDLP strategy often relies on maintaining low profit margins to keep your prices competitive. This not only puts a cap on your profits but can also make it more challenging to:
- Take advantage of sales opportunities
- Handle cash flow challenges when they arise
- Scale your business
Undesirable competitive response
While it isn’t the most aggressive strategy, everyday low pricing won’t go unnoticed by your competition. They may respond with more aggressive price cuts and promotional pricing strategies.
When this leads to price wars, everyone’s margins suffer.
Inventory management
The EDLP strategy relies on continuously accurate inventory forecasting and stocking. Overstocking or understocking can make it difficult to maintain margins.
Customer segmentation
Customer segmentation and targeting are crucial parts of an everyday low-pricing strategy. Not all customers have the same price sensitivity, so research is needed to determine each segment’s price sensitivity.
This research can help you determine how to convey the value proposition of your everyday low-pricing strategy properly. Effective communication is essential to ensuring you manage customer perceptions.
An EDLP strategy needs to be tailored to the needs of each different customer segment for maximum effectiveness.
Once you understand your customer segments, you can tailor your strategy to meet the needs of each group.
Some customer segments will show more interest in value and consistency over promotions and deals.
However, other segments will be more attracted to sales pricing strategies. For optimal effectiveness, you must offer the right value proposition to the right customer segment.
This approach provides the most profitable path to greater customer satisfaction and profitability. But with customer research and segmentation, you can take advantage of everyday low pricing whenever it makes sense.
Speak with Simon-Kucher growth specialists today to start optimizing your pricing strategy.
