According to Nielson Intelligence Analytics, in November 2020, the percent of products sold on promotion in the UK was down a little under 15% year over year. Early in the COVID-19 pandemic that percentage variance was considerably greater as retailers sought to secure supply over volume-led promotional activity.
Putting the COVID-19 pandemic aside, the grocery market in the UK was already on the path towards more of an everyday low price (EDLP) strategy to address:
- Increasing market share, of “discounters”, like Lidl and Aldi;
- Reduced cost of managing a high/low pricing strategy, and a more predictable demand profile; and
- Consumer changes – which have led to a rethink of pricing strategy.
EDLP Strategy: Using True Net Cost Analysis to set targets and measure effectiveness
Everyday low pricing (EDLP) is a pricing strategy that offers a fixed low price that is maintained long term, assuming that product costs are consistent over the same term. This is different than a high/low pricing strategy which relies on a higher base price that is discounted through promotions or sales events. An EDLP strategy results in the reduction of promotional sales offers such as buy one get one free, and multi-save discounts, and provides the consumer with a clearer and consistent price point – usually focused on branded staples. The EDLP strategy shift has been cyclical in the UK market, and not limited to grocery, but there has been a recent resurgence attributable to macro factors in the market, and consumer and legislative changes.
The information gained from understanding the true net cost (TNC) and conducting a margin analysis is key to correctly establishing those new low retail and cost price points, as retailers switch to selling products under an EDLP strategy. Generally, this pricing strategy transition takes time, and tends to be a staged or phased by category or department.
The How: Setting EDLP
When trying to set and find the pricing target it’s important to have full visibility into historical changes in price, unit costs, margin and funding at the vendor, category and product level. The more comprehensive and accurate the historical data is, the more accurate the TNC analysis is. As a result, all future price negotiations will be derived from that TNC value.
It is important to work with an analytics partner who truly understands the data, is able to ingest these huge and complex data sets and make the data readily available in all sorts of different combinations. This information truly supports setting the correct price points and maintaining the margin for retailers in an EDLP strategy. This data becomes a critical part of how the company runs its business, how they calculate pricing, and how they negotiate and work with vendors.
Want to learn more?
For more information, watch PRGX’s webinar: Using True Net Cost (TNC) Analysis to Set & Measure Everyday Low Pricing (EDLP) or download the white paper Maximize Promotional Effectiveness with True Net Cost Analysis.