Can EDLP Strategy Succeed in Canada? By Bianca Piluso Director, Sales Effectiveness, The Nielsen Company
As consumers look to save money on their grocery expenditures, retailers are working to position themselves as the lowest-priced option in an effort to gain foot traffic. The pressure to reduce prices has never been greater; in many categories, we see promotions across competitors almost every week of the year. A retailer’s ability to add promotions, drive volume and gain share is extremely limited, not to mention the labour required to update these promotions on a weekly basis. Consequently, retailers across Canada are considering adopting an everyday low price (EDLP) strategy in an effort to set themselves apart from the competition. This is not the first time they have tried to do so, although previous attempts have resulted in lackluster performance. Why does the traditional EDLP strategy not work in Canada? For years, Canadian retailers have operated within a high–low strategy – high regular prices and frequent deep discounts to drive traffic and volume. Promotions were added when there was pressure to increase volume. These strategies have created an environment that leaves consumers less responsive to regular price changes, but more responsive to promotions than our American neighbours. Given this sensitivity to and frequency of promotions, EDLP strategies generally do not work in Canada. However, with the pressure to move to EDLP, there is an opportunity to make it succeed. While EDLP may not be a slam dunk today, it doesn’t mean Canadian consumers won’t shop differently in the future. Regardless of the product category, it is important to understand the goals and desired outcome with moving to an EDLP both for yourself and retail partners. It might take a multi-phased approach.
May | June 2017
STRATEGICALLY CHOOSE ITEMS Instead of a full category EDLP strategy, retailers and manufacturers should look to specific items that may be better suited to this strategy. Often, larger pack sizes are good candidates for EDLP, as consumers have already tested and believe in the product.
FOCUS ON PRODUCTS WITH LOW PROMOTIONAL FREQUENCY While hard to find, there are items with low promotional frequency. Providing they have high sensitivity to regular price changes, moving towards an EDLP strategy could work.
KNOW WHAT TO ASK FOR When faced with pressure from retailers to initiate an EDLP, manufacturers need to know what to ask for in return to make the move a win–win. It is critical to understand the frequency of flyer and display activity required, even with EDLP pricing, to ensure volume doesn’t plummet. Building the cost of these support items into trade budgets is vital to ensure margin and profitability objectives are achieved. Gaining preferential placement at shelf is another tactic that can improve sales outcome.
CREATE A HYBRID APPROACH Manufacturers could also create a hybrid EDLP by lowering the regular price, but still executing hot price points and supporting those with flyer and/or display activity. This can be challenging from a profit and trade-spend standpoint, so it’s critical to find the right balance between reduction in regular price and frequency of hot promotions.