Everyday Low Price Research Articles

Optimizing Walmart’s Supply Chain from Strategy to Execution

Walmart built end to end optimization capabilities in its supply chain to make strategic and operational decisions consisting of network planning and transformation, routing and loading systems and a simulation platform. This optimization-empowered decision framework is evolving and transforming Walmart’s supply chain while keeping its Every-Day-Low-Price (EDLP) promise to its customers.

Buy-One-Get-One Promotions in a Two-Echelon Supply Chain

Buy-one-get-one (BOGO) promotions have become popular. With BOGO, the first unit is sold for the regular price, and the second unit is discounted. We analyze BOGO in manufacturer–retailer supply chains. We identify conditions under which BOGO outperforms price reduction (PR) and everyday low price (EDLP) policies. We find that, for some products, whether consumers stockpile or not, if BOGO and PR have the same market size, BOGO has a larger retailer profit and the same or larger manufacturer profit because BOGO induces more consumers to buy and consume two units. When consumers stockpile, the retailer sets prices to prevent such behavior, and the retailer’s share of supply chain profits is largest under BOGO, whereas consumer surplus with BOGO is smaller than PR. We also find that BOGO reduces double marginalization. When PR expands market size more than BOGO, BOGO’s effectiveness diminishes. When consumers stockpile without increasing consumption and/or production cost is high, EDLP is best. Our results are robust to multiperiod with single-promotion-period settings. A large number of regular-price periods following a promotion period increases stockpiling, which erodes the retailer’s profit and favors EDLP. If promotions are offered for consecutive periods, a larger number of promotion periods increases PR’s efficacy relative to BOGO. Time-inconsistent consumers increase stockpiling and make PR outperform BOGO. Heterogeneous consumers’ holding cost and marginal utility prevent retailers from perfectly discriminating among consumers who make profit-reducing choices. Compared with retailers’ BOGO, manufacturers’ BOGO increases double marginalization and decreases retailers’ and manufacturers’ profits and consumer surplus. This paper was accepted by Jayashankar Swaminathan, operations management. Funding: This work was partially supported by the National Science Foundation of China [Grants 71972026, 72101102]. Y. Li’s work was supported by the China Scholarship Council [Grant 201806070094]. Supplemental Material: The online companion and data are available at https://doi.org/10.1287/mnsc.2022.4638 .

Market competition and pricing strategies in retail supply chains

This study provides a better explanation for the continued prevalence of high–low (Hi–Lo) pricing strategy. We investigate the impact of market competition on adopting two different pricing strategies in the retail industry: everyday low price (EDLP) strategy and Hi–Lo strategy. We developed two analytic models using a game‐theoretic modeling approach: the profit maximization model and the sales revenue maximization model. We then conducted an econometric analysis based on retail store‐level dataset. The result shows that an EDLP player's equilibrium price depends highly on the cost level rather than competitor's price whereas the Hi–Lo player's equilibrium price depends mainly on the range of promotional basket as well as the cost level.

Price recall: Brand and store type differences

Price is among the most important choice criteria for customers, whose price knowledge is often surprisingly inaccurate. This study aims at providing new insights into differences in price recall across brands and store types, and their potential effect on marketing efficiency and customers’ store choice. Towards this aim, we analyze the price recall of consumers for 51 food items by a random-effects panel estimation employing a survey with 715 participants. Our results show that customers recall national brand prices better than private labels, almost irrespectively of the store type; consumers overestimate store brand prices in both store types; the effect, however, is much higher for the convenience store. These outcomes have consequences for the marketing strategy: despite a price-matching guarantee for the store brands in the convenience store, the price image is still in favor of the discounter. This result raises doubts on the effectiveness of the price-matching guarantee, at least in this context. The everyday low price strategy of the discounter seems to pay off in terms of the price image. Though both stores charge the exact same prices for their store brands, prices at the discounter are on average perceived to be significantly lower.

The Impact of Competitors’ Store Flyer Advertisements on EDLP/High-Low Chain Performance in a Highly Competitive Retail Market: GPS Information and POS Data Approach in Japan

The Japanese retail market has a high degree of competition among many small stores that use promotional (high-low) pricing strategies. Because store advertisement flyers are effective tools for such retailers, they play a very important role in Japan. However, despite the large impact made by flyers of competitive retail chains in various trade areas, the effects of advertising flyers has not been investigated in Japan, nor has this advertising strategy been investigated in Western countries. In this study, we obtained store traffic information using global positioning system (GPS) data from shoppers’ smartphones, with flyer information from 80 retail chain stores located in different trading areas. We found that while own-store flyers had a positive effect on that store’s performance, competitors’ flyers had negative effects on performance; indeed, these negative effects were of a magnitude that should not be ignored. Store-specific factors and trading area demographics also affect the effectiveness of store flyers. Furthermore, we found that high-low shoppers are more sensitive to competitors’ flyers than are customers who purchase at everyday low prices (EDLP). The results can help EDLP chains stop the practice of designating a loss leader brand.

Foresight for online shopping behavior: a study of attribution for “what next syndrome”

PurposeThe online shopping behavior is the outcome of the variety of attribution from product/ service offering to internet experience. The present study attempts to develop a complete product/service offering by exploring and examining the different combinations of online shopping attributes to provide the customized experience. Therefore, this study aims to fill the gap of customer desired experience and present scenario in online shopping behavior.Design/methodology/approachThe exploration of attributes pertaining to online shopping behavior was done by seeking theoretical support from different technology adoption theories/models and the Delphi technique, exercised with active participants of online and offline shopping. The theoretical and experience shared attributes were devised and social desirability scale (SDS) was used for eliminating the social desirability bias. Further, the questionnaire was administered online and offline during mall intercept. The Conjoint analysis was used to investigate the relative importance and utilities of the attributes and its levels individually and compositely at different levels.FindingsIn the context, brand loyalty, online reputation management and Web interactivity were found most relavant followed by e-WOM, perceived risk and price. The specific levels of attributes such as taking consumer advice, search engine optimization (SEO), perception-based interactivity, consumer message boards, product risk and discount pricing were the crucial in motivating the customers for online shopping. This research affords the avenue for the marketers to motivate and delight consumers to retribalize by the way of “e-tribalizing.”Research limitations/implicationsThe current study was conducted in confined geographical locations and limited in sample size; thus, the issue of generalization may prevail, but forthcoming researchers may exercise the techniques with better probabilistic sampling technique. The mass customization of the website features by comparing attribute orientation of customers around websites was recommended with the third-party certification to reduce the consumers’ perceived risk during online shopping. Finally, the different levels, such as Facebook fan page in ORM and Everyday Low Price (EDLP) in pricing may be considered for the future research work.Originality/valueThe research studies on online shopping behavior with Web interactivity, e-WOM, perceived risk, brand loyalty, ORM and price using a decompositional technique are scant. This study persuades the customers to go for online shopping by putting them in the almost real-time purchasing scenario. The study confirmed the need of people to retribalize through e-tribalization by the way of customization for the masses in the context of online shopping.

Why Markdown as a Pricing Modality?

AboutSectionsView PDF ToolsAdd to favoritesDownload CitationsTrack CitationsPermissionsReprints ShareShare onFacebookTwitterLinked InEmail Go to Section HomeManagement ScienceVol. 65, No. 5 Why Markdown as a Pricing Modality?Elodie Adida , Özalp Özer Elodie Adida , Özalp Özer Published Online:20 Sep 2018https://doi.org/10.1287/mnsc.2018.3046AbstractMarkdown as a pricing modality is ubiquitous in retail whereas everyday low price (EDLP) remains relatively rare (despite its several advantages, such as simplicity). This paper explores whether and why retailers can use either of these pricing modalities as an effective defense against a competitor entering the market with the alternative pricing modality. Various studies have shown that consumers are strategic and heterogeneous in their valuation of a product. Consumers are also shown to be regret-prone, and anticipation of regret affects their purchase decisions. Consumers experience availability regret when they are unable to purchase products due to stockouts and high-price regret when they miss an opportunity to purchase products at low prices. Considering such factors, consumers decide whether, when, and from which retailer to purchase the product. In such a market environment, we find that the possible entry of a competitor should deter retailers from using the EDLP pricing modality but not markdown. We also identify a new reason for the markdown retailer to ration stock (in addition to the reason for discouraging consumers to wait for the markdown). In particular, we show that the markdown retailer can use inventory rationing to preclude a cutthroat competition and bankruptcy after the entry of an EDLP retailer. We also quantify how consumer regret affects both retailers’ decisions and resulting profits. In particular, in a competitive market, the EDLP retailer cannot simply disregard consumers’ availability and high-price regret (even when it stocks ample inventory and does not discount prices). We show that high-price regret and availability regret have complementary effects on the markdown retailer’s rationing strategy and the EDLP retailer’s price decision. Finally, using a proprietary price data set from a large department store, we show that ignoring regret factors causes the markdown retailer to leave up to 20% of its profits on the table. In addition, in a competitive market, the markdown retailer rations too aggressively when regret is ignored and, as a result, leaves some of the forgone profit to its competitor—the EDLP retailer. The retail industry is often characterized by its slim profit margins. In such an environment, the aforementioned results also suggest that retailers should seriously consider investing in developing the capacity to estimate and quantify the role of regret in consumers’ purchase decisions.Data and the online appendix are available at https://doi.org/10.1287/mnsc.2018.3046.This paper was accepted by Serguei Netessine, operations management. Previous Back to Top Next FiguresReferencesRelatedInformationCited byOptimizing mixed bundle pricing strategy: Advance selling and consumer regretOmega, Vol. 115Buy-One-Get-One Promotions in a Two-Echelon Supply ChainYuefeng Li, Moutaz J. Khouja, Jingming Pan, Jing Zhou13 December 2022 | Management Science, Vol. 0, No. 0High-Low Promotion Policies for Peak-End Demand ModelsTamar Cohen-Hillel, Kiran Panchamgam, Georgia Perakis8 August 2022 | Management Science, Vol. 0, No. 0Mapping the Ethicality of Algorithmic Pricing: A Review of Dynamic and Personalized Pricing10 December 2019 | Journal of Business Ethics, Vol. 170, No. 4 Volume 65, Issue 5May 2019Pages 1949-2443 Article Information Supplemental Materials Metrics Information Received:September 15, 2016Accepted:December 12, 2017Published Online:September 20, 2018 Copyright © 2018, INFORMSCite asElodie Adida, Özalp Özer (2018) Why Markdown as a Pricing Modality?. Management Science 65(5):2161-2178. https://doi.org/10.1287/mnsc.2018.3046 Keywordspricingmarkdowneveryday low pricecompetitionregretPDF download

Examining the performance index of retail pricing strategies under different types of competition

This study aims to measure and compare the efficiency of two pricing strategies of retail chains, a Hi-Lo pricing strategy and an everyday low price (EDLP) strategy, according to different types of competition. This research suggests the speed of price adjustment approach to measure the efficiency of retail chains, and the nonlinear seemingly unrelated regression estimation captures the impacts of market competition. The findings suggest that, in highly competitive markets, the Hi-Lo chains show a greater speed of price adjustment, whereas a slower speed is shown in less concentrated markets. In particular, the Hi-Lo chains in the market leader position with the EDLP followers show that the speed of price adjustment is slower than in other markets. When Hi-Lo chains compete with each other in the same market, they offer price discounts more aggressively and adjust the price rapidly as a means to maintain their market position.

Examining the performance index of retail pricing strategies under different types of competition

This study aims to measure and compare the efficiency of two pricing strategies of retail chains, a Hi-Lo pricing strategy and an everyday low price (EDLP) strategy, according to different types of competition. This research suggests the speed of price adjustment approach to measure the efficiency of retail chains, and the nonlinear seemingly unrelated regression estimation captures the impacts of market competition. The findings suggest that, in highly competitive markets, the Hi-Lo chains show a greater speed of price adjustment, whereas a slower speed is shown in less concentrated markets. In particular, the Hi-Lo chains in the market leader position with the EDLP followers show that the speed of price adjustment is slower than in other markets. When Hi-Lo chains compete with each other in the same market, they offer price discounts more aggressively and adjust the price rapidly as a means to maintain their market position.

Procurement Practices Prevalent in Retail Stores with Special Reference to Fast Moving Consumer Goods (FMCGs) in Tamil Nadu

Any consumable items require the process of Procurement. The procurement process in the retail store is customer centric and is driven by the customer choice, though there are situations where the demand planning and order sizing are made depending on the data collected by the customer support agents. For the current research, the Procurement Manager of the Retail Store, Supervisors and the Customer Support Agents are found to be the respondents. The procurement process in the retail store as viewed through the current research is that it is fairly easy and a complicated process. There are opportunities for outsourcing different functions of the procurement process to the service providers and the department yet manages various functions including supplier selection, management and assessment. The unique feature of the retail store in the Coimbatore City as told by the procurement professionals are the Everyday Low Pricing Scheme and the collection of customer data for the demand planning and supplier management. Since the supplier selection is based on the capability of the supplier and the order quantity, there are suppliers who are not having configuration which are necessary for supplying to the store, there is more dependency on the distributors who might take it as an opportunity to increase the cost of transport which might be problematic for the cost reduction policy of the store. A customer survey must be conducted in order to learn about the various set backs of the store and if the customers are more frequent in visiting the store, then the capital spent in visual merchandising can be reduced and this might also help reduce the total cost of the process as there was mentioned in the research findings that the visual merchandising tools over shadow the store appearance and the total amount spent is also higher in such case. During the supplier assessment phase after the regular audit of the suppliers, they are provided a score card, this method might prove useful to the suppliers but unless they are competitive business with similar suppliers which might improve the capability of the supplier and the concept of Vendor Managed Inventory (VMI) could be implemented to reduce the ordering cost and transportation cost.

High-Low Pricing (HL) vs. Every Day Low Pricing (EDLP) Strategy: The Consequence of JC Penney’s Move from HL to EDLP

Retailers follow one of two pricing strategies – high-low (HL) and every-day low pricing (EDLP). The HL strategy is where the retailer will start with a higher price and give deep discounts in order to attract customers. On the other hand, retailers that follow the EDLP strategy keep prices very low and rarely giving price discounts. Not too long ago, JC Penney changed its strategy from HL to EDLP that had a very negative impact on its performance. The study hypothesizes that retailers who change their strategy (from HL to EDLP or EDLP to HL) will not be successful if they do not change their entire marketing mix, and if its customers do not accept the change in strategy. This study has two parts, each part testing five hypotheses. The first part tests five hypotheses investigating the effects of JC Penney’s change in strategy on its financial performance and finds support for all of the five hypotheses, i.e., JC Penney’s financial performance worsened because of its move from a HL strategy to an EDLP strategy. This study contends that a firm’s change in strategy is going to be successful only if its customers (consumers) accept the new strategy. The second part of the study tests five more hypotheses to find whether consumers accepted JC Penney’s change in strategy. The findings of the study support the hypotheses that consumers do not accept the change in strategy. This is because consumers perceive JC Penney to be a medium-price department store that sells homogeneous and heterogeneous shopping goods using a HL strategy, not EDLP strategy. It is very likely that JC Penney’s change in strategy was not very successful because consumers still perceive JC Penney as a department store with a HL strategy. For a change in strategy to be successful, customers of the firm have to accept the change in strategy.

Everyday Low Pricing: A Private Brand Growth Strategy in Traditional Food Retailers

ABSTRACTThis article aims to address the relationship between promotional pricing and everyday low pricing in strategically growing private brands in traditional food retailers. The study aims to expand the domain of previously researched private brands strategies by including a broader sales growth role than is normally found in the branding literature, particularly using private brands as a centerpiece of growth and not solely as a less expensive option to national brands. The gap in research we are addressing, and why our study is different, is twofold: There has been very little research in the area of taking traditional “mass categories” and implementing mass merchant tactics inside a conventional food format, and there has been very little research surrounding using private brands as the tactical fighter for a conventional food retailer.

Why Markdown as a Pricing Modality? The Role of Threat of Entry

Markdown as a pricing modality is ubiquitous in retail. In contrast, everyday-low-price (EDLP) is relatively rarer in practice, even though it offers several advantages (such as simplicity). Using a stylized model, we explore whether and why either of these pricing modalities can be an effective defense against a firm that enters the market with the alternative pricing modality to sell an identical product. Various studies have shown that consumers are strategic and heterogeneous in their reservation price. Similarly, consumers are also shown to be regret-prone and the anticipation of regret affects their purchase decisions. They may experience availability regret when unable to purchase a product due to a stockout, and high-price regret when missing an opportunity to buy the product at a lower price. When faced by a stockout at the markdown retailer, consumers may choose to spill over to the competitor. In such a market environment, we find that the possible entry of a competitor deters retailers from using EDLP, but not markdowns. We also identify a new reason (besides incentivizing consumers to buy during the non-discount period) for the markdown retailer to ration stock. In particular, our analysis show that rationing stocks at the markdown retailer is critical to maintain a sustainable equilibrium (as a defense against a possible entry of an EDLP retailer). We also show that consumer regret plays a key role in both retailers' decisions. For example, availability regret experienced by markdown consumers affects even the EDLP retailer's optimal pricing decision, while high-price regret experienced by EDLP consumers affects the markdown retailer's decisions. We show that high-price regret may intensify the rationing effect whereas availability regret may dampen it. Finally, we show that a failure to anticipate consumer regret results in up to 19% potential profit loss for the EDLP retailer whereas it results in up to 11% profit loss for the markdown retailer.

An Analysis of Supermarket Pricing: The Case of Selected Supermarkets in Gaborone, Botswana

<p>The purpose of study is to explore price fluctuations (tracking of pricing trends) in essential consumer items among identified Supermarkets in Gaborone. The prices were read from shop displays at the beginning of the month, mid-month and at the end of the month. A triangulation methodology was utilised as it strengthened and confirmed results. Seven major supermarkets were selected for the study while a mall intercept survey was used to find out the consumer store and brand selection in relation to pricing strategies adopted by the store.</p><p>The study revealed that there were price fluctuations and differences between selected supermarkets during the selected period of study as well as amongst branches within a supermarket. Supermarkets utilised pricing for promotional than other element of retail mix. The results indicate that Promo pricing strategy was preferred by both stores and customers compared to Everyday Low Price (EDLP) and High-Low Pricing. While consumers shopped at the beginning and the end of the month looking at the price, mid-month shopping was done more looking at other retail mix elements. With well-educated customer’s base, EDLP and H/L pricing may not work as customers would be looking for the extras in the retail mix. The findings also indicated that consumers were aware of price differences and engaged in shopping in an opportunistic manner (cherry pickers). </p>

Effects of pricing strategies and product quality on private label and national brand performance

Using product test ratings and panel data from more than 35,000 participating households in Germany, this study addresses the impacts of price, quality, and promotion shares on the market shares of different products, including national brands and private labels, as well as food and non-food products. The results of a path analysis reveal important differences across the four segments, as well as insights regarding the use of everyday low price and high–low retail pricing strategies. The findings also lead to key implications for manufacturers and retailers.

Selling Dreams: Pricing Under Anticipation

Frequent sales are a characteristic of the modern retail industry despite their significant implementation costs and potential to erode consumers' price expectations. One reason for this is that consumers enjoy looking forward to sales. We model the purchase behavior of "emotionally rational" consumers, and explain their appeal for sales, by accounting for anticipatory feelings triggered by the prospect of buying at a discount, as well as for the disappointment when anticipated outcomes fail to materialize. At the customer level, our model explains why people overspend --- that is, purchase at prices above their valuation --- when firms offer sales. As a consequence, sales policies can outperform uniform pricing when a monopolist sells to anticipating customers. In fact, both firm and customers benefit from these anticipatory feelings when firms vary prices. Our model also explains why, in a competitive setting, a firm cannot benefit from adopting uniform pricing when its competitors offer sales. Our results help explain the recent failure of US-based retailers JC~Penney and Macy's to sustain an everyday low price (EDLP) policy.

Joint optimization of ordering and promotional strategies for retailers: Rebates vs. EDLP

Retailers face a complex task in formulating ordering and promotional strategies in today’s business. To help those retailers, this paper aims to investigate the joint optimization of ordering and promotional strategies focusing on the choice between rebates and everyday low price (EDLP). After quantifying consumers’ purchase and redemption decision making, we jointly determine the optimal order quantity, rebate face value, and required redemption effort level for a rebate program. For the EDLP strategy, we jointly optimize the retailers’ order quantity and pricing decisions. Comprehensive numerical studies highlight the main features of the model and provide managerial insights. We find that the price sensitivity and regular undiscounted retail price are among the most influential factors in choosing promotional strategies. Our analysis concludes that this choice is not only a pure pricing strategy but more of a marketing positioning strategy for retailers.

EDLP and Private Labels: Unes Strategic Levers to Look Forward

U2 Supermarket and private label products are the main strategic levers that qualify the development of UNES. U2 is a "countercurrent Supermarket” that combine the Every Day Low Price (EDLP) business model with the offer of a wide range of private label products often subject to innovation in order to satisfy changeable customers’ needs.

Consumer's Behaviour in East Slovakia after Euro Introduction during the Crisis

The paper highlights the results of the survey of potential retail customers. The survey emphasizes the relationship between their responses to the chosen marketing pricing strategies and the perception of the introduction of the euro and the crisis. The multi-dimensional techniques were used to implement input data concerning perceptions of the euro introduction and the crisis in order to create a segmentation of respondents dividing them into: optimists, pessimists, crisispessimists, euro-pessimists, profiteers. It was subsequently proven that the responses of the members of these segments to the chosen pricing strategies EDLP (Every Day Low Pricing), Hi-Lo (High Low Pricing) and PMG (Price Matching Guarantees) differ significantly. Furthermore, the relation between the found segmentation and the subjective perception and assignment to the social group from the point of financial security is shown. Moreover, further segmentation of respondents according to their subjective anxiety about their future was carried out. Finally, the emphasis is put on the relation between the perception of the euro introduction in the country during the current influence of the world economic crisis on potential retail customers in the East Slovak Region and their subjective anxiety about their future.

Retailer Pricing Strategy and Consumer Choice under Price Uncertainty

This research examines how consumers choose retailers when they are uncertain about store prices prior to shopping. Simulating everyday choice, participants made successive retailer choices where on each occasion they chose a retailer and only then learned product prices. The results of a series of studies demonstrated that participants were more likely to choose a retailer that offered an everyday low pricing strategy (EDLP) or that offered frequent small discounts over a retailer that offered infrequent large discounts. This choice advantage for the retailer that was cheaper more often manifested even when its average price was judged to be higher. The same results were obtained when choices were made a day apart, when price feedback was only given for the chosen retailer, and when price feedback was given for both retailers. Participant’s expectations of future prices but not their judgments of retailer’s past average prices predicted their subsequent retailer choice.