Estimated reading time: 12 minutes
Table of contents
- The Difference between Low Pricing and High-Low Pricing
- Pros and Cons of Everyday Low Pricing Strategy
- Pros of a Low Pricing Strategy
- Cons of a Low Pricing Strategy
- Factors to Consider When Choosing an Everyday Low Pricing Strategy
- Brands that Nailed Everyday Low Pricing
- Final Words
Everyday low pricing strategy is a price management method or tactic that enables companies, brands, and retailers to offer their customers consistently low-priced products. Instead of offering discounts, coupons, and promotions, companies focus on providing consumers with low-price products.
Bear in mind that this kind of pricing strategy is highly beneficial for a brand if the cost of products stays the same, allowing them to earn profits even by selling low-priced goods. If the products’ costs align with the low-price strategy, the retailer can achieve long-term goals for a prolonged period.
Companies and brands consider a wide range of factors when deciding to implement this type of pricing policy. After all, price management, price tracking, or repricing are essential aspects of their business, and retailers want to implement a strategy that aligns with their business goals.
In today’s article, we will discuss the difference between everyday low pricing and high-low pricing, the pros and cons of low pricing, and famous brands that use this pricing strategy to streamline their business operations and achieve higher returns on investments (ROIs). Read on!
The Difference between Low Pricing and High-Low Pricing
Before deciding whether low pricing is a suitable strategy for your company, it is crucial to identify and understand the critical differences between low pricing and high-low pricing. High-low pricing is an essential strategy for many companies, allowing them to start selling products at a high price and reduce the price later through different methods, including promotions, clearance, and markdowns.
Remember, starting high enables a business or company to create bargaining perceptions when customers demand discounts or the company offer discounts or promotions. The purpose of using a high-low pricing strategy is to drive foot traffic and encourage customers to take advantage of the discounts and promotions.
That way, the company can cross-sell other items because it has already created excitement for its customers through discounts on certain products. On the other hand, low pricing allows a company to set lower prices for products without fluctuating them. So, this is the apparent difference between everyday low pricing and high-low pricing.
We recommend focusing on your brand requirements, product categories, and ROI goals before choosing and implementing a price management strategy. The purpose is to make an informed decision about choosing your pricing strategy. Some companies follow this type of pricing strategy, while others implement dynamic pricing for their products. Remember, it all depends on your brand requirements.
Pros and Cons of Everyday Low Pricing Strategy
Supermarkets, companies, brands, and retailers have two options when offering discounts on their products. The first strategy is everyday low pricing, and the second one is high-low pricing. Bear in mind that the former allows a company to offer discounts across the board. It also focuses on a promotional pricing strategy, offering temporary markdown on selected products.
Pros of a Low Pricing Strategy
Chain retailers, such as Costco and Walmart, made substantial efforts a few decades ago to expand their low pricing strategies. These companies aimed to attract more customers who had an interest in low pricing.
However, these two companies created problems for other retailers because they didn’t know which pricing strategy best align with their business goals. At the same time, small retailers had no idea of how to appeal to customers through a pricing strategy. Let us first discuss the pros of a low pricing strategy. Continue reading!
A growing body of research evidence shows that consumers prefer low pricing for products. That’s why companies focus on a low pricing strategy for their products instead of high-low pricing strategies to increase their sales and generate higher returns on investments (ROIs).
The question is: how is this possible? Because your customers do not worry about the prices of products for a prolonged period, you can make simplified decisions and set prices suitable for your company and your customers. When customers don’t worry about price fluctuations, they trust your company and become repeated/loyal consumers.
Saves Consumers’ Time
A low pricing strategy is highly beneficial for companies that provide value to their customers. For example, when you implement high-low pricing, your customers will consistently compare prices and search for the best deal. Bear in mind that this is daunting and time-consuming for your customers, leading to reduced satisfaction levels. As a result, consumers look for alternative stores where they can shop easily and save time.
On the other hand, when you have an everyday low pricing strategy in place, you can benefit your customers by allowing them to shop seamlessly without comparing prices. Not only does this enable your customers to save time, but it also gives them greater price values. Remember, improved customer satisfaction levels are directly proportional to higher ROIs.
Easy Demand Forecasting
Demand forecasting is an essential strategy that allows a company to estimate demand for its products or services in the future. Companies analyze the past demands for products and compare them with the current market conditions to streamline their pricing strategies. We believe that high-low pricing is not a suitable strategy for optimizing your demand forecasting operations.
Because an everyday low pricing strategy allows you to decrease demand fluctuations and avoid sales promotions, you can streamline your demand forecasting operations. A low pricing strategy enables you to set low prices for your products to attract more customers and increase sales. You can compare the past data with current data for better demand forecasting.
Low Marketing Costs
According to Vendux, a company must spend 7% to 8% of its revenue on marketing campaigns. However, when you have a high-low pricing strategy, you will change pricing repeatedly to attract customers by offering discounts and promotions. Remember, offering discounts requires you to spread the word to consumers through marketing campaigns, which can cost a lot of money.
On the other hand, when you have a low pricing strategy, you won’t spend a lot of money on your marketing campaigns because your customers already know that you have consistent prices for your products.
For instance, Walmart saved a lot of money on marketing campaigns in 1994 by implementing a low pricing strategy. Walmart would advertise its products in newspapers every month compared to other retailers or companies that would do the same every week. So, when you have a low pricing strategy, you can save money by minimizing your market efforts.
Cons of a Low Pricing Strategy
Product pricing is a crucial factor for your marketing and advertising strategy. A low pricing strategy requires you to consistently provide your customers with the lowest prices for your products in the marketplace. Companies carry out thorough research and conduct surveys to identify pricing patterns and implement a solid strategy.
Although there are many benefits of a low pricing strategy, it also comes with a few downsides. Let us now discuss the disadvantages of a low pricing strategy for your company. Keep reading!
Most companies offer today sell their products online, and even if they implement a low pricing strategy, consumers can easily compare your products’ price with competitors’ for the same products. If consumers find out that your competitors’ prices are better than yours, they won’t trust your brand. Instead, they will incline toward your competitors, causing you to lose your credibility in the market.
Less Profit Margin
Implementing a low pricing strategy requires you to avoid offering discounts and promotions to your customers. Because you make efforts to provide your customers with the lowest prices at all times, you may not achieve your desired profit margins.
Remember, discounts and promotions influence your customers psychologically, encouraging them to buy a few products at a special discounted price, leading to more satisfaction. At the same time, you set higher prices for other products and balance your pricing strategy, ensuring that you get higher profit margins.
Some companies implement an everyday low pricing strategy, but when they don’t have the desired profit margins, they offer discounts on specific products and raise prices for other products. Bear in mind that this can confuse your customers because you have already marketed that you have the lowest prices. Not only does this lead to disloyalty and reduced trust, but you also lose your customers, leading to reduced profit margins.
Challenges in Staying Competitive
A low pricing strategy often discourages some customers because when you offer the lowest prices consistently, consumers begin to doubt that you have low-quality products.
That’s why it is crucial to focus on competition-based pricing to stay competitive in the market.
The lowest-price strategy may also negatively affect consumers because they think that your products’ quality is lower than your competition. Some consumers may believe that you sell reconditioned products, which is why you offer lower prices consistently. If this is your strategy, you won’t stay competitive in the market.
Factors to Consider When Choosing an Everyday Low Pricing Strategy
There are numerous factors to consider when choosing or implementing a low pricing strategy. It is crucial to make an informed decision by knowing that a low pricing strategy makes sense and best fits your needs. Here are a few factors you need to consider when selecting a low pricing strategy for your company.
Room for Growth
According to Nielsen, companies that achieve success with a low pricing strategy have a high level of brand penetration. However, they have a small room for growth. So, it is crucial to analyze the room for growth before implementing a low pricing strategy.
Besides, we recommend focusing on the maturity factor of your products. If your products require no or little marketing, it means they have a small room for growth or maturity. On the other hand, if you have less mature products, you will have to spend more money on marketing. In that case, you should not implement a low pricing strategy.
Expandable Purchasing Patterns
Before implementing a low pricing strategy, we recommend you understand the difference between expandable purchasing and expanding consumption. For example, if you sell products like toilet paper, soaps, and shampoos, they have a limited expandable consumption.
On the other hand, if you sell bread or any other food items, they have high expandable consumption. Customers buy more bread because it has a lower price and consume more because of reduced or indefinite shelf life.
However, bread has a low expandable purchasing value or pattern because consumers buy bread only when they need it. In contrast, soaps and shampoos have a high expandable purchasing pattern because consumers can store and use them for a prolonged period.
Remember, a low pricing strategy aligns well with products that have a low expandable consumption pattern and high expandable purchasing pattern. So, if this is the case, we recommend implementing an everyday low pricing strategy.
Brands that Nailed Everyday Low Pricing
Although many brands and companies use a low pricing strategy for their products or services, not all of them get the most out of it. The reason is that implementing and using a low pricing strategy requires careful planning and preparation.
One article highlights that about 26% of retail companies in the United States follow a low pricing strategy for their products, and 74% follow high-low strategies. Amazon, Walmart, Procter & Gamble, Winn Dixie, and Trade Joe’s all follow a low pricing strategy. Here are the four most popular brands that have nailed everyday low pricing. Keep reading!
Bunnings is one of the most popular brands that use a low pricing strategy for its products.
The company makes substantial efforts to analyze its customer segments. Because they know the customers base, they have nailed their ROIs using low pricing strategies. Research highlights that about 40% of Bunnings’ customers pay 1.5% more for products because they don’t have to wait for sales on specific product categories.
The brand uses a low pricing strategy because it attracts more customers. So, when the company’s customers get the lowest prices on products without waiting for discounts and promotions, they trust Bunnings and spend more money purchasing its products. For instance, Bunnings ensure to implement strategies that enable them to identify their price-sensitive customers. As a result, it offers the lowest prices to these customers.
Not only does this strategy implemented by Bunnings enable them to encourage its customers to buy more, but it also prevents them from comparing prices or find alternatives. Moreover, Bunnings has nailed its low pricing strategy, making them stay competitive in the market and generate higher profits.
A recent research report shows that Bunnings increased its revenues by 13.9%, translating to over $15 billion. Likewise, the company’s strategy allowed for earning higher profits of $1.9 billion in 2020.
Walmart is another famous brand and successful company that uses a low pricing strategy for its products.
The company offers the lowest prices to customers throughout the year, allowing them to purchase more, trust the retailer, and achieve higher satisfaction levels.
Remember, higher customer satisfaction is directly proportional to increased sales and profits.
Walmart has empowered its sales strategy with a low pricing policy, enabling the company to beat competitors across the industry. Even if the company does not have a better product selection, the low pricing strategy still attracts customers, leading to higher revenues. At the same time, it creates problems for Walmart’s competitors, allowing the company to stay on the top.
Walmart has core principles and procedures for low pricing, allowing them to consistently follow a policy that creates a win-win situation for the company and its customers. Walmart adopted a low pricing strategy since it started business operations, leading to a consistently maintained brand reputation.
Trader Joe’s is one of the most successful brands in the United States that use a low pricing strategy for its products. The company continues to make substantial efforts to provide its customers with the lowest prices. The purpose is to maintain its brand reputation, increase credibility, boost sales, and elevate ROI levels.
Trader Joe’s offers natural or organic food items, which are challenging to find in other stores, allowing the company to stay on top of the market. The company aims to focus on two essential elements: high-quality products and the lowest prices. That’s why it has maintained the brand image for years.
Tesco is a multinational retail company with headquarters in the UK. It is the third-largest retail company worldwide with millions of loyal customers. Tesco had been changing pricing policies for many years, but in 2016, they implemented a low pricing strategy and announced that the company would make all products available at low prices.
Since then, the low-pricing strategy has enabled the company to focus more on the products’ quality and maintaining strong relationships with customers. At the same time, the company does not spend a lot of money on marketing campaigns because it offers a low pricing strategy without using promotional or discount methods.
Everyday low pricing is an important strategy for retail companies, allowing them to attract more customers and maintain their ROIs. However, this type of pricing approach also has some disadvantages, such as reduced credibility, negative perceptions among consumers, and risks of lower profit margins. Follow the tips and tricks above to determine whether a low pricing approach is suitable for your company. Until Next Time!pricing strategies