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Pricing Strategy
There are 4 main general pricing strategies, which covers both long-term and short-term pricing considerations:
1) Hi-Lo Promotion
2) Every-day-low Price (EDLP)
3) Discount
4) Premium. Some overlap is possible.
Thus a premium retailer can operate a hi-lo promotional strategy (e.g. Sainsbury’s) whilst an EDLP operator can also offer a premium product range (e.g. Asda). As the general food purchasing come from the grocery, examples of the pricing strategies from the grocery stores in the UK will be applied in the following discussion to illustrate the situations of the UK’s food retailing.
1. Hi-Lo Promotional Pricing
Retailers using this pricing strategy usually set higher standard prices on most items but offset by special promotions. The following strategies are commonly used:
1). Seasonal pricing – full price then markdown
In order to sell items when they still have some value to customers, retailer sell products at ‘full price’, and then ‘marking down’ or reducing the standard price of the product in an ‘end-of-seasonal sale’. This is common in clothing retailers.
2). Loss-leader pricing
This is a short-term pricing strategy that the price is cut to extremely low, even loss-making level, and then heavily advertised in order to gain consumer interest. It is only used in cases of extremely competitive action. For example, Tesco and Sainsbury’s used to sold 3p bake beans per can in response to the market entries of Netto and Aldi in the UK’s supermarkets.
Basically, there are 2 drawbacks. Such campaigns will appeal to bargain-hunting customers stockpiling all the items, making other ...