In Europe and America FMCG retailers have opted to pursue an everyday low pricing (EDLP) strategy in favour of the Promotional price strategy that is predominantly used in South Africa. Promotional pricing is a great way to get feet through stores and it creates a marketing platform for retailers to promote themselves as a “best price” retailer.
Promotional pricing works for marketers and there are real benefits for retailers such as heightened foot traffic through stores and increased sales of promotional items over the duration of a promotion. Having said this, I am skeptical of the long term benefits. Very often, a short increase of sales through a promotion will starve the retailer of sales in the period thereafter, this method also does little to develop shopper loyalty as it encourages consumers to seek the next promotion regardless of the retailer. From a suppliers perspective, promotions may increase market share and drive volumes but history has proven that these increases are most often temporary and do little to stimulate brand loyalty.
EDLP works for finance, logistics and planning people, there are a number of reasons for this, the bulk of them related to increased efficiency. Efficiency is about consistency and EDLP is all about consistency. Eradicating the spikes in demand created by promotions helps to ease many pressures on the supply chain and more importantly makes planning and forecasting more accurate. EDLP reduces out-of-stocks and the risks of overstocking and returns. It also improves planning across the board from cash flow management, distribution and forecasting to manufacturing and demand planning. These are all things that the back office loves and in an industry as large as FMCG getting planning right is worth a lot of money.
In recent months many people have asked the question, How will Walmart’s entry into SA affect the industry? I believe one change will be a progressive move away from promotional based pricing and I have little doubt that a change to EDLP will be positive for the industry as a whole; even if it is initially met with resistance from some retailers.
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