Supermarkets and other retailers face a choice between two approaches to product discounts: an everyday low pricing strategy, which offers discounts across the board, or a promotional pricing approach, which offers temporary markdowns on select, heavily promoted items. In the 1990s, chain retailers such as Walmart and Costco that used everyday low pricing expanded aggressively, attracting customers who were primarily interested in price. The proliferation of these retailers created a dilemma for competing retailers, who had to decide whether to offer their own brand of everyday low pricing or find other ways to appeal to customers.
Everyday low pricing uses a clear marketing message: every item in the store will always be available for a low price. This message offers the advantage of clarity, but it does not provide the retailer with much that is new to advertise. As a result, shoppers may become jaded and simply expect low prices. In contrast, a promotional sales approach provides a retailer with ongoing opportunities to capture shoppers' attention and lure them into a store. Sale items can be exciting and even worthy of word-of-mouth advertising through conversation.
A study conducted by the Stanford School of Business found that the promotional pricing approach brings in more sales revenue than the everyday low pricing strategy. However, everyday low pricing tends to have lower fixed costs because an overall strategy enables a store to develop infrastructure and supply chain efficiencies. In addition, advertising is less expensive with an everyday low pricing approach because a retailer does not need to promote each individual sale item. However, it can be six times as expensive for a store to switch from promotional pricing to everyday pricing than vice versa.
An everyday low pricing strategy is easy for consumers to understand. A store that offers everyday low pricing can easily brand itself in customers' minds as an alternative that consistently offers low prices. This marketing message will appeal to customers who make purchasing decisions primarily on the basis of price, and also to customers looking to save money on specific occasions, such as when they're short on cash. This simplicity is particularly useful in a marketing environment in which consumers are typically overstimulated and tend to absorb information quickly. However, consumers who are prone to categorize and oversimplify may also dismiss stores with everyday low pricing based on the assumption that they don't carry high-quality items.
When JC Penney replaced its longstanding promotional pricing strategy with an everyday low pricing strategy, sales plummeted. The store typically attracted bargain-conscious customers, but these consumers did not immediately associate the chain's new pricing strategy with low price and good value, despite the fact that it was heavily marketed in these terms. Everyday low pricing does not necessarily appeal intuitively to bargain hunters. In addition, quality-conscious customers may avoid stores with everyday low pricing strategies out of a stereotype that these stores are primarily targeted toward bargain hunters.
