The Australian grocery sector is currently battling through a low growth environment. Adding to the challenge, the industry is losing up to as much as $11.3 billion in unnecessary promotional activity.
Optimising your pricing strategy is one way your brand can still grow under these testing conditions. It is critical to have a deep understanding of which items in your portfolio are best suited to a High-Low pricing strategy and which ones would benefit from Everyday Low Price (EDLP).
Nielsen Everyday Pricing Analytics recently conducted an audit and identified 960 items with EDLP applied in Woolworths and Coles in 2017 versus 2016. This information was then analysed to uncover the exact impact that the EDLP strategy had on those particular items.
The results showed that overall, EDLP had driven positive results for both brands and retailers by growing baseline volume growth for these products; while an increase in the weighted price worked to improve dollar sales. On average, EDLP items grew at 5.9% annually – well above the FMCG grocery sector rate of 1-3%. The analysis revealed that there are certain common characteristics associated with the most successful products under an EDLP regime. EDLP, however, is not a one-size-fits all approach.
EDLP had driven positive results for both brands and retailers by growing baseline volume growth for these products.
KEY CHARACTERISTICS OF EDLP WINNERS
- Products that fare best under EDLP tend to have high brand penetration; they are often mature brands in mature categories where there is little room for growth.
- Winning EDLP products have high brand purchase frequency. Consumer demand for these items is regular and consistent, while expandability is relatively low e.g. shampoo or toilet paper.
- This is in contrast to expandable items such as snack foods and confectionery where deep discounting can encourage consumers to bulk buy. Products with seasonal spikes also tend to do better under High-Low pricing because retailers want to take advantage of seasonal urgency e.g. chocolates in the lead up to Valentine’s Day or stationery during back-to-school sales.
- EDLP products tend to have relatively high everyday price elasticity and see relatively low lift from trade promotional activities.
When EDLP is applied to suitable products, it can generate positive outcomes for both manufacturers and retailers. Not only does it have the ability to grow baseline sales and strengthen customer loyalty, it can save on fixed marketing costs and also help with managing volume expectations and inventory management. In the example shown below, after going on EDLP, this particular 4 litre laundry detergent recorded a 2.7% increase in the average weighted price and a 2-fold increase in baseline volume.
ABOUT EVERYDAY PRICING ANALYTICS
What if you could optimise your price and promotion tactics, anytime you want? With Everyday Pricing Analytics, you can quickly view current price dynamics and pressures across all of your products and competitive set and simulate the impact of changes for specific banners and channels.
Everyday Pricing Analytics is a syndicated, web-based always-on solution which can help you make smarter decisions every day with scale. If you are interested in a demo or further explanation of the tool, please contact your Nielsen representative.