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EDLP, Hi-Lo, and Margin Arithmetic
Stephen J. Hoch, Xavier Drèze and Mary E. Purk
Journal of Marketing
Vol. 58, No. 4 (Oct., 1994), pp. 16-27
Published by: American Marketing Association
Stable URL: http://www.jstor.org/stable/1251913
Page Count: 12
You can always find the topics here!Topics: Prices, Retail stores, Consumer prices, Pricing, Operating costs, Market prices, Average prices, Profit margins, Pricing strategies, Marketing
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The authors examine the viability of an "everyday low price" (EDLP) strategy in the supermarket grocery industry. In two series of field experiments in 26 product categories conducted in an 86-store grocery chain, they find that a 10% EDLP category price decrease led to a 3% sales volume increase, whereas a 10% Hi-Lo price increase led to a 3% sales decrease. Because consumer demand did not respond much to changes in everyday price, they found large differences in profitability. An EDLP policy reduced profits by 18%, and Hi-Lo pricing increased profits by 15%. In a third study, the authors increase the frequency of shallow price deals in the context of higher everyday prices and find a 3% increase in unit volume and a 4% increase in profit. Finally, they draw a conceptual distinction between "value pricing" at the back door and EDLP pricing at the front door.
Journal of Marketing © 1994 American Marketing Association