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Is Every Day Low Cost in Your Best Interest?
As a consumer packaged goods executive, you are very familiar with the two primary retail formats: high-low and every day low price (EDLP). Depending upon your category, the percent of ACV in high-low format may be about 40%. Walmart is obviously the leader of, and highly committed to, their EDLP heritage. And sure there may be a retailer claiming to be a hybrid or a retailer that continuously alters their strategy looking for a winning position in the market with the consumer.
A slightly different matter is when a retailer asks, or puts, a brand (or manufacturer) on to an everyday low cost (EDLC) program. There are several reasons this could happen- one being that the retailer feels this will result in the best sales and profit performance for your brand. Another reason could be that the retailer does not feel your brand is a traffic driver and therefore- not worth their time to invest in developing a comprehensive plan. A lot of effort on the retailer’s part for not much upside to their plan. Brands, especially smaller ones, often feel compelled to agree to this approach with the retailer in order to be “easy to do business with”, build good will, or- they feel they have no choice as they have no data to prove otherwise.
In some instances, this may in fact be the winning approach and all parties are happy. However, if sales velocities begin to slow, the retailer will call to inform you that you must take action in order to improve sales or you will potentially run the risk of getting delisted. You remind your retail partner that you have agreed to an EDLC program so there really are not incremental funds to invest. In some cases, the retailer will work with you to try some things to get sales turned around. However, they will not spend a lot of effort here because if your brand was a leader- it would not be struggling to meet velocity hurdles. Your buyer is now targeting you for one of two things: incremental funding or deciding whom they will swap into your shelf space at their next reset. Since CPG leaders are competitive- and we likely paid good money to get on to the shelf in the first place- we eliminate failure as an option and go to management for incremental funding. The ultimate losing hand as you are boxed into an EDLC program and you are now incrementally funding programs in an effort to “save” the brand.
Data shows that in many cases, a brand will do better NOT entering into an EDLC program, allowing their everyday price to be higher, and putting together a promotional plan with the retailer to drive sales through to the ultimate consumer. This can accomplish a couple of things for the brand- first and foremost, with the proper data, both the retailer and the brand will make more money. Second- the fact that your brand is being promoted will draw the attention of consumers; this is particularly important for brands that experience a lot of brand switching within their category. Do not underestimate the power of getting the ad, end cap, or tag up in the store. Lastly, putting together a promo plan with your retailers for your brand will cause them to both invest some time to consider how to grow the brand (all want their categories to grow- why can’t your brand be a driver of growth?) and will drive performance by the retailer in order to get your brand’s trade dollars.