As inflation continues to impact businesses and consumers alike, the need to keep pricing low has become increasingly important. Walmart is one of the world’s largest retailers, recognized globally for its everyday low price (EDLP) strategy. Walmart’s EDLP pricing strategy has been a key factor in its success. It has helped to differentiate Walmart from its competitors, increase customer loyalty, reduce costs, and drive sales. Its online marketplace has grown significantly with the help of this strategy. In 2019, Walmart US had online sales amounting to $15.7 billion. In 2023, this number has grown to $53.4 billion. With this article, we’ll take a closer look at Walmart’s EDLP strategy and explore how retailers can use it to help drive value for shoppers.
What is an EDLP Strategy?
EDLP is a pricing strategy where a company maintains consistently low prices for its products rather than offering frequent sales or discounts. Walmart has been using this strategy since the company was founded in 1962. It has helped them build a reputation for being a low-cost leader in the retail industry.
How does Walmart’s EDLP Strategy Work for its Online Marketplace?
Walmart’s EDLP strategy is based on a few key principles that your business can apply to its online marketplace:
- Lower operational costs and increased volume of sales: By offering a lower-cost alternative to Amazon, Walmart has the potential to drive more volume and increase overall sales, which in turn can help reduce operational costs.
- Increased volume of sales: By offering a lower-cost alternative to Amazon, Walmart has the potential to drive more volume and increase overall sales, which in turn can help reduce operational costs.
- Direct sourcing: Walmart’s EDLP strategy is built on direct sourcing. It allows them to bypass traditional middlemen and negotiate lower prices from manufacturers. This can help keep prices low for both sellers and consumers.
- Private label alternatives: Walmart has its own private label brands like Great Value, Sam’s Choice, and Equate, which can help reduce costs for sellers and offer consumers a lower-priced alternative to name brands.
- Supply chain management and bargaining power: Walmart’s strong supply chain management and bargaining power allows it to negotiate lower prices from suppliers, which can help keep prices low for sellers and consumers.
How to Decide if an Every Day Low Pricing Strategy is Right for You?
It’s important to consider several factors before deciding if EDLP is the right pricing strategy for your business.
- Customer base: One of the main advantages of an EDLP strategy is that it appeals to price-sensitive customers who are looking for the best value for their money. An EDLP strategy may be a good fit for your business if your customer base is primarily composed of value-conscious shoppers.
- Competition: If your competitors are using a high-low pricing strategy, where they offer frequent sales and promotions, then you may be able to differentiate your business by offering consistently low prices through an EDLP strategy. However, if your competitors are also using an EDLP strategy, then you may need to consider other factors to remain competitive.
- Profit margins: EDLP strategies typically require retailers to have lower profit margins compared to high-low pricing strategies. This means that businesses implementing an EDLP strategy need to have a strong focus on cost-cutting and operational efficiencies to maintain profitability.
- Supply chain: EDLP strategies require retailers to have a strong supply chain and inventory management system in place to ensure they can consistently offer low prices. If your business struggles with supply chain management, then implementing an EDLP strategy may not be the right choice.
- Long-term goals: EDLP strategies typically require a long-term commitment to maintaining consistently low prices. An EDLP strategy may not be the right fit if your business is focused on short-term goals, such as quarterly earnings targets.
How can Businesses Apply Walmart’s EDLP Strategy to their own Pricing Strategies?
To apply Walmart’s EDLP strategy to your business, consider the following:
- Focus on direct sourcing to negotiate lower prices from manufacturers.
- Consider creating private-label brands or offering lower-priced alternatives to name brands.
- Look for ways to reduce operational costs, such as improving supply chain management or reducing packaging material costs.
- Use bargaining power to negotiate lower prices from suppliers.
- Consider reducing package sizes rather than raising prices (shrinkflation).
In conclusion, Walmart’s EDLP strategy has been a key driver of its success. As a low-cost retailer, it has the potential to impact pricing strategies for sellers and consumers alike. By focusing on the above factors, businesses can utilize Walmart’s EDLP strategy to keep prices low in an inflationary environment. Using Intelligence Node’s Dynamic Pricing and Competitive Intelligence tools can help retailers and brands boost the impact of this strategy by tracking competitor pricing and ensuring that your brand offers the most competitive prices and discounts, and can track inventory without sacrificing margins.