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EDLP versus Hi-Lo Pricing Strategies in Retailing

Literature Review and Empirical Examinations in the German Retail Market

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Sabine El Husseini

Retail pricing strategy is seen as one of the priorities in retail management. There exist two main pricing strategies in retailing: the Every Day Low Price (EDLP) strategy and the High-Low (Hi-Lo) pricing strategy. Despite the importance of this topic, it has been given little attention in academic research. The author fills this gap in academic literature and examines the topic both from a theoretical and an empirical perspective. Based on a comprehensive conceptual examination of pricing strategies in retailing, the author conducted two large-scale empirical studies about the impact of the retailer’s pricing strategy and the price promotion activity on store performance and derives fruitful implications both for future research and for managerial action.
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2 Pricing Strategy in Retailing – A literature review

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2 Pricing Strategy in Retailing – A literature review1

2.1Introduction

The following chapter 2 is based on and follows Fassnacht and El Husseini (2012). As outlined, this chapter contains a comprehensive literature review of the topic of pricing strategy in retailing. It provides the theoretical foundations of pricing strategy in retailing and builds the basis for chapters 3 and 4.

2.1.1Problem background and relevance of subject

The equation “profit = (price x volume) – costs” shows that there are just three profit drivers: price, volume and costs. Among these components, price is the most effective profit driver (cf. Simon/Fassnacht 2009, p. 1-5). An increase in price – holding the volume constant – has a 100% impact on profit, whereas an increase in volume – holding the price constant – just influences the profit to the amount of the additional turnover minus the marginal costs (cf. Simon 2004, p. 1084f.). Furthermore, among the classical 4Ps of the marketing mix (product, price, placement and promotion), price is the only marketing mix variable that directly generates revenues, compared to the other three elements which involve expenditures or investments (cf. Monroe 2003, p. 8, Rao 1984, p. 39, Rao/Kartono 2009, p. 9; Sebastian/Maessen 2003, p. 51). Also in retailing, the price is the most important marketing instrument (cf. Ahlert/Kenning 2007, p. 233).

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