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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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4 Price Promotion Activity at the Category Level: Less is More?

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4 Price Promotion Activity at the Category Level: Less is More?4

4.1Introduction

We base this study on the theoretical foundations from chapter 2 and the methodological foundations from chapter 3. Both chapters 2 and 3 mentioned the limitation that the topic of pricing strategy in retailing should be also examined at the category level. We address this fruitful avenue for future research in the following study.

According to a study of the German “Gesellschaft für Konsumforschung” (GFK) and SAP, the share of price promotions on total sales increased constantly during the last years - independently of economic boom or recession. In German grocery retailing the number of price promotions is currently on a new record-high. Almost every fifth Euro in grocery retailing is now achieved with products that are particularly advertised or offered at reduced price. For example “Milka”-chocolate is offered at discounted prices up to 39 cents for the 100-g bar, Lidl advertises its “Super Saturday” with many price promotions and also Netto and Norma change prices on individual promotion-days. Thereby there is a hazard that through this wide variety of price promotions, even less price-sensitive customers gets used to discounted goods. Customers are educated to pure “price promotion”-buyers, including those that are in principle willing to pay higher prices. Therefore, retailers have to assess the economic viability of their price promotions.

In our qualitative interviews that we conducted also for our study in chapter 3, many...

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