Stephen J. Hoch, Xavier Dreze, & Mary E. Purk

EDLP, Hi-Lo, and Margin Arithmetic
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.

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etail formats come and go with changes in consumer tastes, lifestyles, and trends in demography and the economy. Recently it is the "everyday low price" (EDLP) format that has experienced rapid growth and media popularity. The prototypical description of an EDLP pricing policy is as follows: The retailer charges a constant, lower everyday price with no temporary price discounts. These constant everyday prices at the EDLP outlet eliminate week-toweek price uncertainty and represent a contrast to the "HiLo" pricing of promotion-oriented competitors. The Hi-Lo retailer charges higher prices on an everyday basis but then runs frequent promotions in which prices are temporarily lowered below the EDLP level.' Discounters like Wal-Mart have led the EDLP wave and successfully encroached on the turf of supermarkets and department and drug stores by advertising that their everyday prices are "always the lowest" to be