The world of retail price promotion has split into two distinct blocs. While everyday low pricing (EDLP) has vaulted some companies to the top of their sector, the use of promotional pricing (for example, discounts, regular specials and one-time clearance sales) has also intensified. Seasonal markdowns arrive earlier each year, and the amount of marked-down merchandise has seen double-digit increases. Promotional tactics — from coupons and direct-mail offers to e-mail invitations to sales and sweeter loyalty rewards — have proliferated.Meanwhile, retailers seek to determine if the dollars pouring from their promotion budgets are paying dividends or merely eroding already tight margins. Longtime heavy price promoters wonder if a shift to EDLP will hone their competitive edge. Or, if they stick with promotional tactics, they must decide what proportion of their prices should be promotional, how deeply should they discount, and whether they should advertise both sale prices and everyday prices. Retailers struggle to address such problems with little information about how price-promotion strategy affects sales volume and how competitors will respond.A new study, “When Does Retail Price Promotion Make Sense?” presents a framework to help retailers evaluate, fine-tune and even radically shift their approaches to price promotion.
