What’s the right pricing strategy for grocery chains?

Discussion at RetailWire this week about the appropriate response by grocery chains to big-box competitors (Costco, for example) and supercenters like Walmart. Stanford Business School studied the question, and concluded that a high/low pricing strategy is the right response. My answer to the headline above is, “It depends”…and here’s why:

General merchandisers have succeeded through the years with either EDLP or high/low promotional strategies, so there is more than one option for food retailers too. However, it’s too simple to say that promo pricing is “the answer,” because it depends on a variety of factors:

1. Which pricing tactics are more appropriate to your overall brand strategy as a food retailer?

2. Does your specific competitive situation really allow you to be priced higher than EDLP food retailers?

3. Is your customer likely to wait for sales, cherry-pick promoted items and do most of her grocery shopping elsewhere?

I’d suggest a market-basket analysis to provide some empirical evidence one way or the other on this issue, but there is likely to be a valid argument on both sides.

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