James Ellis, the senior vice president of Hall Consolidated and president of Hi-Value supermarkets, must decide whether to pursue an everyday low pricing (EDLP) strategy at its three Centralia MO locations. After much analysis, I believe that my recommendation would be for Superior stores (Hi-Value) to most definitely adopt this new method. First let’s look into some details about Hi-Value, and their competition:
Product: The stores’ products are divided into 5 categories: 1) grocery (including diary); 2) fresh meat/poultry/seafood; 3) produce; 4) seasonal and general merchandise; and 5) bakery and deli.
Price: more of a high-end branding strategy. Hi-Value everyday (non-promotional) prices are 10% higher than Harrison and 7 percent
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The store is clean, orderly, and well managed. General American is “the most modern store in Centralia and has the finest fixtures and décor –its wide aisles make it relatively easy to shop.” All competitors have more floor space, attractive stores, greater overall variety, customer awareness and contact (through their advertising). But Hi-Value has strengths help justify the use of EDLP. For example, providing on-time delivery of goods is critical for Hi-Value to maintain good customer service. They also have an extensive ‘in-house’ network. There are opportunities to buy out smaller competitors, develop a price conscious advertising campaign aligned with customer expectations, and participate as a member of the community (mentioned hosting local charity events, etc.). The only threat against them is the pricing wars as a result of Hi-Value adopting an EDLP strategy. So James and Hi-Value have multiple roads to go down to try and increase sales, and customer satisfaction: First they could implement a ‘limited EDLP’ model. By marginally increasing the amount of loss leaders, the model could attract price-conscious customers at the margin. Under this model, the advertising budget could either remain the same or slightly increase. This alternative will be successful if High-Value contribution margins remain unchanged and sales increase. Next, they could implement an EDLP model and increase the advertising budget accordingly. If by