Retail Strategy Secret #1: Hi-Lo Pricing

hilo

Welcome to the first post in our series of “Retail Strategy Secrets”!  Here you will learn the angles, approaches, and tactics retailers are using every day to try and separate you from your hard-earned cash.  Understanding these unlocks the door to spotting great deals, and you never want to pass up a Dealicacy…

Hi-Lo Pricing

First, let’s clear the air – this retail strategy doesn’t have anything to do with card games and wasn’t derived from any ancient wisdom from the Hawaiian islands (despite the cool waterfall picture).  Hi-Lo pricing is the practice of offering significant discounts on selected items for a limited time period, while the other available items continue to be offered at standard or above-average markups.

In essence, retailers following “Hi-Lo” will tend to … offer a few items each week at can’t miss prices in hopes of you stopping in and purchasing other items as well.  An extreme example is commonly referred to as offering “doorbusters”, where a lot off people will want rush to grab the best deals before they run out.  These can even take the form of “free item with $xx purchase”.

Everyday, however, Hi-Lo strategy is employed at grocery and department stores.  Ever wonder why a dozen eggs are $2 most weeks and then suddenly there is an advertised drop to 89 cents?  The eggs have moved from a standard (Hi) price and temporarily become loss-leaders (Lo).

On a per-item basis, a loss-leader item does not carry much, if any, profitability (and typically generates a loss, hence the name). However, people are funny animals.  Many can’t resist picking up something additional when they got “such a great deal” on the promoted item, especially given a brand name they trust. Overall, the retailer is banking on the average behavior of the consumer to maintain profitability and make up for the selling an item at a loss.

Hi-Lo pricing definitely appeals to deal-seekers that have time on their hands, who are patient, and are not shopping out of convenience.

Some Hi-Lo tips:

  • Watch for atypical ad placements. Despite having run a weekly ad flier in the Sunday paper, some grocery stores will periodically place a 1/4 page ad in the daily paper (or TV and Radio spots) to advertise their loss leaders, such as diapers. They want you in the store.
  • Take note of where loss-leader items are found in the store. Milk, for example, is typically at the back of the store. You can’t get to it without passing numerous “Hi” category items.
  • Be careful of limited quantities. Pay attention to fine print, it may not be worth your time if there are only 3 available per store. Example: Back-to-school promotion laptops.

Stick around… Next up is “EDLP”!

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3 Responses to “Retail Strategy Secret #1: Hi-Lo Pricing”

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