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Even if your prices are low, shoppers will assume that they can get the same things cheaper in the supermarkets. While some local shops market hard that they are cheaper than Tesco, for most this is probably a waste of effort. Shoppers simply are not visiting you for low prices.
The basic logic is that the best discounts go to the biggest stores because they have the market power to extract the lowest prices. However, this logic ignores the fact that small, local suppliers can often undercut the prices of big national suppliers. The big stores will probably not use the local suppliers because they want a consistent offer in all their stores; and this creates an opportunity for local shops to sell local products, which can be marketed as cheaper than what is available in Tesco, if you like.
Another thing to consider is that shoppers generally do not understand every day low pricing (EDLP) as pioneered by Wal-Mart and its UK operation, Asda. EDLP is copied from manufacturing business models as run by Ford and Toyota. However, in the cases of Ford and Toyota, the buyer invested heavily in helping the supplier to lower prices. The supermarkets generally do not.
Unfortunately for the supermarkets, most shoppers find it difficult to understand how EDLP differs from promotions, where prices are reduced for a short period of time. As supermarkets move prices up and down all the time, few shoppers modify their behaviour to favour stores with EDLP.
The problem with the existence of EDLP is that it casts a shadow over the supply chain. Local retailers assume that the supermarkets are extracting better terms from the big suppliers at their expense. Politicians spend a great deal of time worrying about how to tackle this problem, if it can be proven to exist. Shopkeepers modify their buying behaviour to fit in with how they believe supermarkets buy.
EDLP is also open to misuse. One supplier was asked to produce a product for a 99p price point and agreed, only to find the supermarket has sold it at £1.49 ever since. Which rather goes to illustrate the point that shoppers often do not know what the price of a product should be.
For local shops, one option is to have a pound zone, where you sell EDLP products for £1. There is an entire supply chain devoted to delivering this for independent shops. But this does not mean that you have to market yourself as a discounter, merely as a shopkeeper who looks out for good value for his shoppers.
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