As inflation further plagues consumers, many retail brands with a low price position in the market are paying the price.
If you know me, you know I’m not the biggest fan of low-price positioning when it comes to brands. To me, it’s a harmful position that harms the business owner(s), staff, and customers. The immediate gratification of a sale and a “good deal” soon leaves a bitter taste of low margin and poor quality.
Once I heard a great quote about sales being the lazy man’s marketing — similarly I find low price positioning being the lazy man’s positioning in a market.
After getting that off my chest, I would like to clarify that I believe low prices can work as atactic within a larger strategy reinforced by other ways of making money. Just as Costco has successfully done with their membership revenue and Amazon has done with Prime and AWS. Amazon being a digital brand has a different strategy where Jeff Bezo’s “Your margin is my opportunity” quote makes a lot of sense. They can lower prices in very frothy markets (big margins) because they are not depend on that revenue as much to stay afloat thanks to Prime and AWS which further feeds the flywheel effect of Amazon.
Now for retail brands that have hung their hat on low prices and that alone are now paying the price….
Inflation Hurts Low Prices
This is where the rubber meets the road when it comes to proving my theory of low price being a poor position.
As inflation tightens its grip around the necks of Americans, one would assume low prices are being desperately sought after by shoppers. This is true in one regard, but also flawed.
The problem with a position in low prices is that it accommodates those who are most sensitive to price. To clarify, I do believe there is a market here that can be addressed and most importantly helped as they may financially struggle in a standard market. As the individuals may be able to save money on normal purchases, but when inflation enters the chat they will also be the first to suffer.
*From a social standpoint, it’s a terrible thing as some citizens are “trapped” in difficult financial situations and I believe our government and education system needs to do more to assist them. There are also great nonprofits that assist as well.*
From a business standpoint, this positioning will obviously dissolve. Just as they have positioned their brand to focus on the price sensitive, inflation impacts those who are price sensitive the fastest. This ultimately, subtracts them from the market.
In 2020 we saw these low priced brands(Grocery Outlet, Big Lots, 99c Store, etc) grow a lot. Their low price position proved successful because there were economic pressures due to shutdowns, but not a constrain on cashflow due stimulus checks. Inflation essentially is the opposite that causes a big constrain on cashflow because it devalues the worth of the dollar. As the purchase power decreases, the price sensitive market will excuse themselves from making purchases because cash has become too expensive.
Now, these brands have solely positioned on “low price” yet have neglected to leverage the power of a membership or driving profitable revenue elsewhere via a service of some sort. This leaves them up a creek without a paddle.
2024 has shown this as these brands have lost significant value in the market and sales nose dive. Big Lots, 99c store have had to their doors so far and this seems to be the pattern for the sector of low price positions.
Valid Low Price Position
The market of low price is further heating up as Amazon, Temu, Shein, and others race to bottom. They are dropping the “oxygen” in markets so low that many businesses cannot keep up with the lack of margin. This is do to their economics of scale as well as their diverse business models like I mentioned before along with their digital structures.
With this in mind, I do believe the market that is sensitive to price can be served as well as should be served. All buyers deserve true value delivered to them one way or another. However, I do strongly believe that a brand positioning of just low price is shortsighted and will prove fruitless in the longterm.
The best solution for a retail brand would be to address the value being delivered beyond just a low price. Price can be mimicked and a low price just leads to a bloody race to zero. Zero value for the business and customer.
It truly is a lazy positioning to rely on a low price. It not only puts the business and its employees at risk of the ebb and flow of the market, but it is specifically dependent on a scale of sensitivity.
With technology and a global economy, we can provide low prices that are supported elsewhere in the model. This could be compensated for by memberships, services, or even providing value elsewhere in the market where the model is able to capture more value that offsets the sacrifice on the low price front.
If you wish to provide low priced items or services, your best bet is to build it into your flywheel so this sacrifice can be balanced with a more profitable arm. For example, if a retailer had an exclusive membership (like Costco has implemented for decades) store theft not only will decrease, but the brand will be able to drop their margin of the items sold thanks to the added value of the membership. The members do care about the deals, but the deals have been translated into a perk of being a member of the brand.
This is the success of Prime where they continually add in value into the membership so the member continues to save and receive perks on all fronts while the massive revenue from membership continues to compound. The low price shouldn’t be the focus or the single aspect a brand hangs its hat on. There needs to be more, there needs to be a relationship!
Ultimately, this is why I believe membership is the future of retail brands. From Dollar General to Target, membership is the relational aspect these brands need in this day that will ensure their growth and position in the their markets. (This will be a whole different thought I’ll write on her on Thunq)