Defining the links between retail price strategies and price tactics
Authors:
Madelen Lagin, corresponding author, E-mail: [email protected]. Phone: +46-23-778973. Dalarna
University, 791 88 Falun, Sweden,
Sabine Gebert-Persson, Uppsala University, Department of Business Studies, Box 513, 751 20
Uppsala, Sweden
Abstract
Retailers’ tend to become trapped in a price-promotion war where price issues are dealt with on a
short-term basis, indicating almost solely tactical choices. Since price is the only part of the
marketing mix providing direct revenues to the organisation, it should also be of strategic
importance for the retailer. Not only in practice are price tactics often separated from pricing
strategies, it is also the case in research where these are often studied in isolation from each other
probably due to their individual complexity. This paper contributes to both the research area and
practice by discussing these two complex areas together, and the essence of both strategy and
tactics are defined. By considering the planning horizon for the retailer this paper further
contributes by defining the links between price strategy and price tactic. The conclusion shows
the importance of clearly establishing which analytical level is being analysed.
Keywords: retailing; price; strategy; tactic; analytical levels
Introduction
Pricing strategies and tactics are both diverse and complex in themselves (Gauri et al. 2008).
Considering strategy and tactics together is important since the retailer’s choice of tactics might
otherwise come into conflict with the overall pricing strategy (Grewal and Levy, 2009; Tellis
1986). Although it is important to consider both in relation to each other there have been few
researchers who have, so far, covered the link between pricing strategy and tactic (cf. Kopalle et
al., 2009; Ingenbleek and van der Lans, 2013) and those few who do study the link have been
criticised for not analysing this link in-depth (Ailawadi et al., 2009). More in-depth research is
therefore needed to understand the relationship between pricing strategy and tactics. This is of
crucial importance within research as well as in practice since the industry is characterised by
razor thin margins (Bolton et al. 2010) and has become more competitive over time (Lal and
Villas-Boas, 1998). Price strategies are easy to copy, implying that in order to increase the market
share retailers need to keep, or create, a price image which is sustainable, hard to copy and
reflects more than solely a low cost strategy (Lewy et al. 2004). It is also the only component of
the marketing mix generating direct revenues (cf. Smith and Nimer, 2012; Rao 1984). Pricing
strategy is often seen as a short term decision made on a day-to-day basis, rather than as a long
term decision, where price wars and thereby price-promotion traps are easy to fall into (Fassnacht
and El Husseini 2013).We argue in this paper that there are two reasons for the missing link in
research; the first one relates to a lack of consensus on how strategies and tactics are defined,
which by some has been explained as being due to influences from many different disciplines
such as law, economic theory, accounting and finance, psychology/sociology, marketing, and
management science (Smith and Nimer, 2012; Diamantopoulos, 1991). Secondly there is a
confusion of analytical level.
1
This paper adds to research and responds to the call for research by Ailawadi et al., (2009) by
discussing and studying pricing strategy and tactics together in-depth. The purpose of this paper
is to conceptually define pricing strategy and tactics, and to explain the relationship between
these. This article thereby contributes to the research area and complements Ingenbleek and van
der Lans’ (2013) study, who took on a general approach towards price strategy and pricing
practice, by discussing pricing strategy and tactics in the grocery retail industry’s specific context.
We also contribute by responding to Ailawadi et al’s. (2009) critique towards lack of in-depth
analysis between the two research fields.
In order to develop the link between retailer pricing strategy and tactic we first need to start by
defining what retailer pricing strategy and tactic in line with previous research. Thereafter the link
between retailer pricing strategy and tactic is presented and discussed where a model is developed
by incorporating time in terms of planning horizons as discussed by Hübner, Kuhn and
Sternbeck (2013).
Method
To grasp the research area of pricing strategy and policy a literature search was conducted in the
Journal of Retailing and the Journal of Retailing and Consumer Services by using the keywords
price strategy, price tactic, price promotion, pricing practices, pricing tactic, and pricing
promotion.
The criteria for an article to be selected for further reading from was that the abstracts contained
one (or more) of the following words: everyday-low-pricing, (EDLP), promotional pricing
(PROMO), category management (CM), brand management (BM), and price strategy and/or
marketing strategy. In addition to these words, the criteria for an article to be selected for further
reading from the price tactical keywords was that the abstracts either contained the
aforementioned words and/or some sort of price cut/discriminatory variable. These are
concepts that in one way or another has been illustrated in previous research (see for example
Kopalle et al. 2009)
The selection process resulted in reading through a total of 149 articles of which 64 were seen as
fitting the scope of this article. The articles were thereafter analyzed in terms of how they had
defined pricing strategy and pricing tactic, resulting in table 1 and table 2.
Insert table 1 about here
Insert table 2 about here
Defining retailer pricing strategy
Defining retailer pricing strategy is not an easy task, which is also the conclusion of Fassnacht
and El Husseini (2013), as the perspectives on pricing strategy definitions are not consistent
within previous research. Cataluna et al. (2005), for example, point out the difference between the
strategies used in different types of retail stores and how this should be incorporated throughout
the whole organisation and thereby perceive strategy as an organisational philosophy.
2
“[…] two strategies1 often used in retailing […] are the everyday low prices (EDLP), or
always low prices, which may be a philosophy applied by discount stores, and the high and low
prices (Hi-Lo), or promotional prices more typical of hypermarkets” (Cataluna, Franco and
Ramos, 2005:331)
Although most researchers define EDLP and PROMO2 as a strategy, others define them as
tactics (cf. Kopalle et al. 2009). An example of this is Tsiros and Hardesty (2010) who, in
comparison to Cataluna et al. (2005), do not define EDLP and Hi-Lo pricing as strategies but
instead discuss these as being different tactics and also indicate that these are part of a store’s
promotion tools rather than being perceived as being part of the organisational philosophy.
“Two particular popular price promotion tactics are everyday low pricing (EDLP) and Hi-Lo
pricing. Sellers that employ an EDLP tactic charge a constant, everyday price with no (or very
infrequent and small) temporary price promotions […].Alternatively, sellers that employ a Hi-Lo
pricing tactic set relatively high prices on an everyday basis but offer frequent and substantial price
promotions” (Tsiros and Hardesty, 2010:49)
Again, we can see a deviating definition of EDLP and Hi-Lo pricing in how Shankar and
Krishnamurthi (1996) discuss these. They, in line with Tsiros and Hardesty (2010), discuss EDLP
and Hi-Lo in tactical and promotional terms but choose to define these as pricing policies.
“Typically, retailers are faced with two alternative pricing policies, an everyday low pricing
(EDLP) policy or a high-low pricing (HLP) policy. Tactical decisions include decisions on retailer
promotional variables such as price cut, feature advertising, and display” (Shankar and
Krishnamurthi, 1996:250)
In addition, Voss and Seiders (2003) do not even discuss pricing strategy separately from
promotion but rather treat the pricing decisions as being part of the stores’ promotional issues:
“[…] price promotion strategy, which we define as a coordinated set of pricing and promotion
decisions designed to communicate a price position to consumer and influence short-term sales
response and overall market performance […] we examine three distinct and important
components of price promotion strategy: price variation policy […], price promotion advertising
volume […], depth of discount […]” (Voss and Seiders, 2003:37f)
Even though there are discrepancies between the definitions, Fassnacht and El Husseini (2013)
identified five aspects where some commonalities exist between the definitions of pricing
strategies. The first one is that research takes the retailer’s point of view in the definitions, as well
as in the research performed, which means that the price strategy definition is treated as decisions
made by the retailers to reach certain goals.
The second commonality concludes that prior research is usually limited to two key retail pricing
strategies; everyday low pricing (EDLP) and promotional pricing (PROMO) (cf. Gauri et al.
2008; Kopalle et al., 2009). EDLP is characterised by constant low prices on all goods in the store
and uses basket prices to provide good value all the time in order to be able to attract consumers
(Lal and Rao, 1997), and so steep price cuts are therefore usually not applied (Neslin, Henderson,
1
Text has been highlighted in order to further strengthen the differences in definitions.
2
When discussing PROMO strategies, we also take into consideration previous research on what is labeled as
Hi-Lo strategy, since several researchers use PROMO and HiLo strategies as the same (Fassnacht and El
Husseini 2013).
3
and Quelch, 1985; Lal and Rao, 1997). An EDLP strategy thus indicates that no promotions are
used (Chandon, Wansink and Laurent 2000). Since the strategy implies keeping prices low at a
constant level, the demand is considered more predictable and the retailer can enjoy a decrease in
operating costs, personnel costs and advertising costs.
In contrast to the EDLP strategy, the PROMO price strategy uses price special offers with steep
discount prices, which implies low prices for a limited time period rather than a constant low
price. The PROMO strategy also implies that stores offer a wider set of services, e.g. parking
space, enhanced assortment, and improvements in the quality of different food categories as ways
to attract consumers (Lal and Rao,1997). Kopalle et al. (2009) conclude that large retailers usually
use the EDLP or PROMO strategies to target consumers who demand low prices and deals, but
who in return have low loyalty to the store brand itself. Lal and Rao (1997) also concluded that
the price in the EDLP strategy is part of the communication strategy and is often used as a
response to a competing PROMO store. Therefore, in relation to promotion, service level and
general price image, Lal and Rao (1997) concluded that:
The ELDP store advertises the price of the bundle, prices its products such that they are always between the
promoted and regular prices at the PROMO store, and offers a lower level of service. In contrast, the PROMO
store advertises the price of the promoted good such as the pricing strategy, and therefore the advertised deals are
randomized across the basket of goods. It also offers a higher level of service. (ibid. p. 76).
Even if the aim is to attract all consumers into the store, different price strategies attract different
types of consumers where a distinction can be made in terms of time-constrained consumers
(PROMO) and cherry pickers (EDLP).
Fassnacht and El Husseini (2013) argued that a third commonality is that researchers usually treat
retailer pricing strategy as a dichotomous variable, i.e. the choice is limited to either EDLP or
PROMO. However, there are some researchers (cf. Bolton and Shankar, 2003) who rather
perceive these as poles of a continuum (resulting in even more strategies than solely EDLP and
PROMO). In practice, pricing strategies are hard to label solely as EDLP or PROMO; rather
there is a continuum between EDLP and PROMO where the retailer’s own choices give rise to a
HYBRID pricing strategy (cf. Elickson and Misra, 2008; Bolton and Shankar, 2003).
These three commonalities indicate that the retailer can choose between three different umbrella
strategies: EDLP, PROMO, and HYBRID. As strategy is rather vague and dependent on which
actions the retailer takes, the first two strategies can be seen as a stepping stone for the retailer.
This means that retailers have a certain image of which customer segments they want to attract,
i.e. the time-constrained or the cherry pickers. Hence, the HYBRID strategy are created due to
competitors’ price image and price range, i.e. the retailer uses a mixture of PROMO and EDLP
where different price tactics are used to target consumer segments and differentiate themselves
from close competitors (Gauri et al. 2008).
The fourth commonality, which Fassnacht and El Hussieni (2013) identified, is that most
researchers focus on price variation to explain retailing pricing strategy, making it a onedimensional approach. There are also, however, researchers arguing that a one-dimensional
approach towards pricing strategy does not reflect the pricing strategies’ characteristics as there
are other dimensions which will also affect retailing pricing strategy. These researchers contend
that a multidimensional approach needs to be applied by considering promotion and
communication decisions as well as pricing decisions (cf. Bolton and Shankar, 2003; Shankar and
Bolton, 2004; Voss and Seiders, 2003). This may explain why the above quoted definitions
deviate in terms of how pricing strategy is used.
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The fifth commonality is that the majority of the research in the field focuses on the store level in
their explanations of pricing strategy. Others combine store and brand level, arguing that store
level is not enough to understand pricing strategy but that research also needs to consider
strategies formed at the brand level, i.e. what is called brand-store level (Bolton and Shankar,
2003). Furthermore there are researchers who seek to explain retailer pricing strategy on levels
other than just store level where category, brand or product levels are also considered.
The argument to consider pricing strategies at the category level is that assortment, size and price
level need to be included in the price decision since price coordination is crucial for a profitable
pricing structure (Basuroy et al. 2001). By considering the category level, Category Management
(CM) aims to increase performance for a whole product category (cf. Basuroy, Mantrala, and
Walters 2001; Levy et al. 2004). Category management has however been criticised where Bolton
et al. (2010) do not consider CM as a pure pricing strategy since it is not so much a matter of
price but rather about handling the product assortment.
Researchers arguing that pricing strategies can be made on brand level focus on the profit of a
single brand within a category (instead of the whole category assortment which is done within
CM), where the brands are separated from each other (cf. Hall et al. 2010; Bolton and Shankar,
2003) indicating that no considerations of other brands are made. However, Grewal et al. (2011)
pinpoint a weakness of focusing on the brand level since it excludes many important factors such
as “[…] inter- and intra-category optimization, market expansion and contraction effects,
modeling frameworks, model performance, the psychological aspects of pricing, objective
functions, optimization, parameter estimation, product relationship, and scalability” (ibid. p. 46).
Hence, there is research analysing pricing strategy on other levels than simply store or chain level.
Given that we found deviations in definitions, the level of analysis could be an underlying
assumption made by the researchers, which can explain differences in the definitions of retailer
pricing strategy.
These five commonalities and a number of discrepancies have been identified within research,
which leads us to the question raised in the beginning: how can retailer pricing strategy be
defined. A clue can be found in the definition by Ingenbleek and van der Lans (2013) who argue
that “[…] a price strategy offers a means by which the firm can achieve its pricing objectives in
the market” (ibid. p. 28), and therefore be about the positioning of the firm. Furthermore, Tellis
(1986) argues that a price strategy should be “[…] a reasoned choice from a set of alternative
prices (or price schedules) that aim at profit maximization within a planning period in response to
a given scenario” (ibid. p. 147). This seems quite straightforward and indicates three important
things. First, that there are different strategic directions. This is in line with the commonalities
regarding retailer’s price strategies put forward by Fassnacht and El Husseini (2013). Second, that
the strategy has some sort of planning period, as indicated by Hübner, Kuhn and Sternbeck
(2013). By relating this to Fassnacht and El Husseini’s (2013) fifth commonality which concerns
the level of analysis, we argue that due to the complexity of the retailer’s business one needs to
explicitly state at what level the definition and research of retailer pricing strategy is being made,
i.e. at chain, store, brand store, brand, category or product level and its indicated planning
horizon.
From the research of Piercy, Cravens, and Lane (2010) we can find another argument which can
help in focusing the definition. They conclude that “[…] a pricing perspective concerned only
with stimulating demand and securing purchase commitment neglects the important link between
price and strategic positioning.” (ibid. p. 40). This means that a pricing strategy is set to help the
organisation to reach their overall goal and that pricing strategy has a long term character. With
this perspective, we close in on what we argue is essential in defining retailer pricing strategy, i.e.
5
to take the different analytical levels into consideration, which was also pointed out in Fassnacht
and El Husseini (2013), i.e. explicitly stating whether we define pricing strategy on chain, store,
brand store, brand, category or product level (see Table 1 for examples of which level the price
strategy definition in previous research has been used). The implication of this is that the
confusion of defining EDLP and PROMO sometimes as a strategy and other times as a tactic (as
indicated in the second commonality and in the quoted definitions above) can be explained as a
result of it being defined at e.g. store level in some cases and at category level in other cases. In
Table 3 below, definitions of pricing strategy at different levels have been presented to illustrate
the implication of stating the analytical level in defining pricing strategy.
Insert table 3 about here
The above reasoning implies that there is no one definition of retailer pricing strategies but rather
there are several; it is important, though, to note is that the definitions are distinct if we take the
analytical level into consideration. The next step in narrowing in on the relationship between
strategy and tactics is to look further into how pricing tactics can be defined.
Defining retailer pricing tactics
When reading through existing research to define retailing pricing tactics (cf. Ailawadi et al. 2009;
Hardesty, Bearden & Carlson, 2007) it becomes evident that the concept of pricing tactics is, just
like pricing strategies, far from consistently defined among researchers. For example, prior
research in many instances uses the concepts of price promotions and price tactics
interchangeably or at least in very similar manners. This can be illustrated by Rao’s (1991:131)
statement that; “All marketing practices leading to price reductions are sometimes called price
promotions.” Varadarajan (2010), drawing on Mintzberg (1987), also states that defining strategy
and tactics in a dichotomous way is problematic since this would imply that some issues are more
important than others. We agree with Varadarajan (2010) and Mintzberg (1987) that strategy and
tactics are not dichotomous. Although it is hard to make a distinction, it is still important to
define strategy and tactics.
We therefore argue that both are equally important but at different levels of the process. Here
pricing tactic is considered in its essential denotation as a tool to gain short-term competitive
advantage. The tactical decisions then become especially important as tools to respond to
competitors’ moves in the market when intense competition exists (cf. Lal and Matutes 1994;
Chandon, Wansink and Laurent 2000). As pricing tactics are used in this way they also become
closely related to price promotions. From this perspective we agree with Rao’s (1991) statement
that price promotion is a practical tool to enforce price image and define the retailer and
therefore needs to be considered. However, there are differences between price tactic and
promotion. To be able to separate what could be considered belonging to price tactic and price
promotion we choose to follow the distinction between price promotion and pricing tactics made
by Bolton and Shankar (2003). They argue that some of the price promotion variables used in
research can be strictly connected to the actual price decision of the retailer: the price level and
the price variation. As a result a price tactic is considered to be the price level and price variation
of a specific promotional tool. By connecting price to other promotional tools, Smith and Nimer
(2012) argue that one avoids viewing price in isolation and that the connection to price strategy
can be seen in their definition: “price strategy, then, involves the utilization of price in
conjunction with or as an alternative to the use of the other marketing weapons in the programs
developed for attaining the firm’s objectives” (ibid. p. 19). This differs slightly from Ingenbleek
and van der Lans’ (2013) argument regarding pricing practice as a set of activities, as we see the
process all the way through to the promotional variables which are visible to the consumer.
6
In conclusion, we argue that when conducting research within the area of retailer price tactic,
one needs to clearly state whether or not promotional tools and/or characteristics are used. If not
used, we argue that the implication is that it is solely linked to the internal process of the decision
before it reaches the consumer. If used, the promotional activity becomes the final tactical choice
which reinforces the price decision in the organisation, and therefore influences the price tactic;
without the execution there are only decision considerations.
Different price tactics
There are a variety of price tactics which the retailer can choose from (Hardesty et al. 2007) and
promotional tools which the retailer can use (Ailawadi et al. 2009). As we argue that the analytical
levels are important we have chosen examples of a few of the most commonly identified tactics
in previous research to discuss how these can be related to different analytical levels: multi
product pricing3, discounts/sales, loss leader items, coupons, and 9-ending pricing (see Table 4).
Table 4 about here
Is the price level and price variation related to these tactical choices solely subordinated to the
above strategic levels or do they to some extent overlap each other? Starting off with the general
ideas of multi-product pricing activities, where several products are combined into one offering
(Schindler, 2012); the essence of it concerns whether the price of one product can have a
substitution effect, or a complementary effect, on other products. Kopalle (2010) argues that
substitution and the complementary effects are key issues for retailers to achieve inter-category
optimisation. However, since many retail products are usually priced below margin, it is
important to understand retailers’ multi-product pricing behaviour of products (Hosken and
Reiffen, 2004). Substitute products can exist both within the individual product line and across
product lines while complements and independent products are only perceived to exist across
product lines (Mulhern and Leone, 1991)). This indicates that multiproduct pricing decisions can
be made in terms of two different strategic levels: product level and category/brand level. There
are basically three ways of doing this: price bundling4, complementary pricing (ie pricing decisions
across product lines; c.f. Tellis, 1986; Kopalle et al. 2009), and implicit price bundling (Mulhern
and Leone, 1991). The above explanations of the essence of price bundling are directly related to
the first two choices. However, price bundling and complementary pricing are to be
communicated to the consumer, especially if using implicit price bundling5 as well. Implicit price
bundling is when the “[…] price of a product is based on the multitude of price effects that are
present across products without providing consumers with an explicit joint price” (Mulhern and
Leone, 1991:66). Mulhern and Leone’s (1991) study revealed two important empirical findings:
firstly that price promotions can positively influence sales of complementary products and
secondly that the issue of maximising profit for the retailer differs from how a manufacturer does
it, i.e. retailers have several brands to sell while a manufacturer has fewer. In light of this,
substitution and complementary issues on the brand level are not as important for the retailer, as
long as the price tactic decision does not hinder the retailer from profit maximisation.
It becomes evident that multiproduct pricing has been around for a long time within the retailing industry (cf.
Holton 1957) even though the concept and definition around it has changed over time.
3
4
Bloc pricing (Holton 1957)
Could be similar to the trading stamp practice which Holton (1957) writes about, since it is a volume discount
practice
5
7
Moving to a second general concept in retailing, i.e. discounts and sales, we are provided
with additional implications. In general one can separate discounts into three different areas: price
discounts (with no particular announcements in the store or external), price discounts with
feature (the discount is presented externally in relation to the store6), and price discounts with
display (within store announcements) (Kumar and Pereira, 1995). The essence of a price tactic is
to thus to increase sales (or profitability) for the retailer. Managing the level of discounts is
therefore important to ensure that the total offering does not affect the retailer’s business
negatively in the long run.
In comparison to the previous two price tactics, loss leader items could be seen as a
narrower tactical approach since it concerns a steeper discount than the typical discount
(Ailawadi et al. 2009). A loss leader item implies that the product is priced at or below the profit
margin and heavily advertised (Lal and Matutes, 1994) with the intention to attract consumers
(Walters and MacKenzie, 1988) who impulse buys other products while in the store (Lal and
Matutes 1994). The impulse buying behaviour is considered a “halo effect” if the item is heavily
advertised; the price promotion will not only increase the sales of the advertised product but also
increase the sales on other, complementary, products in the store. These products’ prices are set
above marginal costs so the net profit is not negatively affected. In addition, the tactic should be
used on “[…] products that are bought often and with high storage costs […]” (ibid. p. 365)
which indicates that this tactic is suitable at the product level. These tactics can be effective
according to Ailawadi et al. (2009); they have a positive impact on store traffic, they increase
average spending, and that they can lead to increased profits if chosen optimally. However,
Kopalle et al. (2009) are not convinced that it is a good tactic since it is difficult to state if it is the
loss leader item which actually provides the increased sales7 and, according to Walters and
McKenzie (1988), therefore has no effect on store profit. In addition, Nijs et al. (2007) concluded
that increased store traffic did not increase retailer margins; hence loss-leader items do not
necessarily increase category profits. This tactic thus is more appropriate at the product level
since the category effects are questionable and might, for this reason, only be relevant at the
product level.
The fourth specific tactic to be illustrated in this paper is coupons. This tactic is chosen
because the tool contains both a price level and price variation during a limited time. Even
though coupons are “pull” discounts from the manufacturer toward the consumers (cf. Gerstner,
Hess and Hokthausen 1994; Mulhern & Leone 1991; Kumar and Pereira 1995; Lal 1990; Lal and
Villa-Boas, 1998), the retailer makes the decision whether or not to allow the coupons within the
store premises8 (cf. Mulhern & Leone 1991; Kumar and Pereira 1995; Lal 1990; Lal and VillaBoas, 1998). Coupons are considered to generate an increase in the quantity sold (Neslin,
Henderson, and Quelch 1985) where the retailer should never lower their prices during the
coupon period (Andersson and Song, 2004). Coupons are often used in the category of
nondurable goods (Narasimhan, 1984) to increase category consumption, brand switching,
consumer trial, and maintenance and/or creation of brand loyalty (Anderson and Song 2004),
and the possibility of repeated purchases (Narasimhan 1984). This indicates that a decision
related to coupons is made on the strategic level of brand/category management. However, Blair
(1982) argues that coupons only have a short term effect as the consumer makes an earlier
6
For example, advertised in a newspaper
7
A question mark raised as early as 1988 by Walters and McKenzie
Cf. Mulhern & Leone (1991) and Kumar and Pereira (1995) for power changes in the manufacturer-retailerconsumer channel.
8
8
purchase than planned. In addition to the frequent usage of coupons on nondurable goods
(Neslin, Henderson, and Quelch 1985), a coupon is usually set to a specific quantity level, which
automatically increases the amount of products sold; thus one can assume that solely looking at
sales increase can be somewhat misleading. The retailer has to weigh the trade-offs when using
coupons in relation to different effects: new customer (positive), trading down effect (negative),
and regular price effect (positive or negative) (Anderson and Song 2004). Since the set retail price
can affect the discount level on the coupons (Gerstner et al. 1994) it then becomes necessary for
the retailer to include strategic price decisions when deciding on whether to use coupons or not.
The fifth and final price tactic to be illustrated in this paper is the concept of 9-ending prices
which is often used within retailing (cf. Macé 2012; Ngobo et al. 2010). The essence of 9-ending
prices is that the retailer decides to use odd pricing (e.g. $1.99 rather than $2) when setting a price
(Baumgartner and Steiner 2007) and the assumption is that this kind of pricing has a “[…]
positive effect on consumption levels and sales” (Ngobo et al. 2010). Both Baumgartner and
Steiner (2007), Ngobo et al. (2010) and Macé (2012) however point out that the assumption of
the effectiveness of nine-ending pricing can be questioned since previous research has shown
that odd pricing does not only have positive effects. The reason for the negative effects might be
due to consumer price references. Even though this concept is usually labelled as a strategy in
previous research, its effect on sales and consumption level has been of tactical characteristics i.e.
short term focused rather than long term. This area is more connected to the actual price set,
which could be equal Bolton and Shankars’ (2003) price decision on price level.
The relationship between price strategy and price tactic
From the discussions and definitions above we can conclude that a pricing strategy definition
should be stated from the retailer’s perspective and contain statements regarding key retail pricing
strategies, whether you have a multidimensional view on price as a variable as well as if it includes
related decisions (e.g. promotion), and finally, which analytical level and planning horizon the
pricing strategy definition is obtained from. Pricing tactics, on the other hand, are short term
oriented tools used to proactively or reactively improve the competitive situation of the retailer,
which makes them easy to separate from pricing strategy. Both the price strategy and price tactic
discussion has so far been limited to illustrating the different ways of viewing and approaching
the two areas separately. However, table 5 below shows that they are both separate and
overlapping to a certain extent.
Table 5 about here
It is thus important to consider the level of analysis when defining and analysing pricing
strategy and tactics. An implication of defining the level at which the retailer pricing strategy is set
is that the price decision needs to include how the strategy and price affect the shared economies
of the firm. It also indicates that when defining the price strategy or tactic considerations
regarding consumers, competitors and/or the product line need to be included. So, since price
strategy and price tactic to some extent overlap each other, how can the relationship between
them be explained and illustrated. We argue that by using Hübner, Kuhn and Sternberg’s (2013)
three planning horizons for retailers it is possible to determine in which way price strategy and
price tactic can be studied together, dependent on which analytical level the researcher views the
field.
Planning horizons: strategies and tactics
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Hübner, Kuhn and Sternberg (2013) classified three planning horizons for the retailer: long term
planning (decisions of the entire chain), mid-term master planning (rules of regular operations for
the next 6-12 months, normally the time for the retailer’s business plan), and short-term
execution planning (activities which are planned a few hours, days or weeks ahead). One can
though question whether or not these three are applicable in terms of price strategy and price
tactic, as they are defined above.
The definition of a price strategy on the analytical level of the chain would thereby need to
incorporate components which are to be valid for a time period which is longer than 12 months,
since this definition ought to represent a price strategy decision for a whole chain. In comparison,
the definition of price strategy on the analytical levels of store/store-brand would need to
incorporate components which are valid for the upcoming 6-12 months, since this could be
argued to belong to the individual store’s business plan. This analytical level provides the means
to differentiate the price definition in regards to the local market. In the case of retailing, Bolton
and Shankar (2003) identified five different strategies which can be connected to the store level
of a retailer. If relating this to the arguments of Hübner, Kuhn and Sternberg (2013) the planning
horizon on this level is shorter than for the overall objectives, and could therefore be seen as a
tactic to reach the overall objective, e.g. the price strategy is set on the long-term planning
horizon while the tactic to compete in the market is set at the mid-term master planning level.
However, if the price strategy is defined at the store level, these five strategies are available as just
that, strategies. In that case, Bolton and Shankar’s (2003) price tactics occur on a store-brand
level and need to be aligned with the store price strategy. The same logic follows here as before:
the perspective of the research determines whether or not it can be seen as a strategy or a tactic,
considering that you always measure two analytical levels. Regarding the last two analytical levels,
CM/BM and product, the price decisions most likely have a shorter time frame than the others.
As seen in Table 5, it is at these two levels that the definitions of price strategy and price tactic
overlap, probably because the levels are so close to execution e.g. the actual implementation of
the price tactic.
Conclusion/final discussion
In this article we have shown that the definitions of pricing strategy and pricing tactics are diverse
and that there lacks a consensus in how pricing strategy and tactics are defined and perceived. We
add to the research area by distinguishing and defining pricing strategy and pricing tactics
respectively and by linking these together through different analytical levels. In line with
Fassnacht and El Husseini (2013) it was shown how tactics need to be connected to the pricing
strategy as these may otherwise have contradictory effects and thus come into conflict with each
other. By aligning strategy and tactics the connection may be a way of establishing price as a
strategic capability.
One main difference in this article in comparison to Tellis’ (1986) study is however necessary to
point out. While Tellis (1986) focuses on the objectives of the firm and the characteristics of
consumers in his taxonomy of pricing strategies, we argue that to enable links between price
strategy and tactic, an alignment of the retailer’s overall objective and the operational tactic
through the different levels in the organisation needs to be considered. From a research
perspective the pricing strategy was defined as a long-term decision. In order to do this it is
necessary to first decide on what level the pricing strategy is to be defined as different analytical
levels affect the definition of pricing strategy as illustrated in Table 1. From a retailer perspective
the implication is that a price needs to be set so that it can aid the retailer in realising their overall
goal.
10
Price tactics in turn were defined as short term oriented decisions on ways to affect competitive
advantage for a retailer, and that should be based on the set pricing strategy. These decisions are
therefore related to the price level and price variation. Following this line of definition price
promotion thereby can be defined as the efforts to affect consumers’ perceptions and attentions
through decisions related to deal intensity and deal support. Hence, the distinction between price
strategy and price tactics is first and foremost a matter of time horizon but it was also shown that
the analytical levels also come into play as a distinction is made between price strategy and tactics
as shown in Table 2.
Furthermore, it becomes evident in this article that, as Gauri et al. (2008) pointed out, it is
important to take the store format’s connection to the chosen pricing strategy into consideration
when defining price strategy and price tactic. In comparison to Gauri et al. (2008), this paper
illustrates the complexity of the price strategy and price tactic research fields and conceptually
argues that some of this complexity can be minimised if the analytical level is clearly stated;
whereas Gauri et al. (2008) argue that the antecedents for price strategy and format strategy
decisions are the same
This article furthermore highlighted that the distinction between pricing tactics and promotion is
not always clear as these are closely related to each other and have to some extent been used
interchangeably in previous research. A distinction between price tactics and price promotion was
therefore developed where price tactics were related to the price level and variation in prices
whereas price promotion was related to intensity in sales and deal support. By doing so, Smith
and Nimer (2012) argue that price is no longer studied in isolation.
In conclusion, this article concerns the determination of the analytical level in the organisation at
which one places the price strategy and, as a result, what planning period one sees as strategic.
This planning period could be extended in its analysis in terms of connecting it to the pricing
objectives and pricing goals of a retailer since Smith and Nimer (2012) indicate differences in
horizon between price strategies and prices objectives. Hence, the relationship between pricing
strategy and tactics is complex and it is not surprising that these have been studied in isolation
from each other (Gauri et al., 2008; Ailawadi et al., 2009).
In relation to Ingenbleek and van der Lans (2013) we complement their research by discussing
this issue in the theoretical definitions within grocery retailing, since, as they argue, context based
analysis is needed in this area.
Implications
The implication of the research in this article is that retailers have a wide variety of choice
when choosing their pricing strategy or tactic to implement the strategy with; and the same
applies to researchers within the field. Some of the areas which previous research has labelled as
strategies can be considered as a part of the promotional mix (advertising, sales promotion, direct
marketing, etc; Mangold and Faulds 2009) and therefore a tactic. Take the example of a loss
leader product; it can be a tactic used or a strategy according to previous research. However, we
argue that a loss leader product becomes a tactic rather than a strategy since it is not connected to
the image of the retailer. Hence, conceptually labelling it as a strategy is somewhat misleading.
The same could be argued for the nine-ending pricing strategy: if the retailer has a strategy which
indicates high quality but adopts nine-ending prices in the store, the nine-ending pricing strategy
can be seen as a tactic. With this specific concept, the diffused line between strategy and tactic is
quite evident, especially in relation to Varadarajan’s (2010) argument; strategy and tactic do not
11
have a dichotomous relation. The line between strategy and tactic also then becomes vague for
retailers and so it then becomes even more important to consider these two areas when
conducting research.
Future research
Grewal and Levy (2007) argue for additional research which is more experimental and thus will
fill in existing knowledge gaps when it comes to pricing and promotional research; while Kopalle
(2010) state that the area of retail pricing and promotion could benefit from a modelling
perspective where strategic and tactical decisions are linked to each other. In relation to this
study, we argue that this is necessary. As we stated, parts of price promotion are related to the
price decision, and experiments which view different analytical levels and analyse the tactic to the
set strategy would be of interest. This of course means that the researcher needs to have access to
the store itself. In this way, additional focus on the research is possible which Kopalle et al.
(2009) did not mention in their review. In their view (ibid) the focus has been on “[….] the
drivers and impacts of assortment, promotion, prices, and competition on consumer choice”
(ibid. p.62) in previous research. Even though Kopalle et al. (2009) state that there has been a lot
of research done in the grocery store context, they also argue that the research done has not yet
been successful in translating the research into useful strategies. This supports an experimental
design in the future when researching this since Kopalle (2010) argue that experiments can help
determine successful strategies where issues such as e.g. prices (controllable factors) and market
segments (uncontrollable factors) are taken into account (Kopalle 2010).
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15
Table 1 Results of the journal search
Key word
Journal
Number of hits
Price strategy
Journal of Retailing
Journal of Retailing
and Consumer
Services
Journal of Retailing
555
613
Price tactic
Journal of Retailing
and Consumer
Services
Price tactic (161)
Price promotion
(423)
Pricing practices
(318)
Pricing tactic (117)
Pricing promotion
(317)
Price tactic (100)
Price promotion (97)
Pricing practices (8)
Pricing tactic (9)
Pricing promotion (9)
Total: 2727
9
Extracted by the
usage of words in
heading and at a later
stage of abstract
49
35
Number of articles
used within the
scope of the article
Price tactic (21)
Price promotion (19)
Pricing practices (10)
Pricing tactic (3)
Pricing promotion (3)
Total: 56
379
Price tactic (0)
Price promotion (6)
Pricing practices (1)
Pricing tactic (1)
Pricing promotion (1)
Total: 9
Total: 149
810
35
14
Total: 64
29 of the articles were already retrieved in the price strategy search within Journal of Retailing.
10
Two articles were the same as two of the 14 price strategy articles from Journal of Retailing and Consumer
Services.
16
Table 2 The 64 articles in relation to which main keyword the hit occurred in relation to
Keyword
Journal of Retailing Articles
Journal of Retailing and Consumer
Services Articles
Price strategy
Su, Zheng and Sun (2014), Swaminathan and Bawa
(2005), Ailawadi and Keller (2004), Bolton and
Shankar (2003), Voss and Seiders (2003), Kumar and
Divakar (1999), Kaufmann, Smith and Ortmeyer
(1994),
Kacen, Hess and Walker (2012), Kumar,
Trivedi, Bezawada and Sridhar (2012),
Staus (2011), Yan and Bandyopadhyay
(2011), Carpenter and Moore (2009),
Bandyopadhyay, Rominger and Basaviah
(2009), Bailey (2008), Lindblom and
Olkkonen (2008), Pechtl (2004), Geuens,
Brengman and S’Jegers (2003), Solgaard
and Hansen (2003), Criner, Kezis and
McLaughlin (1997),
Price tactic
Grewal, Roggeveen and Lindsey-Mullikin (2014),
Pillai and Kumar (2012), Kachersky (2011), Grewal,
Ailawadi, Gauri, Hall, Kopalle, and Robertson
(2011), Grewal and Levy (2007), Manning and Sprott
(2007), Desrochers and Nelson (2006), Bobinski,
Cox and Cox (1996),
Praharsi, Wee, Sukwadi and Padilan
(2014), Olbrich and Grewe (2013), Lee,
Tsai and Wu (2011), Marinez-Ruiz,
Mollá-Descals, Gómez-Borja and RojoÁlvarez (2006), Aalto-Setälä and Halonen
(2004), Zenor, Bronnenberg and
McAlister (1998)
Price strategy
and price
tactic
Gauri (2013), Johnson, Tellis and Ip (2013), Pancras,
Gauri and Talukdar (2013), Girju, Prasad and
Ratchford (2013), Kopalle, Kannan, Boldt and Arora
(2012), Richards, Goméz and Pofahl (2012), Macé
(2012), Grewal, Roggeveen, Compeau, and Levy
(2012), Allender and Richards (2012), Dawes (2012),
Carver and Padgett (2012), Hall, Kopalle and
Krishna (2010), Ailawadi, Beauchamp, Donthu,
Gauri, and Shankar (2009), Kopalle, Biswas,
Chintagunta, Fan, Pauwels, Ratchford and Sills
(2009), Gauri, Trivedi, and Grewal (2008), Kamakura
and Kang (2007), Hardesty, Bearden and Carlson
(2007), Schindler (2006), Raghubir (2006), Kumar
and Swaminathan (2005), Darke and Chung (2005),
Levy, Grewal, Kopalle and Hess (2004), Dhar, Hoch
and Kumar (2001), Shugan and Desiraju (2001),
Gedenk and Sattler (1999), Shankar and
Krishnamurthi (1996), Schindler and Kibarian (1996),
Leone and Srinivasan (1996),
Cardinali and Bellini (2014), Fam and
Merrilees (1996)
17