A similar thing happened in the U.S. in 1991 when value pricing, or every day low pricing as it is also known, was introduced by P&G. Although sales initially flagged, the packaged goods giant's overall volume market share has for the past three years either held its ground or advanced. But conservative European retailers still need to be convinced. P&G brought 'Every Day Low Pricing' (EDLP) to Germany in early 1996. In response, Rewe, the country's largest retailer, and major supermarket chain Spar have now delisted P&G brands, including its Ariel, Vizir and Lenor laundry products, Bess toilet paper and Tempo tissues. Both retailers continue to order the popular Pampers disposable diaper and Always feminine product brands.
According to P&G Germany's annual report for the year to June 30, 1996, sales declined 2% to $4.48 billion, compared with the same period a year earlier, while profit rose by 77% to $72 million. The report noted that sales were down for detergents and cleaning products, but were up for Pampers, Fairy dishwash ing liquid, Always and Tempo. "The development starting this summer shows that the losses we had by launching the EDLP system were on a short-term basis," said Christel Karesch, a spokeswoman for P&G Germany. "Sales are rising a gain." P&G is also in talks with the retailers that delisted its brands. In the U.K., three brands to which P&G has applied EDLP have seen their sales fall also. In the year to Aug. 31, 1996, Ariel's sales in U.K. supermarkets fel l 5.8% to $347 million, Pampers' slid 2% to $261 million and Fairy's dipped 6.9% to $103 million, according to figures from ACNielsen.
P&G's U.K. Director of Corporate Affairs Dick Johnson said of the drop: "The real truth is that [retailers'] heavy multibuy activity has deflated total turnover in one or two of our markets." But, he added, "our market shares and volumes on these three brands have never been stronger." Johnson said it's "difficult to quantify the impact [of EDLP]. But long term, the better value the brand, the better the business will grow." In an attempt to convert European retailers, P&G has been preaching the gospel of value pricing at events like last year's U.K. Institute of Grocery Distribution conference. There, John Miller, P&G Vice President of Sales for the U.K., Ireland and Scandinavia, referred to research P&G commissioned using Information Resources Inc. data across 44 produc t categories. The research found that price promotions are usually not effective in categories with static consumption such as detergents, shampoos, toothpaste, tissues and pet food. Temporary price cuts should instead focus on cat egories where overall sales can be increased like fresh food, bread, coffee, chocolates, yogurt and snacks.
Barilla, the family-owned Italian pasta company, launched value pricing in its home market in February and then in Germany and Greece later in the year. Barilla's regional director for Europe, John Karakadas, said in September that the pricing policy was "going great wherever it's been rolled out." Now the company says it will mo ve ahead with the strategy in Italy, but it cancelled a press conference in December at which it had planned to present its formal evaluation of the process. And, despite claiming earlier in the year that a decision would be made o n the future of value pricing in other markets at year's end, Barilla now says it's still too early to say. Figures from market research company ACNielsen tell one version of the story: Barilla's market share by value of the dried pasta market in Italy not surprisingly fell to 34.8% in December 1996 from 36.7% in December 1995, but its volume share, in turn, has not moved from its 31.5% December 1995 level.
However, money saved on promotional giveaways has let Barilla slash prices on 70% of its products in Italy by an average of 8% to 12%. And also significant is the funds EDLP has freed up for new product research. Its latest launch, Selezione Oro, is the first to benefit from fewer promotions (see related story).