Back in the day, retail pricing was relatively straightforward. Customers would walk into a store, browse products, look at their price tags, and if they like what they see, they would move on to checkout.
However, with the rise of technologies and trends like omnichannel and price-check apps, the retail pricing landscape has become a bit murkier. These days, retailers have to consider how they should price products across different channels, whether they should “match” the prices of their competitors, and what to do when shoppers armed with smartphones challenge their in-store policies.
That’s a lot to think about, and to help you figure out the ins and outs of modern retail pricing, we caught up with Keith Anderson, VP of Strategy at Profitero, a provider of global eCommerce intelligence for retailers and brands, and asked him to share his thoughts on the matter.
Continue reading to see what he has to say, and gain insights on how you can craft your own pricing policies.
Should retailers ensure that their ecommerce prices are consistent with their brick-and-mortar prices at all times?
Not necessarily. While having the same prices across all your selling channels can certainly create that consistent omnichannel experience that modern consumers crave, implementing such pricing policies isn’t always feasible.
For one thing, the costs of running an ecommerce site and physical store can be very different, and this could affect how a retailer prices its products. Secondly, unlike online stores, which can dynamically update their prices based on shopper history and behavior, brick-and-mortar shops cannot be as nimble, making it harder for them to quickly keep up with their online counterparts.
As Anderson puts it, “it’s difficult for brick-and-mortar stores to price quite as dynamically because executing a price change at the physical shelf takes more labor and more materials. You have to prep the price tags, you have to have someone manually walk to each shelf and item and change the price.”
There are however, a few retailers that are looking to be more dynamic with how they display prices in their physical stores. One example Anderson names is Nebraska Furniture Mart, which uses Profitero’s feed along with digital shelf signs to dynamically update their prices every morning.
But not all retailers have to go to such lengths to maintain price parity, he says.
“We actually find that it isn’t necessary to price as dynamically as online retailers do. And in fact, in brick and mortar, it can introduce some complexity because it may lead to shoppers questioning whether they’re getting a good price or the best price based on the time of day or day of the week that they came to the store,” notes Anderson.
“We think it’s more important for you to know the kinds of price gaps that your brick-and-mortar products have versus online retailers, and try to stay within a certain bandwidth of those online prices on average, but not change your prices daily or weekly. And in fact we find that most retailers change their prices monthly or even less frequently in brick and mortar.”
What should retailers do when customers question their offline prices vs. their online prices, and the prices of their competitors?
There are a number of ways to deal with pricing inconsistencies. Some retailers choose to implement price-matching policies where they’ll match the lower prices of their competitors, while others have “self-matching” policies where they honor the lower prices they have on their own website.
Then there are retailers who choose not to have any matching policies whatsoever, and have different prices across channels. (This, according to Anderson, “is the hardest policy to justify, as most consumers do expect to see the same price, on the same product, in store and offline from the same retailer.”)
Regardless of which policy you decide to adopt, know that there isn’t necessarily a right or wrong answer.
For example, while price-matching makes sense for larger retailers who can afford to keep up with the lower prices of their competitors, other merchants will lose money if they implement such policies, and are much better off competing on value or coming up with more creative offers and programs.
There are also retailers “for whom the cost to serve between online and offline is so different that they still choose to have different prices online and offline,” says Anderson.
The bottom line, he notes, is that “every retailer has to carefully evaluate where they’re positioned on price in the competitive landscape.”
“They also have to think about their operation, systems, and limitations. Can they efficiently price online and offline at parity, or are they managing those two channels in totally different systems with different teams?” he adds.
“And then thirdly, have they done the thoughtful financial analysis to model different scenarios and really think hard about the potential impacts of policies like price matching or price parity between online and offline?”
What are some of the roadblocks that retailers can encounter when they’re setting their price policies?
“Maintaining an item file, accurate inventory levels, and managing a pricing system between channels is one of the foundational roadblocks for a lot of retailers who are not necessarily managing their stores and their online business with the same platform,” mentions Anderson.
“There’s been an evolution. Over the last three or four years a lot of retailers have realized that online and offline are converging and they need to integrate their systems, but both online retailers who started opening stores, and brick and mortar retailers who went online, often use different platforms when they were getting started. And so they couldn’t very easily see what the online price was next to the brick and mortar price in the same system. That’s an important initial technical roadblock.”
This is why it’s important to connect your online and offline stores and ensure that the systems can “talk” to each other and can share customer, inventory, and sales data. You can do this by integrating your online shopping cart with your POS and inventory system.
Another option would be to run your business using a solution that has both online and offline capabilities. This way, data across all your selling channels lives in just one system and you won’t have to deal with third-party applications and integrations.
Staff training is another huge consideration, says Anderson. Modern pricing and shipping policies—such as whether or not a physical store should match prices on its website, or would customers be allowed to pick up online purchases offline—can make life a little complicated for the typical in-store associate.
“Once you’ve done some of the hard strategic work of defining your policies, you have to make sure that all of your staff have been properly trained and are comfortable implementing those policies.”
Anderson adds, “and depending on those policies you put in place, some of them may require a little bit of customer education. Some of them may have a bit of nuance, in terms of when you will match a competitor’s price and when you won’t. It’s also not unusual for these kinds of policies to change a few times throughout the year. And when that change takes place, you have to simultaneously re-educate customers and your staff, which is a big effort.”
Crafting (or updating) your pricing policies can get a little complex, but it’s something that you need to do in order to thrive in this modern retail landscape.
Know that your competitors and your customers are becoming more price-savvy, and a lot of them are now relying on data and technology to make pricing (or in the case of customers—buying) decisions. So don’t get left behind. Go through your own policies, gather the necessary information, and find the right tools to help you execute a pricing strategy that drives sales and profits.
About Keith Anderson
Keith leads the continuous innovation and development of Profitero’s eCommerce intelligence solution for brands, helping global companies gain a deeper understanding of their online presence to optimize both online and in-store sales. For more than 10 years, Keith has been a trusted advisor to global retailers and CPG companies including Walmart, Target, Best Buy, P&G, Unilever and Coca Cola. Prior to his role at Profitero, Keith was Vice President of the Advisory practice at RetailNet Group.
About Francesca Nicasio
Francesca Nicasio is Vend's Retail Expert and Content Strategist. She writes about trends, tips, and other cool things that enable retailers to increase sales, serve customers better, and be more awesome overall. She's also the author of Retail Survival of the Fittest, a free eBook to help retailers future-proof their stores. Connect with her on LinkedIn, Twitter, or Google+.