Multichannel Pricing Strategy

Multichannel Pricing Strategy

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Multichannel Pricing Strategy

Personalization is permeating ecommerce in areas such as product recommendations and customer service. Personalized pricing is a fertile area of focus for multichannel retailers looking to optimize what they charge based on shifting consumer demand and competitor moves. A recent RetailWire survey suggests that offering different prices across channels will become commonplace.

Retailers have been reluctant to vary prices, concerned that they might irritate consumers who want consistent cross-channel shopping experiences. But price consistency is becoming less of an issue for consumers. Online consumers are adjusting to the idea that prices fluctuate. Smartphone shoppers in particular are aware that prices are often lower online than in-store. Rather than complain about the differences, some consumers are taking advantage of digital tools that allow them to compare prices, receive alerts when the price of a product drops and predict the best time to make a purchase. Consumers are also sophisticated enough to realize that different shopping channels offer different levels of service and that prices will vary accordingly. Currently, savvy retailers are offering uniform pricing across channels but selectively pricing channels differently based on personalization. To succeed at this strategy, retailers must be able to justify their pricing rules and be able to explain to customers why one paid more or less than another. Over time, the most sophisticated merchants will learn to leverage “Big Data,” CRM databases and other technology to offer each consumer “their own price” in real time, whether the customer is shopping on the retailer’s website, mobile site or in its store.

 

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Current State of Multichannel Pricing

Multichannel retailers often face a challenge in deciding how to price identical products across channels. Should they offer uniform pricing as part of a consistent cross-channel customer experience? Or should they price lower online to compete against web-only retailers that have lower overhead costs?

A study from CrossView, a builder of cross-channel ecommerce solutions, examined how retailers resolved this challenge. It found that, from the average shopper’s perspective, prices for identical products were almost always the same across a retailer’s website, mobile site, stores and other channels. CrossView used mystery shoppers to evaluate the cross-channel consistency of 26 retailers on a variety of criteria, including pricing. They compared prices across the retailers’ channels for a list of popular items and found that 88% of the merchants had consistent prices in 2012, a slight decline from 2011.

Predictive pricing services One of the most useful shopping tools to arrive on the market recently is Decide, a website and mobile app that uses predictive technology to advise consumers on when to buy or wait, based on Big Data analysis of 25 billion price movements. Decide predicts prices two weeks in the future in product categories like consumer electronics, appliances, lawn and garden, sports, and tools and hardware. Decide claims its price predictions are right 77% of the time, and when they are, consumers save an average of $101 per product. In April 2012, the company announced a price guarantee where Decide will pay the difference up to $200 if a product price drops further in the two weeks following a purchase based on a Decide recommendation to buy. When asked about what retailers can learn from Decide, Michael Paulson, the company’s vice president of product and business development, said: “If we allowed retailers, for example, to see how many people were waiting for a price drop on a given product, it would be a very obvious thing for them to say, ‘Well, let’s just make the future happen now. We all know the price is going to drop $70 on this camera. Why don’t we go in and offer it to consumers right now for $70 less or $55 less?’ You can imagine win-win scenarios like that where we [Decide] let retailers know where consumers are on the demand curve for a product. Then retailers can move their inventory and consumers can get what they want sooner.”

 

Comparing Online and In-Store Prices

A couple of recent studies that looked at whether prices really were lower online, confirmed the internet’s price advantage, but did note a few categories where stores were on par with the internet or even had a slight price advantage. Anthem Marketing conducted its latest biannual pricing study in June 2012, comparing prices online and in-store for a market basket of commonly purchased consumables and specialty items. Online and in-store prices were compared for a number of big box retailers, including Wal-Mart, Target, Staples, Sears, Macy’s and Walgreens, and web-only prices for Amazon and Peapod. The study excluded sales tax and shipping fees. Items priced between $15 and $45 had a clear advantage online. The average per-item price for six products in that price range was $22.39 online. That was 15.2% lower than the average in-store price of $26.41. “Considered purchases” (e.g., a GPS navigation unit, Hasbro’s Game of Scattergories, and an Apple iPod touch) also had better prices online. Items at the high end of the scale and those categorized as “convenience purchases” (e.g., Duracell AA batteries and Chapstick) did not have a clear advantage in either channel. However, school supplies were cheaper on average in-store.

 

Price tracking and alerting services

A slew of websites help consumers decide when to buy by tracking historical prices for a product and alerting customers when the price of an item drops. For example, Nextag graphs the price history of products so shoppers can see if prices have gone up or down in the past few months. It can also send email alerts when a specific item drops below the consumer’s target price. Glimpse, a Facebook app built by comparison shopping engine TheFind, sends email alerts to consumers when a product they have liked goes on sale. According to InternetRetailer, Glimpse had about 120,000 users as of late September, and has a goal of raising the count to 500,000 by the 2012 holidays. TheFind reports that about 25% of price alert emails are opened by consumers, and nearly half of those who open them click through to the ecommerce site that sells the product. A number of sites specifically track price changes on Amazon. One of them, camelcamelcamel, allows users to view a graph showing the price history of products on Amazon and sign up for price alerts via email and Twitter when a product’s price drops. Amazon’s shopping cart effectively is a price-tracking mechanism, too, notes Mercent’s Best. Customers will receive notification of any price change to items in their cart when they return to the cart review page.

Predictive pricing services

One of the most useful shopping tools to arrive on the market recently is Decide, a website and mobile app that uses predictive technology to advise consumers on when to buy or wait, based on Big Data analysis of 25 billion price movements. Decide predicts prices two weeks in the future in product categories like consumer electronics, appliances, lawn and garden, sports, and tools and hardware. Decide claims its price predictions are right 77% of the time, and when they are, consumers save an average of $101 per product. In April 2012, the company announced a price guarantee where Decide will pay the difference up to $200 if a product price drops further in the two weeks following a purchase based on a Decide recommendation to buy. When asked about what retailers can learn from Decide, Michael Paulson, the company’s vice president of product and business development, said: “If we allowed retailers, for example, to see how many people were waiting for a price drop on a given product, it would be a very obvious thing for them to say, ‘Well, let’s just make the future happen now. We all know the price is going to drop $70 on this camera. Why don’t we go in and offer it to consumers right now for $70 less or $55 less?’ You can imagine win-win scenarios like that where we [Decide] let retailers know where consumers are on the demand curve for a product. Then retailers can move their inventory and consumers can get what they want sooner.”

Publish Date: November 2016

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