Leaders aren’t born they are made. And they are made just like anything else, through hard work. And that’s the price we’ll have to pay to achieve that goal, or any goal.” – Vince Lombardi
One question that we are often asked by our clients is in the topic of pricing, more specifically whether they should price at a different price point for online versus their pricing in their shops.
How should an omnichannel retailer deal with this perennial topic of pricing parity between their physical shop and online network? How are our retailers globally dealing with this topic and what can we gleam from their learnings?
Our view is that pricing parity is preferred, with movement for promotional and tactical execution preferred, however it is case specific. This fits more readily with our perspective that omnichannel itself will soon be an extinct term, superseded by the concept of a differentiated brand community supported by all touch points physical, digital and social integrating seamlessly.
To answer this question, and as the Australian member of the prestigious Ebeltoft group, a worldwide alliance of retail experts, I raised this question and asked members to share their experiences and insights with you to help gain greater clarity on this topic.
While some of the opinions vary, the topic of customer centricity and building the differentiated model to support are constant.
Tanja Eckert, of Gruppe Nymphenburg, one of our German partners spoke of a client who lowered their prices online to be able to compete against national and international competition. Fully aware of the omnichannel customer’s desire to research, and focused on retaining a customer-centric focus, the store offered a ‘best price’ policy, meaning that if a customer entered the brick and mortar store claiming that they saw a better price online, they are granted the same price.
According to James Okamura of Okamura Consulting from the USA, “pricing differentials between stores and online is the norm not the exception. Every leading multichannel retailer has occasion to have pricing differences across channels; and if the strategy calls for it, there should be.
“We have often tried to dispel the myth that pricing and promotions must be exactly the same for a multichannel retailer. Promotional cadence is at the heart of any omnichannel planning project we’ve done. If you force the e-commerce business to ‘slow down’ to the store’s cadence, the likely result is you will kill the growth of e-commerce as more agile online competitors capture the sale.
“Hence, the strategy should drive pricing decisions. If the strategy calls for aggressive growth in e-commerce, often with a gradual transformation to add cross channel capabilities as e-commerce growth decelerates, then you must allow the e-commerce business to compete against Amazon and other pure online retailers (including price competitiveness). If the strategy calls for store-based omnichannel excellence, with less emphasis on e-commerce revenue growth, then a stronger company policy on price matching may be the right approach. For most retailers however, the current strategy calls for a hybrid approach, where both strong e-commerce growth and advancing cross channel capabilities are both in play, and why they need to manage the transition carefully.”
According to British consultant Nick Ashcroft, of Pragma UK, “this is increasingly uncommon in the UK as it is considered bad practice and a recipe for cannibalisation of bricks and mortar stores. Grocery is probably the last category where this happens as part of their channel strategy… as a rule of thumb, we do not expect to find retailers offering like for like product at one price online and another offline if there are no additional factors at play such as promotions.”
This seems to be a shared position from other partners in Europe and Asia. In Thailand, generally prices on and offline are the same, with ‘any weekly online promotions almost always aligned with an advertising page in a daily newspaper.’ Differences in price simply come from special gift vouchers or discounts that apply only online, says Frederic Etienbled, of HPT Ariane – HPT Consulting, Thailand.
Portugal and Spain
According to Marcos Pais Henriques, IMR, Portugal, recent studies conducted by our European partners have shown 89.3 per cent of e-commerce retailers in Portugal and 89.5 per cent in Spain have the same prices online and offline, with only approximately 10 per cent of retailers lowering online prices, and 3.9 per cent of Portuguese omnichannel retailers actually increasing prices online. While reasons for these price changes/adaptations vary from client to client, overall it would seem those who have adopted a change in price on their e-commerce channels have chosen to do so, to ‘catch the wave’ of e-commerce, gain quota on e-commerce channels or simply use this channel for promotional purposes and therefore offers lower prices by giving discounts and offers.
The idea of adapting price alignment for promotional purposes when selling online was reiterated by our colleagues in France. While there has been evidence that not strictly aligning prices on and offline may be cause of much frustration among customers, Cedric Ducrocq of Dia-Mart Group, suggests to their clients, that you should analyse ‘tactics’ like web exclusivity on which prices will be more aggressive, however “at the end of the day, don’t forget the real price you pay when purchasing online should include delivery costs.”
Seen by many as an additional service level, delivery services and additional guarantees that come from the online experience should be considered when analysing differing prices online and offline, says Damien de Maisonneuve from Dia-Mart, Poland. Damien spoke of appliance retailer ‘Euro’ who’s prices are different online and offline, but then they simply reflect the differing service level.
“The main issue is whether or not they charge for delivery. Are there minimum spends to qualify? Do they arrange for free click and collect?” asks Bill Webb from London. Renowned English omnichannel department store, John Lewis, has recently announced changes for this at low level orders, as a future of free click and collect offers with customers utilising the service for products worth as a little as £2.50 was simply not sustainable. While the media predicted an impact on consumer spend, results have shown that it has hardly dented their success, with customers willing to pay for the convenience and efficiency of this service offer. “Ultimately free returns are the area where business models impact the final price that customers pay,” said Webb.
Thank you to all colleagues and partners who contributed to this discussion. All of the feedback suggests whilst there may be differing strategies across the world, all retailers ultimately align their pricing strategies to their unique customer expectations and overarching channel strategy.
First published on Inside Retail, 21st October 2015