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[20 comments]

Variable Online Pricing Gaining More Attention

December 26, 2012

More websites are offering different prices for different consumers based on their browsing history, location, and even the device they're using. Not surprisingly, the news is not pleasing privacy advocates.

Highlighting the practice, a Wall Street Journal investigation found that a number of websites — including Staples, Home Depot, and Rosetta Stone — display different prices to shoppers based on their location.

Staples acknowledged that it varies its online and in-store prices by geography because of "a variety of factors" including "costs of doing business." The Journal's research found that the single factor explaining the pricing pattern at staples.com was by far the distance to a rival's store from the center of a ZIP Code. Office Depot also told the Journal that it uses "customers' browsing history and geolocation" to vary the offers and products it displays to a visitor to its site.

The practice is legal with some exceptions for race-based discrimination and other sensitive areas. Some say the brick & mortar world already behaves this way, with prices among stores differing due to real estate costs, inventory, competition and other factors. Finally, utilizing such browsing and purchasing data could lead to more relevant and personal online offers to consumers than ever possible at a store.

Still, the Journal pointed to inherent privacy concerns in the practice as well as how such online behavior can "reinforce patterns that e-commerce had promised to erase: prices that are higher in areas with less competition, including rural or poor areas. It diminishes the Internet's role as an equalizer."

The investigation came after another Journal article in June found that Orbitz began showing consumers browsing with Apple devices spent more on hotels than Window device users. Browser history, such as whether the shopper has already searched for a particular item, is also reportedly used to fine-tune prices.

In late November, U.K.'s Office of Fair Trading (OFT) said it was exploring whether consumers "are being treated unfairly" through personalized pricing. In the U.S., regulators are pushing internet companies to install "do not track" systems to protect against such use of privacy data.

Writing on his blog, Mitch Joel, president of digital marketing firm Twist Image, contends both marketers and retailers will have to be more open about how they're using online consumer information.

"Instead of trying to brush it under the carpet, they are going to have to be more transparent about how their price structure works, and how that varies from physical store to digital entity, and from location to location, and person to person," wrote Mr. Joel. "If they don't (and something tells me that they will not), it's going to force government intervention."

Discussion Questions:

Will much greater transparency around pricing strategies be required for consumers to accept variable online pricing? How should the tradeoffs and benefits of more personalized online deals be explained to consumers?

While we value unfettered opinion, we urge you to show respect and courtesy for people or companies about whom you comment. Keep in mind that this is a public, professional business discussion. RetailWire reserves the right to edit or refuse the publication of remarks that we deem unsuitable. We may also correct for unintended spelling and grammatical errors.

Instant Poll:

How much of a backlash do you expect from consumers as they learn about variable online pricing techniques?

Comments:

In the ongoing tug of war between retailers looking for "pricing power" and consumers empowered by technology, I would not bet against the customer in the long run. "Pricing transparency" is a growing concern for retailers, but localized pricing tactics as described in the WSJ story have a good chance of backfiring.

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Dick Seesel, Principal, Retailing In Focus LLC

This is not about consumer information. This is about an attempt to perpetuate zone pricing...something Nikki and I predicted was going to come back to haunt retailers last year. In fact we asked the question: "Is zone pricing dead?" for just this reason.

We saw in this year's pricing survey that many retailers had begun returning to one price, across channels and geographies. Price transparency is real, and it was only a matter of time before this came to pass.

Sorry fellow retailers. I know we've been working on getting zone pricing to work right for 30 years...but it's all over now.

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Paula Rosenblum, Managing Partner, RSR Research

This is clearly a very sensitive area, and retailers must tread carefully in both the way they implement variable pricing as well as the way they communicate about it to their consumers.

To be cynical for a moment, people are indignantly opposed to variable pricing if it means that they pay more then the next guy in line. But wait—you have special savings just for me? Well, sign me up!

To be more constructive, I'd say you should make your program focused on rewarding shoppers for their loyalty, offering them added discounts if they buy more, and giving people special incentives to try something new. If you stick to that messaging (and execute on it in reality), then you should be fine. But if you build a program designed to fleece the unsuspecting, you should expect negative blow-back that may outweigh the marginal profits your program generates.

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Ben Sprecher, Business Development, Google

For consumers to accept variable pricing, they have to know it occurs. Right now, variable pricing is not transparent so consumers would not necessarily know it is happening. The first response to knowledge of variable pricing will be negative—why did I not get the best price? If consumers believe that they get special pricing for something they can control (e.g., being a frequent user) they are likely to support the practice.

Basing price differences on consumers' online activity that is collected without their knowledge is likely to raise privacy issues and not be well received.

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Camille P. Schuster, Ph.D., President, Global Collaborations, Inc.

Consumers get very frustrated when a retailer's prices differ between its online to brick and mortar stores. Why should someone shopping on a Mac pay more than someone shopping on a PC? If retailers want to build trust, they need consistent pricing.

The onus to hold retailers accountable should not fall on the customer. What's next, having sales associates in the parking lots to see which car a customer is driving and then adjust prices accordingly?

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Max Goldberg, President, Max Goldberg & Associates

ARBITRAGE—No doubt, greater transparency will be called for. But in the meantime, arbitrage pricing creates a market for a middleman.

In this case the middleman would be a "reverse" scalper. A normal scalper sells at a price higher than a ticket face price. But these reverse scalpers will advertise their ability to buy low. Then, they'll sell to you (at a price lower than you could buy on your own), but still have enough left over to pocket.

Profit is possible because the cost of reverse scalping is minimal: the transaction is digital and many operations can run on an algorithm. Interesting times.

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Liz Crawford, VP, Strategy & Insights, Match Drive

Information is power—and consumers will need to continually inform themselves of these practices and the brands who exercise this behavior. The real question is to what degree is the information being used. The internet was (and hopefully continues to be!) the equalizer for smaller brands and products. It appears that the 'game' that was played between shoppers and brands in the analog world is simply moving to the digital world.

Brands will use technology to out-smart the unsuspecting consumer, while the digitally empowered shopper will use technology to expose the brand's tactics. In the digital world where information travels globally in nanoseconds, brands must be very careful on their practices. The price and consequences that they'll pay, if and when they're exposed and judged in the court of global shopper opinion will far outweigh the short-term benefits!

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Adrian Weidmann, Principal, StoreStream Metrics, LLC

Transparency is critical moving forward if online purchases are to reach the next level of growth.

I think this will require a lot more one-on-one marketing, which will be all the more difficult when one of the ones—the consumer—realizes they've been duped for years by the other.

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Ryan Mathews, Founder, ceo, Black Monk Consulting

Why is this an issue? Consumers don't have to buy if they don't like the price. As a retailer, it is my choice to be price competitive with the store down the street. If I know I can sell an item for a higher price in a high income area versus a low income area, why should I not? Why is the internet different? Retailers make pricing decisions. Consumes make buying decisions. It is that simple.

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Gene Detroyer, Professor, Independent

Customer pricing is not new. Most frequent shopper programs are nothing more than tiered pricing. Here, customers in the same store pay different prices.

More consumers are finding out daily that some discount prices are only for online purchases, not in-store. This is further highlighted from the price comparison programs and apps. When a consumer uses one of these programs and then finds out they will be charged a different price, they lose faith in the seller.

Consumers are starting to understand it is a free for all, and distrust is building. Customers have been trained to accept different prices based on past purchases, not where they live. Variable pricing can be a good competitive weapon, but it can backfire.

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W. Frank Dell II, CMC, President, Dellmart & Company

Zone/variable pricing has been around since the first retailer understood that they could charge different prices in different markets. Retailers may or may not have had all the information available today, but they expected people in certain markets to be willing to pay more or less (in some cases based on the cost of doing business in the area). When online shopping came about people said hey that is great, I can buy for less because I am not paying for the clerk, the building, etc. and I don't have to pay sales tax.

Eventually online retailers realized they could collect enough data on the customers to be able to do the same things B&M retailers had been doing and did so. I fail to see why this is a surprise or creates such excitement.

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Steve Montgomery, President, b2b Solutions, LLC

So let's see, we have pricing that's 1) not illegal; 2) not readily apparent to consumers; and 3) usually has a rational basis (logistics, competition, etc.), so tell me again why this is an issue? That (some) people thought e-commerce would bring a utopia where shipping—and every other transaction cost—was free says more about their lack of critical thinking than anything else. OTOH, there clearly ARE many bait-and-switch tactics on the 'net, and time would be better spent focusing on them.

'notcom'

"If they don't (and something tells me that they will not), it's going to force government intervention." This is a fiendish attitude. But there is nothing wrong with having a public discussion of issues like this. There is a great deal of ignorance about how lots of things work in society. And the "government" is a pathetic protector, compared to the fierce forces of competition.

Let's see, how many years did it take for the government to get off the back of A&P as they were ushering in massive savings and huge selection benefits to shoppers? And how helpful have the faux-consumerists and their legal minions (including government) been in getting the benefits of Walmart to the Chicago poor?

On the other hand, there is nothing wrong with some private sector education, and allowing various populations to punish themselves at the ballot box.

When I decry the government/industrial complex of crony capitalism, I don't despair. Because one giant company attacking other giant companies will always provide some opportunity for us "mice" to merrily dance between the elephants' feet. And other giant businesses will compete for everyone's custom. If they don't, still other giants—who began small—will change the game to disrupt them all. Witness Google, Apple and a host of paradigm shifters who become the "new" elephants.

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Herb Sorensen, Ph.D., Scientific Advisor TNS Global Retail & Shopper, Adjunct Senior Fellow, Ehrenberg-Bass Institute

This is much ado about nothing! The Journal really needs this many words and this much feigned outrage to say that retailers price lower when there is competition? There is no unfairness here—the retailers are offering a transparent price. If consumers want to buy at that price, great. If not, they are free to buy elsewhere.

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Jonathan Marek, Senior Vice President, Applied Predictive Technologies

Retailers are going to have a problem with "zone" pricing. Transparency is the ultimate goal with so many ways for the customer to know what the pricing model is. The customer is not a fool. There is an end to the belief that the customer will buy into this as someone else's problem.

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Ed Rosenbaum, CEO, The Customer Service Rainmaker, Rainmaker Solutions

Why would retail pricing be off-limits as a personalization strategy when other forms are lauded? Dynamic pricing and zone pricing (with online being just another "zone") don't necessarily require explanations on the part of retailers, but they do require clear consumer policies that are also communicated to suppliers. As Walmart CMO, Stephen Quinn called out in his recent presentation, policy alignment is the consumer-facing opportunity.
(My two-part take on his presentation is posted at http://is.gd/cKTmOg)

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Carol Spieckerman, President, newmarketbuilders

Customers shop. They're very good at it. They shop between retailers, and even within a single retailer comparing online pricing to in-store pricing. Now they get to shop inside a retailer's website, approaching it from multiple electronic devices and using various log-ins and passwords. It'll be fun!

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M. Jericho Banks PhD, President, CEO, Forensic Marketing LLC

Zone pricing is a logical business decision, as is providing pricing advantages for more profitable consumer segments. If this is done with transparency, and consumers find it relatively advantageous, then it will work. If it is attempted in secrecy (which can no longer be done) or if consumers don't find it relatively advantageous, it will fail.

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Mike Osorio, Senior VP Organizational Change Management, DFS Group

Yes. Online pricing should be transparent, consistent, and reliable. Anything less is contrary to fair market practices. That this is already going on without some type of legal intervention is incredible. Where is our government protection against what are clearly poor trade practices, and pricing in restraint of trade?

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Kai Clarke, President, Kowa Optimed, Inc.

True price transparency helps to increase consumer trust. The conflict occurs, however, when retailers charge higher prices for what are perceived to be "unfair" reasons. For example, consumers are accustomed to, and feel it is fair, that frequent customers get special treatment. As such, frequent-buyer discounts that can be applied to uniform pricing will be more likely to gain acceptance than a retailer charging a higher price for certain products in certain areas only because there is no competitor in the immediate vicinity, or because I happen to be an Apple user who lives in a higher-priced area.

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Alexander Rink, CEO, 360pi

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