Price transparency on steroids: The end game

Discussion
Dec 03, 2014

Through a special arrangement, what follows is a summary of an article from Retail Paradox, RSR Research’s weekly analysis on emerging issues facing retailers, presented here for discussion.

As we careen into the 2014 Holiday Season, one thing is becoming apparent: the phenomenon called "price transparency" has moved on from simple things like a "RedLaser" app to full-fledged shopping bots that report the continual changes of prices on the web.

Googling "price checkers" brings up Consumer World’s Price Checker and a couple of others I’d never heard before. Trying "price comparison" got me pricegrabber.com and Shopify’s "ten best price comparison shopping engines," among others. In the game of "find the lowest price," consumers are still winning.

What’s more, more than one mass media article has revealed that some retailers actually increase their prices right before Cyber Monday, and even show those before-and-after prices. Even dynamic pricing seems to be at risk, as the general public is becoming aware that large retailers change prices up to nine times a day on many items.

This is important for several reasons. It suggests some caution when changing prices. Too much intra-day pricing runs the risk of irritating consumers and sending them elsewhere. This recalls the mantra: "Just because you can do it, doesn’t mean you should." It also means the key differentiator will not be price. The key differentiator will continue to be rapid fulfillment, solid in-stock positions, and excellent customer service.

If you can’t fulfill delivery promises this year, price isn’t going to matter. In fact, customer service and inventory reliability might even be more important that the actual products sold.

To add complexity to the mix, it’s clear that brands continue to investigate their relationships with consumers beyond just being a "low price alternative." A study RSR conducted with SPS Commerce found 50 percent of manufacturers are already selling direct to consumers, typically via digital channels. When push comes to shove, no one is going to be able to afford to underprice manufacturers themselves.

To pile more fuel on the fire, IBM just published the results of its first annual consumer brands study defining "brand enthusiasts," the loyal yet increasingly fickle consumer. We live in a world of "short attention span theater," where the next new thing can easily capture a seemingly loyal shopper’s fancy. Further, just because the shopper seems loyal, it doesn’t mean she wants to engage with brands. And that same enthusiast will enthusiastically write a really bad product review via social media.

This is the long way round reiterating that a pure pricing play is a dangerous game. Those door busters will lose their luster if consumers know the price was cheaper just five days before. Price is a zero sum game. Well-trained and helpful employees may well be the "long ball" retailers use to create and sustain advocates.

Are price comparison websites and dynamic pricing significantly diminishing the “low-price alternative” incentive for stores? Do you agree that price is becoming a zero-sum game?

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18 Comments on "Price transparency on steroids: The end game"

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Bill Davis
Guest

In the coming years pricing strategy is going to become infinitely more sophisticated. Low price will become a relative term as it will relate to certain categories or products, but not across an entire store’s inventory. And Amazon and Walmart are likely to be the only ones to have the scale to be able to significantly compete on price. Not saying it will be zero sum, but it’s going to get much tougher going forward.

Chris Petersen, PhD.
BrainTrust

Live by the sword, die by the sword. Price is now definitely a sword that cuts both ways.

Even the great retailers must now understand that today’s omni-channel consumers don’t shop “in a moment.” And they certainly don’t shop in a vacuum. Their shopping journey is over a span of time. Armed with smartphones and price comparison apps, consumers have more price transparency at their disposal than ever before.

Robert DiPietro
BrainTrust

Price has been and will continue to be just a lever to pull in a retailer’s arsenal of ways to drive sales and traffic. With dynamic pricing and manufacturing entering the channel directly price will become less effective of a lever to pull. Additional transparency on price will only infuriate the customer as retailers adjust pricing during the day. Retail is not similar to the airline industry where supply is limited and yield matters. The long ball is knowledgeable and helpful associates—customers will shop at the retailer for that as long as it’s a “fair price.”

Tom Redd
Guest

Redd Retail Point: You can win ONCE on a super-low price, but the shopper will rarely return and promote you as a one-time win.

The real ways to win: Have it in stock, have people that KNOW your products and how to talk to other humans, and extend the relationship with the shopper with HELP LINE teams.

More! Redd Depth and Ramble Segment:

Price. It used to be a winner, but service (online, by phone and at the store), product knowledge and inventory are the differentiators. This goes across all retail—from food to fashion to DIY and beyond. Shoppers want service and will pay a price to get it. Meaning many people would not shoot to save a small percent if they knew the product was at the right place when they want it AND that the associates could explain or discuss the product, features, what it matches with, etc.

Inventory SERVICE levels are number one. In-store face-to-face service is number two. Online/by-phone help line is number three.

TR

Dick Seesel
BrainTrust

Retailers who are locked into a specific sale price for a specific event will find themselves increasingly at the mercy of the “empowered consumer” who can easily find a better price elsewhere for the same item. Some stores will develop tools to provide the same kind of fast reaction that Amazon has, and other stores will need to become more nimble at least on their online pricing.

But the good news is that many retailers operating on the premise that “it’s all about price” will need to develop other connections to their customers. Merchandising, customer service, loyalty programs, store design—there are plenty of weapons in the smart retailer’s arsenal.

Ken Lonyai
BrainTrust

It seems that the price gaming that these price-fluctuating sites engage in is an unnecessary exercise. Without knowing if it really benefits their bottom line or not, it appears to be a complex and risky approach to trying to squeeze out a little bit more profitability.

Aside from stabbing customer loyalty in the heart, aside from creating even more price sensitive consumers, the practice turns everything into a commodity and commodities are generally not that profitable.

My unsophisticated retail model is to use a few standard mark-ups across different product categories, minimize discounts/sales, constantly improve customer experience, maximize unique/exclusive products and create value that loyal customers will pay a little more for. Doing so will make dynamic pricing an unnecessary practice.

Keith Anderson
BrainTrust
First, I caution against projecting data from an indeterminate number of products in a single category to the entire marketplace. Who knows whether the examples shared in these recent studies were cherry-picked to support a provocative conclusion? Pricing often depends on stock levels, competitors’ prices, profitability targets and other factors. A difference of about 1 percent in the discount of products between Black Friday and Cyber Monday (as one recent study reported) doesn’t strike me as particularly profound, and mainstream coverage doesn’t necessarily validate questionable methodologies. Dynamic pricing is also probably not as dynamic as the mainstream believes it to be. On a per-product basis in many categories, fewer than 10 monthly price changes is fairly typical. There is risk in changing prices as often as seven to 10 times a day, but that level of change is typically responsive to competitors’ discounts, and the shopper generally wins. Consumer-direct strategies for brands tend to be about brand equity and control over the complete customer experience. The cardinal rule of D2C selling for brands is not to undercut retailers’ pricing or risk serious channel conflict. Just think of the brands commonly cited as having a strong direct channel like Apple, Lego,… Read more »
Adrian Weidmann
BrainTrust

Digitally-empowered shoppers are smarter, better-informed shoppers, and retailers and brands who think that they are out-smarting their shoppers with dynamic pricing WILL get caught and exposed. The exposure will travel globally at the speed of light and may cause irreversible damage to the brand.

As Paula notes, customer service, availability, accuracy and efficiency will always win the day in the eyes of the shopper. The digital landscape is a transparent one and retailers that believe they’re outsmarting today’s shopper may win short-term financial victories but will lose the battle for their hearts and minds, which in the long run has far more value.

Cathy Hotka
BrainTrust

Black Friday was really a “thing” when customers believed they were getting fantastic prices on must-have items, but consumers are beginning to realize that they have other options. This makes it all the more important for retailers to compete on experience, not price.

Lee Kent
BrainTrust

Price is and will continue to be a competitive weapon for those items that the consumer deems commodities. Now, each consumer’s list of said commodities may be very different than their neighbor’s.

It will be up to retailer to figure out how to bring value, experience and service to their customers in order to show the customer why they should share their shopping journey with that retailer.

Shep Hyken
BrainTrust

Websites and apps that help consumers find the lowest prices are here to stay. If a retailer wants to be positioned as a low-price retailer, then this is the proof the consumer needs that the retailer is delivering as promised.

I always fear for the retailer that positions itself as a low-cost provider. The only loyalty the customer has to them is price, and just about any competitor can come along and cut price. That said, if that is all the consumer wants, and has no interest in any other value the retailer has to offer in the form of service and experience, then a low price is the game to play.

I have mentioned this before, but I like doing business with Guitar Center for my music hobby. Whenever I make a major purchase, they automatically check their competitors to ensure I’m getting the best price. I don’t have to ask. It’s just the way they do business. And the value add comes from their staff who are knowledgeable and deliver great customer service. Bottom line is that I expect them to be competitive—not always the lowest price—but they go out of their way to ensure I get the lowest price.

Tim Cote
Guest
2 years 7 months ago

The deal-driven Millennial is all about price, especially on name-brand goods that can be found anywhere. It is all about “the deal” to this group. Yes people talk service, but they buy price.

Debbie Hauss
BrainTrust

You just can’t compete on price alone any longer. That said, you still need to be true to your own brand promise. J.C. Penney, for example, learned the hard way that their target shoppers still wanted to see sales and discounts when they accessed the brand.

To win the battle and the war in retail, companies will need to focus on creating a unique, personalized and valuable experience for the most loyal shoppers. This experience must translate effectively across channels, wherever customers choose to interact with the brand.

For many it will mean implementing new, interactive digital technologies in-store and new methods of communicating and providing offers via mobile technology and social channels.

Ralph Jacobson
BrainTrust

Competing on price alone has always been a dangerous game. I still believe there are enough differentiators, some of which are less tangible, that merchants and CPG brands can leverage to drive true brand enthusiasm, and generate compelling reasons to shop there first.

Graeme McVie
Guest
Graeme McVie
2 years 7 months ago

Price will be more important on some items and for some customers than other purchase decision criteria, but it is only one component of the overall value proposition and should take a lower priority than value (a trash bag could be low-priced, but the consumer will associate it with low-value if the bag splits open and leaves trash all over the floor).

Retailers need to understand where price or value is an important purchase decision criteria for valuable customers, and then determine if changing the shelf or visible price is the right action, or if providing a personalized electronic coupon to specific valuable customers is the right approach.

Tony Orlando
BrainTrust

Price in my area for groceries is KING, and differing economies make price an issue where in the poor rural areas, it becomes even more important. Yes service, knowledge, great customer service, and in-stock conditions do mean something, but the price or perception of the best price will win out every time for the masses. Just look at Walmart during the Holidays, as you can’t get into the stores, and the Clubs, plus the Dollar stores are doing well too.

Show me a person who wants to pay more for almost any product, as they are endangered species.

Who wins? The big stores and Amazon, and who knows what next big thing is coming in the future. Hot Deals are here to stay.

Arie Shpanya
Guest

We are in an era of hyper price sensitivity and transparency. Shoppers want to know that they’re getting the best deal possible and there are countless resources out there to make sure of it.

Dynamic pricing is tricky because retailers run the risk of angering customers who see that the item is being sold for cheaper shortly after they bought it. But there are so many industries in which consumers accept the fact that prices fluctuate. And most prices change over time anyway when there are sales or limited time promotions. Dynamic pricing just speeds up the process and keeps up with the competitive landscape. It is prevalent among the top retailers like Amazon and Wal-Mart. Dynamic pricing is certainly transforming from just a trend to the new standard for retailers that want to stay relevant.

But pricing is just one piece of the puzzle. Added value is how retailers can really stand out from the competition. Free shipping, hassle free returns, a strong brand image etc. are ways to command higher prices, or at the very least, make a retailer more appealing.

Mihir Kittur
Guest

Price is but one lever in the equation. Admittedly it has been gathering a lot of attention as it is a very “tangible” measure.

Dynamic pricing is a reality though in its infancy. Retailers will need to be thoughtful in leveraging dynamic pricing. The idea is not to be the lowest or to match but to understand what is the customer willing to pay.

While pricing will remain important to success, winning retailers recognize that sustainable success lies in using analytics to uncover what customers want and being able to respond to that using a combination of levers like better service, free shipping, delivery, etc.—and not price alone.

Dynamic offers, personalization and superior delivery could be the emerging “next next thing,” but understanding and being relevant to consumers will probably not go out of fashion.

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