RSR Research: Does Channel Pricing Conflict Break Trust With Shoppers?

Discussion
Apr 02, 2013

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.

You’re standing at a store shelf. You want to buy an item, but you’re just not sure. You think, "I’d better check online," and pull out your phone. You price check. The top result — this retailer’s online version of the item right in front of you is 20 percent less than the store price.

What’s the reaction? "Hey! I thought you were looking out for me, Retailer. I was about to buy this item, but now I feel like an idiot. I would have ignorantly paid 20 percent more without a second thought, simply because I trusted that you weren’t trying to take advantage of me. But now, if I’m going to continue our shopping relationship, I clearly need to look out for myself a heck of a lot more."

Next time it won’t take you so long to reach for the phone and, the next time it happens again, the harder it will be for the retailer to rebuild your trust. And if shoppers learn not to trust a retailer’s prices, it’s not that long before they start thinking they’d better check around on assortment too. Their loyalty is now completely in play for any other competitor to grab.

I’m making a big deal about this because of RSR’s upcoming pricing research (available April 11). Last year retailers were in a panic over showrooming and price matching. Zone pricing was dead, killed by price transparency. This year, retailers are much more sanguine. They told us in our benchmark that as long as they had publicized policies that covered price matching — who, when, and how much — they felt they could price across channels and zones however they liked.

Back to the 20 percent online discount example above. Sure, I could go to the cashier with phone in hand and say, "Hey, this is 20 percent less online. Will you price match?" And sure, the cashier will likely say, "Oh yes!"

But is that really a positive outcome for the retailer? To me, it’s a scenario in which the customer leaves not delighted that she got the lower price, but frustrated that she had to fight for a lower price. The shopper had to make sure she got the best price, instead of being able to trust that the retailer is giving her a good deal.

Do you agree that pricing differently across channels may shake consumers’ trust in retailers? Do you think retailers should vary prices across channels and zones as long as price matching practices are publicized? Are there situations in which consumers will accept higher prices, for example, based on where a store is located?

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26 Comments on "RSR Research: Does Channel Pricing Conflict Break Trust With Shoppers?"

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Cathy Hotka
BrainTrust

If there’s one thing customers hate, it’s the feeling that they’ve been bamboozled. Retailers who mislead on value, or who claim scarcity when there is none, erode the trust they’ve earned from customers. Woe unto the retailer who overcharges a customer in the store, only to have the customer discover this afterward.

Steve Montgomery
BrainTrust

Price sensitivity varies based on a number of factors including the channel, geography, operating costs, and the demographic being served. Before smartphones, people might have suspected there were differences, but to actually determine if there were required expending a fair amount of effort. With today’s handheld devices, the effort required is minimal, at least between the B&M location the customer is in and the web.

Customers will accept some difference in price, but those retailers who want to distinguish prices between the web and their stores should take care to make sure it is clearly stated on their website that this is a web-only offer. Even then I have found that printing the offer and taking it into the store often results in getting the item for the same price.

However, I am far less likely to do it the other way and be in the store and check the prices on the web. Based on what I am reading here on RetailWire, that places me in the minority of shoppers today.

Ken Lonyai
BrainTrust

This is a slippery slope, risking customer confidence in an era where it’s so easy to lose a customer forever. No consumer will care for “logical” explanations as to why in-store is more expensive than online. All they’ll feel is that they were being played and that is a dangerous place to put them.

To me, any store that is offering discounted pricing online and higher pricing at retail is admitting that they are not competitive and under threat from e-tail only players.

Joan Treistman
BrainTrust

It doesn’t take too long before one shopper tells another who tells another and so on. This simply creates an opportunity for one retailer to promote price consistency across channels as a point of differentiation. That’s when a shopper might feel like an idiot for going into a store that is going to rip them off, i.e. doesn’t make any attempt to have one price across its channels.

The answer to the question about accepting a higher price has a context. If the item is an expensive durable in a store with a great return policy or service commitment, then there is a value for the money proposition that extends beyond actual price. I don’t think location is a sufficient motivator with the exception of convenience and emergency conditions, i.e. replacing a modem that malfunctioned.

Peter Fader
BrainTrust

Retailers have an obligation to set prices appropriate for each channel—and to educate consumers that they’re doing so for sound economic reasons.

The bland homogeneity of prices that became so commonplace in the USA last century is artificial and unnatural. Today, with better data on customer demand patterns (and product costs), as well as the technology to change prices as demand conditions warrant, firms should make active efforts to move away from static pricing.

In a strange way, dynamic pricing is a great way to reduce the focus on price, per se, and put more attention on the attributes that really matter (e.g., service, selection, quality, and convenience).

Dynamic pricing is the future. Retailers must embrace it if they want to survive.

Kurt Seemar
Guest
Kurt Seemar
4 years 3 months ago

From a consumer trust perspective, retailers can have different prices for online vs. brick and mortar—as long as the brick and mortar is the lower price. However, this is completely opposite from cost structures so not always so feasible. As a consumer, if I am in your store then I do not want to have to go online to find the best price, certainly not from the retailer whose shop I am standing in. Setting online prices cheaper only encourages showrooming because you are telling the consumer that they can get the item less expensively online. Once I am online, I might as well check the price on your competitor’s site too, it only takes a few seconds.

As for pricing brick and mortar items less expensively, I think consumers understand the idea of a loss leader to generate store traffic. This makes a cheaper price for the physical store more acceptable to them.

Roger Saunders
BrainTrust

The consumer is an adult, and they have a 3,500+ set of experiences in working the bazaar. The consumer will quickly learn the game, and make adjustments to fit their needs.

The retailer has to make certain they know how to move quickly and decisively enough to adjust to the rules that they make, and then have to modify.

In the eyes of the consumer, adjusting pricing across channel lines is part of today’s retail economy.

Tim Cote
Guest
4 years 3 months ago

It is hard for retailers to charge the same price in all trade channels when their suppliers channel price, channel promote, channel fund or even restrict item sales by channel.

Doug Garnett
BrainTrust

Interesting question. And I think it depends on the situation. If that $20 comes on a $100 product, consumers won’t instinctively give you credit for the value of just picking it up off the shelf. But if it’s a discount on a $400 product, I don’t think there’s a problem.

Gene Detroyer
BrainTrust

I seem to be in a minority here. I really don’t understand, if a retailer can make more margin at a lower price online, why they should not do it. The retailer makes more money, the shopper saves. It’s that old win-win.

My only caveat is that it should be made clear to the customer. In fact, I would go further and offer customer in the store a price to take it home today or a lower price to get in, say, 3-days.

Oh, it sounds like showrooming. What is wrong with that if the retailer makes more money? Retailers are not in the store business, they are in the making money business.

Robert DiPietro
BrainTrust

Channel pricing will absolutely shake the trust in consumers. The example of being in the store and checking the prices of retailers online and having it be 20% different is not treating customers fairly. IT IS THE SAME COMPANY TO THE CONSUMER!

I believe companies can and should zone price, as different locations have different costs and that can be matched with the online pricing by zip code.

Doug Pruden
Guest
Doug Pruden
4 years 3 months ago
I agree with most of the comments above regarding customer trust. But at the same time, retailers are in business to make money, and their costs are greater in the bricks and mortar channel (considering a chain with rent for hundreds of store properties, lighting, heating, air-conditioning, training and managing store personnel, store security, trucking product to the stores, need to purchase greater variety of inventory to supply all the stores with all the colors and sizes, etc.). If all the bricks and mortar locations are doing is serving as showrooms for products that are also available at their company’s online store (and at the same time every other online-only merchant), it sounds like it is time to pack it in—go online only. With those additional expenses no bricks and mortar store can really afford to price match very long. If they are providing added value, convenience, and service for customers at the store locations, or immediate gratification, then doesn’t that justify a higher price? But will consumers accept that? It’s a difficult issue. Apple’s example is frequently raised at this point, but it’s really not comparable. It’s a great success story, but it’s a manufacturer opening retail stores to… Read more »
Ray Windsor
Guest
Ray Windsor
4 years 3 months ago

Of course it breaks trust. BUT some retailers seem to care only about making the sale. Some retailers, on the other hand, are more interested in making long-term customers and a brand that adds value. Neither is right or wrong, BUT they are different.

Just making a sale is easier in the short term, but is much more costly over time. Building a brand that the consumer trusts is initially a more difficult proposition in the short term, BUT holds the consumer’s loyalty and more important his advocacy for a longer period of time.

For the retailer, if the immediate sale is the only concern, the retailer should do whatever it takes from a price point of view to get the sale now, Internet, brick & mortar, phone, whatever. On the other hand, if the retailer is interested in building a brand that the consumer identifies with and trusts over a longer period of time, the retailer must be consistent and predictable in all channels.

Mark Heckman
BrainTrust

The quick answer is “yes,” in most instances customers expect pricing consistency across channels unless there is a significant additional convenience or service that can be associated with a higher price.

As retailers become better at targeting and understanding the value constructs of their shoppers during the course of building relationships with those shoppers, dynamic pricing—that is, pricing that reflects the priorities of the shopper and their current need state—will become more palatable for the shopper.

Ed Dennis
Guest
Ed Dennis
4 years 3 months ago

I will pay the lowest price available, all things being equal. Any retailer offering two or more levels of pricing must be prepared to offer me the lowest price or see my business move elsewhere.

Frankly, I see this as a predatory practice. Merchants will charge higher prices to the less well informed which often translates to the less fortunate who cannot afford higher prices. I ask you, is this right? If there is a Robinson-Patman Act prohibiting wholesalers from giving preferential pricing, why shouldn’t the same logic be applied to retailers?

Herb Sorensen
BrainTrust

Retailers are more obsessed with price than are the VAST majority of shoppers. There is a small group of “predatory shoppers” who will drive across town to save a few cents, and have folders full of coupons.

Saying one price across all channels is ignoring differing COSTS for the retailer, across channels.

Herb Sorensen
BrainTrust

Hah! Peter Fader and Mark Heckman were right! 😉

Shilpa Rao
BrainTrust

If prices vary across channel you are training your customer not to trust you. Trust is the basis of any relationship and if that’s lost, so is the relationship. Zones might not be the right way to offer differential pricing, but loyalty or customer buying habits could be, and if the retailer is transparent about why there’s a difference in price from one customer to the other, then people won’t mind it.

Lee Kent
BrainTrust

If you want your customers trust, you need to tell them up front then tell them again. It’s ok to have Web specials or store specials etc and no, it doesn’t mean that price matching is always available. That is up to the retailer and what they are trying to accomplish with the promotion.

With the blending of channels, it is becoming more important for retailers to think about pricing strategies in a different way.

Many say that zone pricing is history and I agree to an extent. It is certainly ok for retailers to run zone promotions as long as they are transparent to the customer. They just need to understand that they start with one price across channels and go from there. Then communicate, communicate, communicate!

Anne Bieler
Guest
Anne Bieler
4 years 3 months ago

For pricing, transparency is key in retaining shopper trust. If it is going to be less expensive online, say why—and make sure staff can communicate effectively.

Do you need online only SKUs? many items can be available online and not in the store. It has to be a sensible distinction that is clearly explained, or it will become a showrooming exercise, favoring competitors who make it easy to shop and offer value.

Shep Hyken
BrainTrust

If a customer is price sensitive and “shops price” in real time, the retailer risks losing the customer. Low price shoppers want low prices. And when the customer realizes that they should have gone online rather than go to the store, they won’t go back to the store.

In addition, a lack of consistency—in this case over pricing—leads to a lack of confidence. One of the quickest ways to lose a customer’s loyalty is to shake their confidence.

Christopher P. Ramey
BrainTrust

Every retail category is different and we shouldn’t paint too broad a brush stroke. Price is more often the default rather than the real reason shoppers buy a product.

Consumers expect, in most categories, internet prices to be lower. You needn’t necessarily meet internet prices; you must be in the ‘ballpark’. The difficulty is how the customer defines ‘ballpark’.

Alexander Rink
BrainTrust
4 years 3 months ago

I definitely agree that different prices across channels shakes consumers’ trust. Price transparency mercilessly exposes pricing inequities, and it is almost always embarrassing for the retailer when they end up as a major press story due to what consumers perceive as price discrimination.

There are, however, some forms of price discrimination that I can see consumers being comfortable with. For example, I can see consumers accepting a higher price in one channel is if there is some additional value add to them for shopping at that channel. Alternatively, I can see consumers accepting that those shoppers who buy more from a specific store may get a discount due to their status as an “elite” shopper (similar to a frequent flyer program).

Nikki Baird
BrainTrust

I think it’s interesting to see so many comments about different channels having different cost structures and so should be able to support different prices. What channel-based thinking that is, in a world where consumers don’t care about channel differences. If stores help sell online and online helps drive traffic to stores, shouldn’t all the costs from both channels be lumped together to support one price?

John Hyman
Guest
4 years 3 months ago

The smart stores will learn to blend their margin expectations and price their wares to best serve the customer.

But if they truly want to avoid this issue entirely, how about reducing the levels of product standardization, provide some real sales training, and thus give the store shopper a compelling reason to want to spend a little more?

With all of the consolidations, there are a handful of really large stores than should have no difficulty developing exclusive and compelling products and channeling them appropriately.

AmolRatna Srivastav
Guest
AmolRatna Srivastav
4 years 3 months ago

While risk of losing trust by differential channel pricing exists, this needs to be played by retailers carefully—by bringing out reasons on differential pricing (and communicating the same). This moves focus from pricing to other attributes which could be consumer-specific, like store experience, getting need fulfilled immediately (if buying from a store), etc. Also, the price differential needs to be appropriate. Too much difference without communication hurts, “acceptable difference” with communication gets compensated.

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