BrainTrust Query: Price Transparency – Five Strategies to Address the Paradigm Shift in Retail

Through a special arrangement, presented here for discussion is a summary of an article from the Lenati blog.

Rather than ignore it or try to fight it, retailers need to adjust right along with their customers to the new age of price transparency. They need to add customer-perceived value to their products and services that justify a higher price than an online-only retailer.

To add-value successfully, we recommend five strategies:

1. Offer Exclusive Product – House brands offer built-in protection against showrooming as there exists no direct SKU-level equivalent at another retailer. Retailers from Sephora to Macy’s to Supervalu have increased their PL penetration in recent years due to higher margins and anticipated competition in national labels. For small retailers, it becomes even more critical to offer hard-to-find, limited stock items. Uniqueness is a factor for which customers will pay.

2. Take Advantage of Multi-channel – Some retailers are using their online channel to build the value prop of shopping in-store. Nordstrom associates are now equipped with mobile POS devices that give them access to the company’s entire inventory, including Nordstrom.com. And by offering free shipping on all orders, regardless if ordered online or in the store, Nordstrom is truly becoming channel agnostic. By actively using the online channel to overcome hurdles that often drive consumers to sites like Amazon, retailers are keeping their sales dollars in-house and providing great service by letting their customer decide how they want to shop.

3. Get Local – A physical location within a community makes it easier to create an authentic connection with a customer. With this understanding, national chains such as Macy’s, Walgreens, and Trader Joe’s have localization strategies in the effort to make each store unique and become part of the community. But, in order to win over the temptation of online pricing, retailers need to go beyond offering localized product — they need to actively reach out to their consumers and create a community that is specific to the area.

4. Provide a Loyalty Program – A well-executed, easy to understand loyalty program can help brick-and-mortar retail stores retain customers and keep eyes from wandering. Safeway, Chico’s, Target and REI are among the many retailers whose loyalty programs offer compelling value. Although each of these loyalty programs are different, what is consistent is that they are easy for the customer and provide enough reward that the customer feels there is more value in spending in one place than shopping around for deals.

5. Bring Online Information In-Store – By using smartphones or touch screen technology, brick-and-mortar retailers could actively bring the abundance of online information in-store, and eliminate the need to research online before checking out the physical product. Letting customers physically explore the product and get all the information they want in-store essentially kills two birds with one stone, and this convenience may give brick-and-mortar retailers added value justifying a higher price.

BrainTrust

Discussion Questions

Which of the suggestions mentioned in the article do you think will most offset price competition from online retailers? Do you think retailers need to execute most or all of these strategies or should they pick one or two to on which to focus?

Poll

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J. Peter Deeb
J. Peter Deeb
11 years ago

The multi-channel approach seems the most impactful to me as retailers move to satisfy the changing consumer. It should not matter what channel sells the product, only that the retailer keeps the sale! All of the suggestions above are important and the brick & mortar retailer who integrates these into the operation should be successful. The degree to which they implement each will depend on the type of retailer and the importance of local products, community involvement and the price differential with their competitors.

Phil Rubin
Phil Rubin
11 years ago

There is no question that in our experience that a well defined and brand-specific loyalty strategy will overcome pricing challenges. It’s a question of value and value is more than (relative) pricing, at least for companies that have some kind of unique selling proposition.

Further, loyalty marketing — at least how we define it based on best practices — encompasses all of the other attributes mentioned. Loyalty delivers exclusivity, across channels including local, and it is a superior way to deliver content.

Dick Seesel
Dick Seesel
11 years ago

These are all good ideaas but (as the question suggests) each retailer needs to focus on the tactics that are best suited for its own brand positioning and merchandise content. For example, more private-brand or exclusive merchandise may not work as well in a sporting goods store where the customer is looking for recognizable labels and styles.

The common theme of most of these ideas is the importance of customer service…whether it’s having a sales associate available to “close the deal,” or having improved access to e-commerce inventory. The value added through customer service has not been lost on Apple (the champions of pricing leverage), and it’s good to see other retailers putting a renewed emphasis on it.

Bob Phibbs
Bob Phibbs
11 years ago

Interesting how none of the suggestions involve people. I would suggest to combat the paradigm shift, retailers need to see that their policies of limiting hours to part-timers has fundamentally altered their retail space with employees who have little loyalty, inclination or training determining the success of the brand. Fix the people first, the rest will follow. Otherwise there’s just no “there” there.

Ben Sprecher
Ben Sprecher
11 years ago

I see offering exclusive product as the most powerful of the strategies mentioned for blunting the impact of price transparency. After all, there’s no way to compare prices on Trader Joe’s Candy Cane Joe-Joe’s because there’s no such thing anywhere else. If you want them (and believe me, you *definitely* want them!), you have to go to Joe’s.

One caveat — there’e a cynical way to offer “exclusive” product (which mattress stores have done for years), which is to get the manufacturer to provide you with a different model name or serial number on an otherwise identical product. I see this as a sign of weakness on the part of a retailer, since it’s essentially admitting that you have no real basis for competing other than by confusing and confounding your customer. Customers hate it because they see it for what it is, and I shy away from retailers who do it.

As an example, I bought a TV at Costco that was available for a slightly better price online (and I checked that while standing in the aisle at Costco!), because I knew Costco’s return policy was simple and fair.

Ryan Mathews
Ryan Mathews
11 years ago

I guess the two that stand out to me are offering exclusive products and getting local and, if I had to chose one, it would be offering exclusive products. You can’t get beaten on the price of a product if you are the only one selling the product.

Quite frankly, the other three seem like things one should be doing already.

All that said, given the inherent differences in supply chain costs, it’s hard to compete against online retailers on the basis of price.

Doug Stephens
Doug Stephens
11 years ago

I’m with Martin on all aspects of this with the exception of loyalty programs. If your value proposition is clear and dominant, I don’t believe you need a loyalty program at all. The fact is, studies show that Walmart is cheaper than Amazon. Target is often cheaper than Walmart and Amazon is only 4.2% lower on average than Best Buy. Yet to hear it, you’d think this is all about price.

The truth is, most retailers are coasting on their pre-Internet business models, when what they require is a complete reinvention of their in-store value. They need to answer one simple question… If Amazon ships same-day, why would someone bother coming to our store? Until they answer that, nothing can help them.

Fabien Tiburce
Fabien Tiburce
11 years ago

All strategies are sound but only one truly addresses and pushes back the type of automated price-comparing algorithm-driven “weapon” of e-tail: offer exclusive product. Disparate products cannot be (easily) compared and can let the retailer build a value-proposition package around the product and the purchase and service of this product. E-tail only wins in a world where every good is a commodity. Folks, it’s time to re-introduce apples and oranges!

Adrian Weidmann
Adrian Weidmann
11 years ago

The five strategies put forth by Lenati are all good. If a retailer with a brick & mortar presence is looking to begin designing and implementing a strategy to address price transparency, I would suggest concentrating on focusing on developing a unique localized presence and designing a multichannel communication strategy. Concentrate on telling your brand story using video as your medium of choice and then publishing that brand story into the omni-channel environment. As we’ve read in this blog time and time again — stay true to yourself. Don’t use gimmicks and try to ‘outsmart’ your shoppers and customers. Pricing is not the only thing that is transparent!

David Biernbaum
David Biernbaum
11 years ago

Retailers need to stop whining about competition from online retailers and instead take full advantage of the fact that you are in-store and also online. Be the same store no matter where your consumer chooses to shop. Once you adapt that type of thinking, you won’t have to worry as much about Amazon.

Max Goldberg
Max Goldberg
11 years ago

For larger retailers exclusive products and multichannel will be important. Smaller retailers should focus on exclusive products and local products.

It’s interesting that no mention was made of customer service. Great customer service is worth money to consumers, as it saves time and effort.

Bundling products is anther way for retailers to have a higher register ring and grab a larger share of pocketbook, without competing on price.

I can’t see loyalty programs and bringing online information into stores as being influential. Everyone has a loyalty program, and most are too complicated or require too many purchases to have meaningful impact. Consumers using smart phones and small tablets will bring their own information into stores to make their shopping experience quicker and more productive.

Debbie Hauss
Debbie Hauss
11 years ago

All 5 suggestions are important. Brick-and-mortar retailers can no longer ignore the fact that they need to provide access to Wi-Fi and online information to shoppers when they are in the store. They can’t hide from the competition.

Loyalty programs are key, but we now need to move them to mobile devices. Physical cards will become more of a hindrance than a help.

While “customer service” is part of all 5 suggestions, it has not been drawn out as its own strategy — and I think it should be. Best-in-class customer service will, in the end, make the difference between a shopper completing a purchase vs. leaving the store.

Raymond D. Jones
Raymond D. Jones
11 years ago

These are all valid strategies worth considering. However, they need to be consistent with the retailer’s overall strategy to be effective.

Another strategy is to provide added value services such as free delivery or installation. Online retailers make their money on these services while traditional retailers make their money on selling product.

“Local” is fine, but I would go further and suggest “personalization” as a strategy. This would include more customized products and promotions designed to offset low prices. Online retailers do a very good job of leveraging customer data to personalize offers. Traditional retailers need to get better at this.

Warren Thayer
Warren Thayer
11 years ago

Exclusive products are best in most cases, for the reasons already stated. If you’re not executing against most or all of these strategies already, don’t try to suddenly do them all at once. You’ll be stretched too thin. Go for what’ll give you the most low-hanging fruit first, then move along in order.

Nikki Baird
Nikki Baird
11 years ago

I’m with Ben on this one. While they’re all good ideas, in my mind the one to be most careful about is “exclusive products.” What makes a product exclusive can be very subjective, and I’ve seen retailers fall into the trap of thinking that just because it’s their brand on the label, this, by definition, makes an item exclusive. In order for exclusives to retain their perception of exclusivity, retailers have to invest in whatever brand cache goes into that perception, whether it’s expert staff, style know-how, or cutting edge design.

And that’s the lesson that carries through all five points: doing any or all of these things isn’t enough to battle price transparency. Retailers need to invest in providing customer value. A loyalty program isn’t enough — it has to be a loyalty program that provides customer value. Same with cross-channel and bringing online information into the store. It has to be the cross-channel information and services that customers value. That seems like it would be a no brainer, but there are enough proof points out there to show that it obviously is not. It’s not about how retailers want to sell, it’s about how customers want to buy. Retailers need to adapt.

Robert DiPietro
Robert DiPietro
11 years ago

You can’t be great at everything so you need to pick what is important to your customers. The key for retailers is to understand who their customer is and what’s important to them. Are customers shopping because they like “the hunt” or because they want the cheapest price of the best service? Figure out your value prop and don’t ever get beat on it.

Tony Orlando
Tony Orlando
11 years ago

The retailer of today, has to win over customers on several fronts. First the price of the product must be competitive, as loyalty goes out the window, if you are out of line on any major product. The customer service must be excellent, and honest.

Online orders must also be done correctly, and timely in order to match the Amazon experience, and lastly, you must back up what you sell (no lip service).

Mark Heckman
Mark Heckman
11 years ago

All of the points made are valid, but I believe that retailers who are seeking to avoid being price-compared and left behind, also need to guarantee that their own pricing will be guaranteed in the case that consumer buys an item that subsequently is reduced in price by that retailer either for a sale or other reason.

With that said, in my experience, expecting shoppers to pay more (significantly more) for the same exact item that could be purchased online for less, remains a dangerous strategy. There are on so many services and incentives that shoppers will consider worth the higher price, especially on commodity items that do not lend themselves to enhancement. Go there carefully.

I also still see too many retailers “competing with themselves” with different prices, deals and sale associate incentives for online product vis-a-vis the same item in-store. Retailer should structure their business to be indifferent to whether the consumer buys online or in-store. The shopper should see the retailer as one big, cohesive, consistent entity.

Brian Numainville
Brian Numainville
11 years ago

Offering truly unique products, and if your market is such that these can also be local, would be the strongest proposition. Hard to do all sorts of comparison on items that only you offer (but as others point out, skip the “fake” exclusive!).

Shep Hyken
Shep Hyken
11 years ago

All five strategies are good for virtually any business. Some more than others depending on circumstances. However, I’m in favor of a strong loyalty program for several reasons.

1. The business can offer incentives, special offers, etc.

2. The business can stay in touch with their community, which keeps the business front of mind and will hopefully cause the customer to think of that business first.

3. If a loyalty program is really working, it creates a bond. Loyalty is an emotion. Loyal customers want to do business with you, and may be willing to be a word-of-mouth promoter.

Add one more strategy to the five above — deliver amazing service. This is the value-added piece that separates you from your competition. The goal is to break away from the price commodity trap. Delivering an amazing service experience will help you do exactly that.

Camille P. Schuster, Ph.D.
Camille P. Schuster, Ph.D.
11 years ago

Localization and loyalty strategies are good business so should be practiced to be competitive, period. Using technology to make employees aware of online information and to function as one store is also necessary to be competitive, because consumers think of your operations as one store already. Exclusive products offer a real opportunity for differentiation. However, the differentiation has to offer value that a retailer’s consumers want, not differentiation for its own sake.

Gordon Arnold
Gordon Arnold
11 years ago

Each of these strategies have a place in the 21st century retail storefront. There is plenty of data and testimony as to the tricks, trips and traps found to be included and avoided when they are added to a market plan. Unfortunately the use of one or any combination of these plans has failed to curtail the effects of online retail market share increases. It appears that the online-only retailers and the credit card companies are having a field day with the retail markets almost at will.

I am surprised at how few of the very large retail companies have not ponied up and built or bought their own online only retail companies and credit companies. What is in need of review and consideration by this group and others are the results of those investments like this which are not providing similar performance results as the pioneers of this new online business. I am confident that a comparison study of the old and new e-commerce ventures would reveal many enlightening differences starting with market perception and continuing across the board. New ideas from the latest data, what a plan!

Ralph Jacobson
Ralph Jacobson
11 years ago

To be clear, all five suggestions should be standard operating practice already, however, I realize this is not yet the case.

I believe a true loyalty program that includes both online and store-level services is a huge driver of differentiation. Remember though, a loyalty program is not simply giving mass, untargeted discounts to anyone whom signs up for a loyalty card. That is more of a frequent shopper program. I’m talking about services that drive a shopper to pass another store and shop at yours.

For example, what about more CPG supplier collaboration programs? How about tactical services like a grocery store “premier” checkout line that caters to large orders, with three people on staff to process (unload, scan, tender and bag) the orders?

Matt Schmitt
Matt Schmitt
11 years ago

Bridging the digital divide between online and the physical stores is a challenge, but it does present opportunities for driving many of the initiatives mentioned here.

Localization strategies for big chains can really be a big win for the brand and a better experience for the shopper. Creating a community and engaging customers at the local level personalizes the journey for the shopper, and establishing a local personality for the store can establish a level of trust and caring.

More communication and education on loyalty programs would help. Many programs are not transparent or don’t have a clear and consistent communication with the customer on the value of being loyal.

Connect the dots at the store level — from the e-commerce site to social media, mobile apps, and all digital initiatives in the omni-channel sphere. The physical store is an anchor to create awareness and engagement with all channels, and to communicate the value to the shopper for establishing a cross-channel relationship.

Gene Detroyer
Gene Detroyer
11 years ago

These are all good suggestions, with the exception of a loyalty program. Loyalty programs are necessary, but they most often just become a thoughtless collection of stuff for the consumer. If you don’t have one, it hurts. If you do, it is merely a neutralizer.

Of all the comments, David’s is truly worth repeating: “Retailers need to stop whining about competition from online retailers and instead take full advantage of the fact that you are in-store and also online. Be the same store no matter where your consumer chooses to shop. Once you adapt that type of thinking, you won’t have to worry as much about Amazon.”

For me, no retailer comes close to the customer service Amazon offers. As a brick and mortar retailer, start with that assumption and make on line the driving force in your business. It changes your mindset and your business model to the better. Then, look at your stores as a competitive advantage vs. Amazon. OMG…could I be talking showrooming?

Mark Gardiner
Mark Gardiner
11 years ago

I know that executed correctly (using Trader Joe’s as an example) the ‘Get Local’ advice will work to offset losses to online shoppers. Admittedly, Trader Joe’s is in a sector – groceries – with little online penetration so far, but the underlying strengths of the Trader Joe’s brand would transfer to any other retailer.

The key here is not just being ‘local’ – as a Trader Joe’s insider, I can tell you that the chain’s localism is skin deep. It’s going further, to “Get Personal,” where retailers can build a great cultural brand, like Trader Joe’s.

Trader Joe’s brand was built one-to-one, by empowered Crew Members who interact with customers in an authentic, friendly way thousands and thousands of times a day. That’s a quality of contact that is difficult – nigh impossible – to create online.

Craig Sundstrom
Craig Sundstrom
11 years ago

#1 is really the only one that offers any hope (indeed most of the others are premised on people still coming to your store, which is presumably what isn’t happening in the first place). Of course differentiation has ALWAYS been the best — or only — solution to price competition…and of course the hardest to achieve.

James Tenser
James Tenser
11 years ago

Being proximate (“local”) may be the most profound of the five strategies mentioned here. All are necessary but no one is sufficient on its own.

I concur with Ben and Nikki that exclusive product can backfire as a signal to shoppers of a retailer’s cynicism. A locally relevant, dependable mix of products at transparent value, however, can outperform a flat-out low price strategy.

I’m also a skeptic of most so-called loyalty programs if they are used solely for behavior modification. These train shoppers to game the store and make prices less trustworthy — the exact opposite of the emotional loyalty we all claim to covet.

When a retailer pays active attention to the implicit meanings embedded within frequent shopper data, transaction log data, social-mobile-local data and other resources, true local and personal relevancy becomes possible and fine differences in price fade.

In those moments, you become the most interesting store in the world. Stay relevant, my friends (but don’t get creepy about it).

Ed Rosenbaum
Ed Rosenbaum
11 years ago

Trader Joe’s seem to have this worked out. Not that the prices are lower; not that they are “local.” More so they have the shoppers talking about them. Word of mouth has people not “local” to them starting petitions to get them to become “local.”

Doug Garnett
Doug Garnett
11 years ago

I’d first caution that aggressive price shopping is a moving target — and quite often less critical than we might think. It depends on the size of the purchase and a balance between getting it immediately & waiting for the cheap one.

Having said that, we should really be focused on two keys: Exclusive product and the multi-channel advantage from having brick & mortar.

Exclusive product, though, must be communicated in order to become important. We’ve been doing this with Lowe’s Kobalt Tools in DRTV campaigns with excellent results.

I think the key to multi-channel is finding ways to draw online shoppers to your store. Stores deliver significant value that is NOT available online. (Immediate pick up, test/hold/check out the product, compare product with its near competitors.) As with any competitive situations, retailers need to leverage THEIR unique advantages and not merely run off after low-margin online sales.

Finally a note about local. Apart from food, this is an area of skepticism for me. One of the reasons online helps people is that they’re not limited to locality. So while the store is an advantage against online, local isn’t. After all, once someone is shopping online, it’s all local. And they can opt for their own definition of local quite easily. I just don’t see stores bringing a competitive advantage.

Elizabeth Magill
Elizabeth Magill
11 years ago

The specific strategies that will work are different for any given retailer. The key is to understand your value proposition and your customers. With that, you can think creatively of how to embrace new trends and technologies and use them to your advantage. This list provides a great set of tactics to consider.

Herb Sorensen, Ph.D.
Herb Sorensen, Ph.D.
11 years ago

In the end, the only thing that will matter is the effective mobile strategy. That is, “in the end.” Meanwhile, working towards that means that online-mobile-bricks IS ONE store, not three – Convergence of Online, Mobile and Bricks (COMB) retail.

Yvette London
Yvette London
11 years ago

All of the above. As mentioned below each retailer will have to decide based on what they can realistically do (i.e. a small electronics retailer may not be able to offer exclusive product but can offer a loyalty program and localization). And I would add one: exclusive services. If that electronics retailer offers free or low priced extended warranty service or installation for example that could tip the purchase in their favor. Or maybe free cable service for a month (working out a deal with a cable provider who wants to get trial).

Also as someone mentioned, bundled offers. It could be bundled services or special offers for products that go together. For clothing retailers maybe it’s the a deal on the dress and the shoes. Or having a personal shopper (which many retailers already offer but don’t promote enough) along with discounts and expedited check out.

Mark Price
Mark Price
11 years ago

The most important strategies to offset price competition from online retailers are really a combination of several of the recommendations highlighted above. The key is to develop a combination of a superior customer experience in store and extending that experience across channels while being price competitive.

The other thing that retailers are going to have to accept is that some customers will simply always be price driven and will migrate from in-store to online and back again based solely on the net price of the product, regardless of store experience, customer service, support or localized benefits. Those customers were not good customers in the first place, but retailers will have to accept that those customers are probably leaving them more and more, and likely for good.

Christopher Krywulak
Christopher Krywulak
11 years ago

This is an interesting question because, if executed well, taking advantage of multi-channel actually covers suggestions 2 through 5. Connecting online experiences with social, local and mobile commerce (SoLoMo) and integrating with mobile loyalty apps (e.g. Passbook) and mobile payment technology (e.g. Pay with Square, Google Wallet, etc.) means making the discovery, research, and purchase processes easier for the customer. And an easier shopping experience is always a better one; one customers will be willing to pay a premium for (see: Apple stores). Other ways to connect retail channels include offering in-store pickup/return on items purchased online or drop shipping out-of-stock items sought in-store directly to customers’ homes. Suggestion #5 is an area we’ve focused on with our XQ Interactive Retail solutions, so we are particularly interested in the evolution of the in-store shopping experience.