DIY Chain Tests Variable Pricing

Discussion
Oct 28, 2013

B&Q, the U.K.’s largest home improvement and garden center retailer, is testing variable pricing with a goal of better tailoring deals to its loyalty card members.

Such pricing is being made possible by electronic shelf labels and WiFi technologies. The Telegraph wrote, "Under the scheme, WiFi-connected price tags will identify passing shoppers from mobile phone chips then access data from loyalty cards or past spending to reach a suitable price which will be displayed next to the item."

The promised benefits would work in three ways.

First, prices may change based on the time of day. Temporary reductions during off-peak hours could help improve traffic flow during the week to ease parking congestion and checkout wait times. The reductions could be across the board or differ for each loyalty cardholder.

Second, prices may change based on each customer’s loyalty level, which B&Q believes could lead to more efficient incentives than widespread coupons and discounts. Mr. Cheshire told the Daily Mail, "It’s all about special offers for individuals where we are looking at bundling offers or giving discounts."

Finally, prices may change based on demand, similar to how dynamic pricing works at airlines and hotels. Mr. Cheshire, who is on the board of Premier Inn, noted that when he joined the hotel’s board, it had two different prices for hotel rooms and now has 10,000 through variable pricing.

"Look at how the airlines work and what you can do online, people are used to that," Mr. Cheshire told the Daily Mail. He added, "Yield management techniques are not new — it’s just they haven’t traditionally been used in retailing."

Can dynamic pricing similar to the methods employed airlines and hotels work at retail? How do you think shoppers will react to variable pricing tactics?

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23 Comments on "DIY Chain Tests Variable Pricing"


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Bob Phibbs
Guest
5 years 4 months ago

I don’t buy airline tickets in a public space so there is no reference point. But if I go in to buy cereal and it shows me a price and I see another shopper get a lower price, I feel like a loser. If I forget my phone one day and the price is even higher I feel like a loser.

People don’t go shopping to feel like losers. I think this is a dumb idea.

Dr. Stephen Needel
Guest
5 years 4 months ago

I don’t see this happening (or happening well). How do you show a price to me, a loyal customer, and the guy standing next to me who is there for the first time? Doesn’t this fly in the face of omni-channel retailing? And the claim that people are already used to it is really stupid – I’m used to ketchup on my hamburger, doesn’t mean it’s going on my hot dog – same logic.

Max Goldberg
Guest
5 years 4 months ago

Consumers don’t like variable prices on airlines and hotels, unless they get the lowest price. I don’t expect them to like variable pricing at retail. Rather than irritate consumers by constantly changing prices, B&Q should improve their loyalty program, customer service and promotional tactics.

Bill Davis
Guest
5 years 4 months ago

It’s working online – look at Amazon, et al – so it’s worth pursuing in brick & mortar to gauge its impact. In my view, if retailers do nothing, their business will continue to be eroded by their online competition.

Ryan Mathews
Guest
5 years 4 months ago

In theory the answer is clearly, “Yes.”

In practice most retailers have bollixed up their pricing theory so badly over the years that it may be too late to try what would have otherwise been a fairly logical pricing tool.

From the supermarket’s “sale” turkey at Thanksgiving to the mall jewelry store operator’s perpetual “50% Off” sales shoppers have been conditioned over time to not trust pricing.

And, to further complicate things, consumers have a little technology at their own disposal. Mark my words – if dynamic pricing becomes more popular at retail we’ll start to see the emergence of what I’ll call “flash price mobs” that will suddenly show up to milk the discount cow as long as it agrees to stand still.

In other words, retailers may be hard pressed to control the dynamic portion of their dynamic pricing policies.

David Dorf
Guest
5 years 4 months ago

I think it’s fine to change prices across the board, like varying prices by time-of-day or demand. But the idea of dynamically setting an item’s price based on “identifying passing shoppers” is crazy. If you want loyalty pricing, you need to set up predictable price tiers. If you want to target individuals, then send them offers on their phone. I can’t imagine this approach will fly.

Camille P. Schuster, PhD.
Guest
5 years 4 months ago

Saying that consumers are used to airline pricing is not the same as saying that consumers like it or respond positively to it. Unless consumers have some type of “buying center at their disposal” they are at the mercy of dynamic pricing. If dynamic pricing is used by retailers, they will be even more motivated to use online resources to find the best price. However, if retailers push dynamic pricing and push people away from local stores, is that really what they want?

Phil Wells
Guest
Phil Wells
5 years 4 months ago

(1) Tracking mobile phones raises all sorts of privacy issues. I suspect Homebase will be challenged to prove it immediately discards mobile data from all non-loyalty card customers to protect their privacy.

(2) As has been pointed out by other posters, you will alienate other shoppers who are not frequent users of Homebase. They have the option of shopping at the competition like B&Q. Please a few – upset many….

Arun Channakrishnaiah
Guest
Arun Channakrishnaiah
5 years 4 months ago

Dynamic pricing will leave customers dissatisfied. What’s more, it is also likely to leave the customer suspicious as well. If retailers know who I am and what I usually buy and when, will they only try to cajole me with attractive offers or will they milk me as much as possible knowing there is a good chance I will “bite” on their “offer”? After all, airlines have become notorious for trying to grab every penny possible from their customer, with all those ridiculous fees. They largely get away with it because there is not much competition (at least in the US) in the airline industry and most airlines have ganged up on the pricing front.

I suspect customers have lot more options when it comes to retailers and if they feel let down, look for them to flock to other retailers.

Steve Montgomery
Guest
5 years 4 months ago

As others have expressed, I don’t like it at hotels and airlines but at least it is not “thrown in my face” that my price may be higher than the person next to me. Like many frequent travelers, I have a sense of when to buy my flights and book my hotels. The same is true on line. I know my price and can elect to buy or not.

This is not true at retail when I and others can see prices changing depending on who walks by. I don’t see customers being very happy with this pricing model are retail. As noted in earlier discussions, some supermarkets who have offered loyalty pricing are dropping it and advertising a same-price-for-everyone model.

James Tenser
Guest
5 years 4 months ago

Revenue management for absolutely perishable commodities like airline seats or hotel rooms seems like a trivial matter compared with individualized variable pricing across tens of thousands of SKUs and shoppers.

At stake is the ineffable quantity – “price image,” which takes years to build and minutes to destroy.

The moment shoppers begin to notice prices changing before their eyes on electronic shelf labels, I think the trust is broken. The response will likely be one of two: game the system or depart for fairer deals.

Matthew Keylock
Guest
Matthew Keylock
5 years 4 months ago

More dynamic pricing as the world becomes more real-time is something retailers should be exploring.

Communicating personal prices is not just about “what is the right price for person X?” it is about the right mechanic and channel for delivering that too.

Retailers will use this in different ways. Some to reinforce their proposition and brand as a destination for a great offer and treasure-hunt; others to drive their brand as one that rewards their loyal customers.

Shoppers will be able to continue to choose whether and when each model is right for them.

Marge Laney
Guest
5 years 4 months ago

If you’re going to give me a discount for being a loyal customer, make it convenient for me, not you. The pharmacy I frequent insists that I swipe my loyalty card every time I purchase something. The yard long receipt usually has a coupon worth a few bucks off my next visit. Unfortunately, when I finally get a few minutes to go to use the coupon I most often find that it expired the day before.

If some home improvement store gave me special pricing on Tuesday at 2, I’d likely have to take a pass. Having a sale is one thing, but rewarding customers by making them work for it seems more like a penalty than a reward.

Lee Kent
Guest
5 years 4 months ago

In theory, I think this is headed in the right direction as long as it is transparent to the customer. The execution, on the other hand, is questionable.

So I am standing in front of the shelf but 2 others are standing there too. Now, how is it going to show me my special price and the other people too? And it’s going to detect my phone using WiFi? There are still some privacy issues that need to be addressed with that.

But, I do think variable pricing has a place. A great example is the App Leloca that I have used when visiting NY. It uses my current location to find restaurants that will give reduced pricing if I can be there within an hour. Just food for thought!

Craig Sundstrom
Guest
5 years 4 months ago

Can dynamic pricing work at retail? Perhaps, but certainly not THIS scheme…I give it 6 weeks.

Al McClain
Guest
Al McClain
5 years 4 months ago

I think we are kind of burying our collective heads in the sand on this one. Dynamic pricing has been around for decades – it is just getting more sophisticated. Retailers should try new technologies, test and learn, and use it to offer customers special deals.

Kai Clarke
Guest
5 years 4 months ago

Not yet. This is an invastion of a shopper’s personal privacy and rights (without prior informed consent), which would certainly get flagged here in the USA. Also, the ability for any particular sku to flag a shopper while they are walking down an aisle is not quite a viable reality….

Arie Shpanya
Guest
5 years 4 months ago
It’s intriguing to see the dynamic real-time pricing model that works so well for online retailers, applied to brick-and-mortar. However, I think it will need a lot of tweaking before it works quite as well, if at all. Automation is great, but as Ryan mentioned, controlling the dynamic part could be an issue. How exactly will that work? Even for online retailers, there is a manual component needed to successfully incorporate custom rules into their automated repricing tools. As for the peak-load pricing strategy, I’m skeptical about the how it’ll work in the retail industry and will probably result in some very unhappy consumers. For example, offering cheaper prices at off peak times – there’s a reason why it’s off peak. The time is not convenient to shop. There are better ways to deal with the threat of online retailers (like adding value in other areas) and if this isn’t handled correctly, it may actually push consumers more towards shopping online. They have resources too – they can use their phones to compare prices and… Read more »
Alexander Rink
Guest
5 years 4 months ago

It seems inevitable that dynamic pricing will make its way to retail in one form or another, but as with any new technology, the devil is in the details. Clearly no one is going to want to know that they missed out on a lower price that was implemented shortly after they purchased an item.

If the pricing is to be changed frequently via electronic shelf labels (ESLs) directly at the store, what happens when you get multiple shoppers looking at the same item at once? Or even just browsing different items close to each other? How close would a consumer have to get before the price changes? What if I don’t get close enough to the shelf and then the price is different when I reach the cash? There are many points of failure if this is not kept simple, and it seems there is significant risk for confused and irritated customers.

Jannie Cahill
Guest
Jannie Cahill
5 years 4 months ago

I agree with a couple of the earlier comments: a) dynamic pricing has been around for decades, it’s now just getting more sophisticated, and b) bricks and mortar retailers need to be proactive to stop their business being eroded by their online and multi-channel competitors.

As value becomes the key driver for today’s price-sensitive shopper, traditional retailers need to be analysing and responding to online competitor pricing in real-time in order to optimise sales and grow profit margins.

In an increasingly competitive marketplace, retailers can no longer be complacent and instead need to be proactive with their pricing strategy to avoid losing out on sales. Utilising competitor pricing tools is critical for today’s retailer to have visibility into their competitors’ pricing – and be able to act on it immediately.

Mark Price
Guest
Mark Price
5 years 4 months ago

The idea of using dynamic pricing retail is exciting. Based on existing models of pricing in the airlines, theaters and so on, the strategy of varying pricing by time of day, inventory available or demand seems to be right on target. This approach should drive incremental revenue while not substantially damaging consumer demand.

I am not as comfortable, however, with the idea of price changes based on customer value, when those price changes can be seen by other customers as well. That approach seems very complex and has the potential to backfire. I would use mobile and email as a way to reach out to customers with their own special pricing, rather than share that information with the rest of the world.

Ed Dennis
Guest
Ed Dennis
5 years 4 months ago

Personally I have a huge problem with being charged more by any retailer than another customer. My money is legal tender and under no circumstances should I be charged more for any item than anyone else. I know this exists and I have solved this problem by referencing the internet every time I purchase anything of any consequence. If I ever catch a retailer or wholesaler charging me more than another customer, I will immediately spend 30 minutes flaming the retailer online. A lot of damage can be done in 30 minutes.

Unlike airlines, retailers aren’t selling limited space products and if you reflect a moment Southwest, who doesn’t employ any of the hokey, gotcha pricing is growing much faster than their competition. People don’t appreciate this type of retailing and the poor and uneducated will end up being the ones paying higher prices.

Give us a break retailers – hire right, train right, buy right, bust a gut keeping your store clean, bright and have product in stock – you might be surprised what can happen!

Graeme McVie
Guest
5 years 4 months ago
Retailers need to be careful with regard to dynamic pricing. The negative PR that could result from consumers believing that retailers are price gouging is a very real possibility with serious consequences. Airlines and hotels have spent years educating customers that an airline seat or a hotel room booked at different times is actually a different product and hence it has a different price. This won’t work in retailing. That said, if retailers are smart in their approach they can achieve dynamic pricing through the personalization of prices delivered through timely mechanisms that will actually surprise and delight customers, especially if they use loyalty program data to appropriately reward customers. For example, retailers can leverage their loyalty programs by sending individualized prices in the form of electronic coupons to individual customers via email or by asking customers to sign-in to their account on the retailer’s web site. The coupons can be loaded onto a customer’s loyalty card for redemption at the register. Additionally, by incorporating mobile or smartphone technology, retailers can leverage loyalty programs to… Read more »
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