Should uniform pricing be the norm for large chains?
A new Columbia Business School study found that, depending on the competitive landscape a retailer faces, a national pricing strategy may now be more profitable than a strategy that tailors prices locally.
Researchers analyzed 11 million store-level digital camera sale observations across 1,600 geographic markets. Profits of national and local pricing policies were monitored across two retailers employing a national approach and a third that followed a local strategy.
The findings concluded that:
- National pricing boosts profitability for large chains: Large retailers that operate in competitive markets don’t have much to gain from switching to a local model because it can intensify competition, which could lead to lower prices and hurt profitability.
- Pricing depends on local competitiveness: Chains facing less competition should tailor their prices and focus on customization.
- National pricing can benefit some consumers: Because the national price would fall between the lower price in competitive markets and the higher price in non-competitive markets, consumers in non-competitive markets, which are often rural, would benefit from lower prices.
A working paper written by researchers from UC Berkeley and Stanford updated in March found that most U.S. food, drugstore and mass merchandise chains charge nearly uniform prices across stores. The study found that uniform pricing ends up costing retailers nearly seven percent of profits on average because it prevents them from selling items for higher prices to more affluent consumers. It also results in reduced volume among lower-income shoppers. Uniform pricing also “may significantly increase the prices paid by poorer households relative to the rich.”
Traditionally, pricing has been set by retailers, especially grocers, based on the peculiarities of the local market. Recent research has shown that more stores are using uniform pricing as chains have spread across states and sought to match online and offline prices.
A Harvard research paper that came out last October found that retailers are changing prices more frequently while also employing more uniform pricing online and offline. Amazon.com was found likely to benefit from increased uniform pricing since shoppers would have less reason to comparison shop.
- Columbia Business School Research Finds that Customization of Pricing Is Not Always the Best Strategy for Retailers or Consumers – Columbia Business School/PR Newswire
- An Empirical Study of National vs. Local Pricing by Chain Stores Under Competition – Informs
- Uniform Pricing in US Retail Chains – University of California at Berkeley
- Retailers are charging the same prices across US, boosting income inequality, new research shows – CNBC
- Prices are becoming more uniform and that’s to Amazon’s advantage – Digital Commerce 360
- In-store prices can vary by location, even within same chain – St. Louis Today
- More Amazon Effects: Online Competition and Pricing Behaviors – Harvard Business School
- Study: Omnichannel customer experience far from seamless – RetailWire
DISCUSSION QUESTIONS: What do you see as the relative strengths and weaknesses of adopting uniform pricing vs. localized strategies? Do you think one — uniform or local — is generally more effective than the other when it comes to creating the right mix of volume and profits?