Following is Part 1 of the Retail TouchPoints series focused on Pricing Challenges In An Omnichannel World. Part 2, which offers insights into how retailers are tailoring their pricing strategies to reflect shopper trends across channels, will appear in the January 29 newsletter.
Today’s shoppers are savvier than ever, using tablets and smartphones to research potential purchases and compare prices both online and in-store, leading to ever-increasing competition among retailers.
In fact, showrooming, or digital price comparing from store aisles, played a pivotal role in consumers’ holiday shopping strategies, with 60% of consumers comparing in-store prices to an online retailer, according to Prosper Mobile Insights.
These more advanced price comparison strategies were a clear tipping point for mobile showrooming: As many as 96% of consumers plan to use their mobile devices more often to research prices while in stores, according to a recent Retail TouchPoints article. "This research confirms what many in the retail industry have suspected,” said Sucharita Mulpuru, VP and Principal Analyst at Forrester Research. “Showrooming is here to stay."
At IDC Retail Insights, Greg Girard, Program Director of Merchandising and Marketing Strategies and Retail Analytics, said the continual evolution of value-minded consumers “will cause price transparency to play an expanding role,” he stated. “This largely is because mobility brings price comparison to the moment of truth in the store.”
IDC estimates that the number of showrooming shoppers will grow from 60 million in 2013 to 70 million in 2014. Girard emphasized that due to economic pressure, consumers have spent the last four years hunting for value. Combined with the profusion of mobile devices, “these behaviors have become habits that define the character of today's shoppers.”
Mike Murphy, Senior Analyst of Retail Markets at CFI Group, reaffirmed the role of mobile devices in consumers’ shopping and price comparison behaviors: “Price has come to the forefront due to the increasing abilities consumers have to conduct mobile comparisons while shopping.” The increasing penetration of smartphones is “a huge factor,” Murphy added, “because every year, more consumers have the ability to compare prices while in aisles, as well as decide on an impulse purchase or plan online before shopping in the store.”
Retailers Combat Mobile Showrooming With Price Matching
With mobile price comparison on the rise, retailers are vying to combat showrooming by leveraging competitive pricing strategies, according to an exclusive research report from Retail TouchPoints, titled: Completing The Cross-Channel Challenge. Specifically regarding the issue of price comparison, merchants were asked if in-store employees were empowered to match competitors' prices. Results were as follows:
- Yes, store associates can match prices in some instances (33%);
- Yes, store associates can match prices in all instances (20%);
- No, we have no plans to institute price matching (26%); and
- No, but we plan to institute price matching (21%).
Simply stated, 74% of retailers surveyed are, or soon will be, involved in price matching programs.
During the 2012 holiday season, a variety of large retailers, including Best Buy, Target, and Toys “R” Us, enacted price-matching strategies to pique consumer attention and win more wallet share.
In two separate programs that ran during November and December 2012, Best Buy promised to “match the price if you find a lower price on an identical available product at a local retail competitor's store, a local Best Buy retail store or BestBuy.com,” according to the company web site. To receive a matching adjustment, however, shoppers had to call a help line and provide proof of a lower cost from a competitor.
Target followed a similar model, offering holiday shoppers the ability to match “select online competitors’ prices in stores.” However, the Target limited the number of competing retailers consumers could consult to four: Amazon, Best Buy, Toys “R” Us and Wal-Mart.
To further improve shopper sentiment, Target also committed to:
- Compare prices on more 25,000 items to ensure efficient pricing;
- Accept manufacturer coupons; and
- Organize stores to make deals easy to find.
In order to receive price matches, Target customers had to provide the original Target receipt along with proof of the competitor’s lower rates. The compared items had to be identical in brand name, size, weight, color, quantity and model number.
As proof that the competitive pricing model was successful, on Jan. 8, 2013, Target announced that it would extend the price-matching model and honor competitor rates year-round. “We know that our guests often compare prices online,” said Gregg Steinhafel, Target Chairman, President and CEO, in a press release.
For its holiday pricing program, Toys “R” Us ensured price matches would be honored at the time of purchase, or within seven days of original purchase date with a valid receipt. Later, the retailer revised its policy, stating that it would match all online product prices to in-store inventory, as well as with all competitors’ advertised prices. Shoppers simply had to provide the original, complete competitor advertisement at the time of purchase. Adjustments were valid for in-store purchases only.
The Pros And Cons Of Price Matching
By promising to honor competitors’ prices, retailers are banking on an improvement in overall shopper satisfaction, and a reduction in the likelihood that consumers will seek lower prices online, then venture elsewhere to complete purchases.
Used in earnest by retailers to increase sales and improve customer sentiment over the 2012 holiday season, the price matching “habit” may be hard to break, and can even be “dangerous,” according to Kathleen Egan, VP of Price Strategy for Revionics.
Because of the benefits reaped during the holiday shopping season, “price matching policies are going to be difficult to immediately sunset after the holidays, so I’d expect many retailers to extend them in some way into 2013,” Egan said in an interview with Retail TouchPoints. However, margins made on some products during lower-demand periods make the policy unprofitable for select categories and retailers.
“Essentially the strategy is a classic race to the bottom, designed to bring in traffic, “she said, “but sacrificing margins with every ring of the register.”
Not only can ongoing price matching be “a dangerous strategy that isn’t sustainable for all retailers across all merchandise,” asserted Egan, “but some tactics can confuse shoppers then backfire, resulting in lost sales and customers.”
To reduce risk but still be price competitive, Egan advised that retailers match only certain items at specific times, or only through certain channels — similar to the strategies implemented by Best Buy, Target and Toys “R” Us.
Outside of a holiday shopping period, “a price matching program is most viable for the largest retailers who can operate at scale,” Egan stated. “Even then, it is best used as a temporary customer acquisition strategy.”
The Future Of Mobile Price Comparison
Despite potential obstacles, price comparison strategies are becoming standard practice. Continuous advancements in mobile technology — coupled with a barrage of new device releases — make showrooming easier and more commonplace for consumers.
“Technological improvements in the mobile space, including better Wi-Fi, 3G/4G and other advancements make it easier for consumers to compare, identify and act on the lowest prices,” said Pam Goodfellow, Consumer Insights Director at BIGinsights. “This is true for mobile users at home, in the store, or anywhere their on-the-go lifestyles take them.”
Nikki Baird, Managing Partner at Retail Systems Research (RSR), added: “Showrooming looks poised to dominate over the next 12 to 18 months. While the term hasn't necessarily caught on among consumers, the behavior hasn’t diminished. At the same time, we will see more movement into digital channels to complete transactions. Online retailers' holiday aggressiveness, including faster, more convenient delivery methods, will play a role in that trend.”
Beyond the sheer growth in number, “showroomers will become more adept in the practice while e-Commerce and omnichannel retailers abet them with new mobile shopping apps,” noted Girard. “Mobile shopping apps is an arms race where the winner is clear: the consumer.”
Part 2 of the Pricing Challenges In An Omnichannel World feature will appear in the January 29 newsletter.