Price matching and price adjustment policies are all over the news this holiday season. In addition to the standard programs of this ilk that are habitually available across multiple retailers, Walmart launched a special time-based price adjusting program in advance of the 2011 holiday shopping season. The program not only matches any lower competitor price at the time of purchase, but does so for any purchase made at Walmart at any time before Dec 25. Similarly newsworthy, Amazon recently attempted to generate more interest for its Price Check application by offering shoppers a 5% discount (up to $5) on up to three items purchased on Dec 10. Smelling like a test to see what kind of results it generates, these tactics encourage shoppers to use brick-and-mortar retailers as showrooms then (theoretically) get the lowest price at Amazon.
With all this news about price matching, one would think it is one of the most effective tactics in a broader pricing strategy. But if it is used as the primary tactic to drive and retain business, merchants beware. Price matching at the point of sale merely is a reaction that works for one shopper at a time, risking the loss of a mass of other buyers. While a broader price matching program may sound appealing to shoppers, the risk is significant dissatisfaction when considering the numerous small print caveats and exceptions that typically limit these programs. Over the long term, ad hoc price matching and its cousin, price adjusting, chip away at customer loyalty and even can serve as marketing tools for the competition. Without clear visibility of competitive product and pricing activity to optimize both these strategies, the retailer’s projections become flights of fancy, wreaking havoc on the bottom line.
Defining the Problem
Today, consumers can walk their app-loaded smartphones into a store, scan a product’s bar code and instantly compare product prices across all retail outlets, from traditional brick-and-mortar stores to e-Commerce sites (such as the Amazon example above). Throw in immediate access to friendly advice via social networking and quick clicks into flash sales sites, and it’s a matter of minutes before the best price is found. If your business offers price matching and the competition’s cost is honored, the sale may still be made, and the customer walks out with your merchandise in tow – but only if the customer bothers to give you a second chance.
Price matching earned widespread respect a decade back, but that was before consumers became mobile shopping warriors. Internet connectivity makes price sleuthing so easy. The promise to price match may work in the store with some customers but if comparison shopping searches don’t consistently lead with your store, eventually customers simply will choose to buy with the consistent winner.
Adding insult to injury, it’s not easy to land that top spot consistently. Most retailers and eTailers cannot afford pricing algorithms to generate hair-trigger, market-reactive website pricing. They also can’t afford to add staff to monitor frequently fluctuating online pricing. Unless you’re a behemoth eTailer with an unmatched budget for data mining and analytic technologies, it is extremely difficult for retailers to compete in the best price arena. To combat this problem and effectively compete with bouncing online prices, retailers often supplement price matching policies with price adjustment policies.
Price adjustments, also called price protection, allow a customer to buy a product at one price and, if found for less at another store within a given time frame, receive a refund from the original retailer that reflects the difference between what was paid and the lesser price. Once again, this would appear to be a powerful tactic to promote customer loyalty, but if backtracking for a refund happens too often, eventually customers will switch their loyalty to the store that repeatedly comes through with the best price in the first place. Ultimately, it’s a better complement to the right price rather than a remedy for it.
Getting Proactive with Price Intelligence
In this age of near-total consumer price transparency and hyper-competitive markets, price matching and price adjustments are reactive rather than proactive approaches and are ineffective on their own. These tactics can’t deliver the same perspective on price that the consumer receives by pressing a few buttons on a mobile device. This brings the retailer right back to the original dilemma: how to consistently land at least a contending spot in the inevitable price comparison game.
To achieve this goal, leading retailers treat pricing as a strategic function by aggregating data across their channels and analyzing it for demand forecasting, price- and cross-price elasticity, and, of course, margins. Forward-thinking retailers implement this approach with a price intelligence service that integrates market, channel and competitive (external) data with internal data.
A comprehensive price intelligence service allows retailers to monitor, aggregate and analyze data in near real-time, but without having to invest in IT infrastructure, software and personnel experienced in aligning brand and operational strategies. Price intelligence services, by definition, have a platform in place that accurately and continuously track, study and report on millions of products across multiple channels and competitors of all sizes. They proactively give retailers a strategic competitive advantage through insight-driven pricing decisions and an optimized product mix across channels, ultimately which help increase conversions, sales and customer acquisition and retention.
Retail is, and always has been, a highly competitive and hotly contested market. Every customer is precious and every sale that retailers get gives them the opportunity for follow-on product and service revenue. Using a comprehensive price intelligence service doesn’t mean that a retailer needs to always have the lowest price, but it does enable retailers to obtain market visibility and ensure that they price themselves appropriately for their customers based on their broader product and service offering.
Alexander Rink is the CEO of Gazaro, a leading provider of Price Intelligence that provides retailers complete market, competitive, channel and pricing visibility to successfully calculate their course to profit. For more information about Gazaro, visit www.price-iq.com or email Alexander at email@example.com.