The problem With Different Pricing Policies in Multichannel Pricing 💻
The different pricing policies in multichannel pricing can be a challenge for the pricing teams to implement in different channels to market (i.e., online, through the sales team, in-store, tenders etc).
For years, customers have been shopping online to see how prices compare with a retailer’s competitors. But, the concept of comparing store prices in different channels is relatively new.
Research indicates that retail customers may now be more willing to accept different prices on different channels. But, are manufacturers and retailers alike ready for the challenge of managing this level of pricing complexity?
For instance, the proliferation of Amazon and Alibaba has put pricing between the brick-and-mortar and digital retailers in varying price sets for a similar product.
It’s safe to say that at the precise moment you last shopped in a physical store for your latest washing machine or set of steak knives, the same item was being offered for a different price on the mobile app of that same retailer.
It has come into greater attention since The Wall Street Journal reported last year that Walmart has begun to price higher for products online than in stores. In effect, the aim is getting more consumers to go to in-store establishments.
Finding the right pricing strategy for different pricing policies
For many retailers, prices increasingly vary between online and physical stores. Retailers tend to offer lower prices in the digital space. However, there are exceptions, as the Walmart example shows.
Understanding what customers value in each channel and how that affects what they are willing to pay is the main challenge for pricing teams today.
Getting it right can have its benefits. Based on research, retailers that effectively price differently across all channels see bottom-line growth of 2% to 5%.
We’ll explore under what circumstances are customers sensitive to online/offline price differences? Are they open to price differences, and which pricing situations drive them away?
We’ll argue that though the price differences between traditional and digital retailers are significant, customers still consider value as the primary reason to buy the products. Therefore, it is necessary to know what strategies the brick-and-mortar stores can use to bring in more customers.
We believe that the customers can tolerate the higher prices in the stores as long as they accept the product value. However, if the different pricing policies between the traditional and digital retailers are substantial, the customers will choose the latter.
How customers have perceived value — and how that affects price sensitivity in different pricing policies
- In reality, there’s no one factor of shopping that all customers value most in all situations. Customers will consider the convenience of immediate availability, the thrill (or pain) of shopping in a store versus online, and a product’s price.
- They often value different things in different shopping situations. Sophisticated pricing strategies need to take these customer-centric considerations into account.
- The primary question that needs to be considered is this: under what circumstances are customers sensitive to online/offline price differences?
- Are they open to price differences? Or, are they put off by them?
In all categories, people are fine with prices being higher in-store for the same item. But, only once they see that the value of the item being charged at a higher rate than online prices as reasonable. They also like the item to be in physical proximity, and exclusively available to them. Saying that, however, the tolerance for the price differential will depend on how expensive the product is. Therefore, consumers to some extent must understand the higher overhead costs retailers will have to pay for stock items in physical stores (i.e., you pay more for valuable item + storage + distribution etc).
For example, Amazon Prime members were more tolerant than other consumers of online prices being higher than in-store prices. We think this could be because these customers see the holistic value proposition differently. They get more value with online shopping’s traits of ease of purchase, ease of returns, speed, and not having to travel to a store. What’s more, they are willing to pay extra for these value drivers even though they are going online (i.e., a channel to market that is generally considered by most retailers to be the low price channel to push volume and old stock quickly).
Strategies in different pricing policies to win the multichannel pricing game
To attract more customers, retailers should approach multichannel pricing in three ways:
Pricing teams should focus on implementing price differential strategies
Deciding what prices to use for which channels start with developing business rules that combine “hard facts” about price elasticity and competitive pricing. For instance, the impact of the price change on demand by segment, with “soft facts”.
Also, on consumers’ willingness to accept price differences by channel, approaches to flexibility include time-series methods. Furthermore, it also includes big data analytics to calculate how a product’s price affects demand. They also take into consideration a wide variety of factors including seasonality, cannibalisation, and competitive moves.
Pricing teams need to put omnichannel pricing programs in place, actively monitor them, and continuously optimise prices based on what’s working
Through agile pricing practices, teams can sequence test-and-learn programs that help define pricing boundaries. To best start the program, these teams need to start with a small part of the assortment, pilot the new approach and then scale what works.
Store employees should wield the right tools for talking about price differences
This new strategy of pricing requires a more active communication strategy and an effective method to train store employees.
When asked why a price was different in the store versus what was appearing in the related mobile app, store employees avoided a straight explanation. Too often, they’d say, “It’s probably just a mistake in the system — they should be the same price,” or “They don’t tell us why. I’m just a cashier; maybe the manager knows,” or “Online and in-store are different businesses, so they price differently based on what they need to liquidate.”
While this may be relatively new, we believe that retailers need to train in-store staff in addressing customer questions. In particular, they need proper training related to price variance and the value reflected in the price.
Customers are understandable about the higher costs for stocking an item in a physical store and the value of having immediate access to a product. For instance, this includes answering questions about a product and asks what the price is. Salespeople need to be both aware of the price differences and equipped to explain its reason.
The training should be revised based on what customers are asking. Additionally, it should also be revised based on how effective in-store staff is in providing quality, on-brand answers.
Operational challenges in managing price differences by channel need to be worked out
To be truly customer-centric, companies should offer the option for a customer to return a product purchased online to a physical store.
In reality, customers value choice. Office Depot, for example, can provide refunds to a customer for the product they’ve returned at the price they paid for it, no matter which channel was used to purchase it. Providing this service requires that online customer data be made accessible to staff in the store.
For retailers, getting a sale at a lower price, whether online or offline, can be of value. There are opportunities for upselling and cross-selling, for developing ongoing customer loyalty, and for monetising the data that customers share.
Price differences between online and traditional retailers are significant. To gain value, brick-and-mortar retailers should adapt to omnichannel pricing. They should do so to attract more customers and get the right pricing.
Some management people are still uncomfortable with the boldness; required to show different sticker prices for the same item in different channels. Yet studies revealed such price differences to be an increasingly common practice these days. Most retailers are posting different prices on; the shelf and in their mobile apps for the same item at the same time.
Putting omnichannel pricing into practice is not easy. It can start only with a mindset shift at the leadership level to embrace a “license to price differently” across channels. Only with committed leadership can omnichannel pricing be a true source of improved performance and growth.
Even with the presence of digital shopping more prevalent, lower prices, consumers still value the traditional stores. The reason being is they can physically see the items. They know the overhead costs of the retailers. And therefore, they can tolerate the higher price.
Pricing teams should actively pursue omnichannel pricing programs, actively monitor them, and continue optimising prices on what works. Through trial and error, teams can find the right pricing strategy. It’s best to start slowly, pilot the new approach, and then gradually increase the scope to what works.