Omnichannel Retail Strategy: Improving Multichannel Pricing 🌌

Is omnichannel retail strategy an effective pricing technique for retailers and B2B businesses considering going direct to market? Fashion apparel retailers, life insurance providers, and consumer banks don’t know how to incorporate digital channels into their traditional face-to-face operations. As a result, pricing and marketing across channels are often a mess. Retailers may not know whether to charge customers less or more online or how to make the most of digital channels while managing traditional brick-and-mortar channels.

The life insurance industry, for example, has traditionally relied on face-to-face processes alongside increasingly digital channels. In some cases, application and underwriting processes can still take weeks to complete.

---

>Download Now: Free PDF How to Drive Pricing Strategy to Maximise EBIT Growth

---

In this article, we discuss multichannel pricing in B2C and go through the best practices of retailers in improving pricing. We argue that most retailers do not know how to present their prices online versus brick-and-mortar pricing because they do not have a clear pricing strategy. We address several questions: Should it be the same as the in-store price or lower? Should they sell the same products online or older stock? Should they promote more online or would this destroy their brand or price positioning?

At Taylor Wells, we believe that online and offline channels can completely complement each other when using an omnichannel retail strategy. By the end of this article, you’ll understand the pricing problems that retailers face and how you can use an omnichannel retail strategy.

Multichannel Pricing is Better With an Omnichannel Retail Strategy

An omnichannel strategy is a means for providing a consistent experience for customers across all of the channels through which you sell. It includes all of your brand’s online and offline contact points, from a point-of-sale system to a Facebook promoted post, for example. But, before we dig deeper into the omnichannel retail strategy, let us first explore the price problems that businesses confront. This will allow us to better comprehend the benefits of an omnichannel retail strategy.

How an Omnichannel Retail Strategy Improves Multichannel Pricing

An omnichannel retail strategy can improve multichannel pricing by connecting online and offline channels around a more consistent customer experience while allowing retailers to manage price differences strategically. The article identifies three practical approaches:

1. Implement price differential strategies. Develop business rules that combine hard facts, such as price elasticity and competitive pricing, with customers’ willingness to accept price differences across channels. Monitor the results and continuously optimise prices based on what works.
2. Train store employees to explain price differences. Store employees should understand why online and in-store prices may differ and know how to answer common customer questions clearly.
3. Work out operational challenges by channel. Retailers can give customers more flexibility, such as allowing products purchased online to be returned in a physical store. This requires online customer data to be accessible to store staff.

Together, these approaches help retailers manage channel differences while keeping the customer experience connected. The first step, however, is understanding where multichannel pricing currently breaks down.

The Pricing Problem for Retailers Broken Down

To understand if and how an omnichannel retail strategy can improve multichannel pricing, you’ve got to first see where pricing is breaking down for retailers. Here’s why multichannel pricing is broken. We’ve identified four reasons.

1. Retailers generally don’t even know if they are overcharging or undercharging customers.

Pricing for both channels is still set using a cost-plus pricing methodology. Most retailers don’t know what their customers value or how they use their products. In essence, they rely on cost-plus because they don’t know any other approach or think it is too difficult to learn about their customers. This leads to overcharging and undercharging situations for customers.

Take, for instance, a company with significant buying power that is buying widgets for engines in bulk to distribute to its customers all across Australia via its branches and stores. In this scenario, the company receives an extremely good rate for a shipment of widgets based on several factors, such as the volume purchased, a favourable exchange rate, and discounted shipping fees. They then add their customary 10% markup on fixed and variable costs to calculate the price of each widget and begin selling their widgets to customers at what they believe to be a profitable price point. However, they learn from a sales rep in the coming months that a new competitor has sold the same widgets for a higher price than theirs.

In the example above, there’s no real difference between the widgets either business sells, but there is a substantial difference in operating costs, with this business’s fixed costs being substantially higher than those of the new entrant. The business managers figure there’s no harm done because they’ve reached their margin targets so it’s all okay.

However, in effect, they have left a margin on the table by capping their revenue potential using a cost-plus price setting. They have completely disregarded the market and have not calculated their costs properly.

In another example, the same widget distribution company buys the same widgets for engines in bulk three months after the last shipment (described above). They apply their usual cost-plus markup to set the final invoice price. However, they later find that they have lost significant margin as a result of rising costs. For example, the exchange rate has gone up, they have acquired smaller customers in remote areas with expensive freight charges, and the price of the metal on the commodities market has shot up. They quote customer prices as usual, as their pricing is fixed (i.e., only updated once a year), and find that, after a couple of days, they start receiving numerous complaints from customers who say they are paying way over the market rate for their widgets and want their money back.

Both scenarios are bad for the widget distribution business. The first cost-plus scenario means they are underselling their value and they have allocated their costs incorrectly. The second cost-plus scenario means that they have overcharged their customers and lost money on credit notes and discounts. Both scenarios lead to substantial and ongoing margin loss.

2. Retailers tend to overuse promotions and heavily discount to drive revenue.

There are typically more price promotions online than in-store. However, blanket promotions across both channels are common and largely react to competitor activity. This leads to confusing brand and price positioning. The customer begins to doubt whether they are getting value for money or whether this is just another pricing trick. Foot traffic declines across both channels, while declining shopper frequency becomes a major problem for retailers. In other words, people buy once and do not return.

Overusing promotions can weaken customer loyalty, particularly when customers become accustomed to frequent discounts rather than the underlying value of the product. Consumers who are more price-sensitive may be particularly responsive to promotions. You may gain new customers, but once prices return to their regular rate, you can say bye to many of them.

3. Retailers tend to spend too much time focusing on their competitors’ pricing rather than figuring out their pricing strategy for different channels.

Companies often waste a lot of time web scraping competitor price points to find out where they should set their prices. This is called competitor-based pricing. The problem with this approach is that it is a time-consuming and costly distraction. It is very tactical and focused on online pricing; it is only one input in the price-setting process and ignores costs of operations.

Typically, by the time they find out what their competitors are charging, customers have moved on and want something else. The price becomes a liability and the product is left on the shelf. The stock just sits there.

For example, a company needs to price a new bread toaster. The company’s rival store sells it at $30, and the company considers that the best price for the new bread toaster is $28. The company then decides to set the price at $28 just to be competitive. This leads to missed opportunities as all the players are following each other. In this case, the company is relying on competitor-based pricing rather than developing its own pricing strategy. 

4. Retailers often set prices without a strategy. In most B2C retail, for example, merchandise managers buy products and then add a percentage markup on top to reach their margin targets.

Due to the simplicity of this price-setting process, many merchandise executives believe they do not need additional pricing expertise in the business to set prices. What executives don’t realise, or realise only when it is too late, is that their rudimentary price-setting process can either leave a margin on the table or erode business margins. They could have charged more if they had considered customers’ willingness to pay. Alternatively, they may lose margin when exchange rates change, distribution costs increase as more people buy online, production costs rise as demand peaks, or customers switch to cheaper alternatives.

The problem here lies in management’s approach to pricing and organisational culture. They have an immature pricing capability and believe cost-plus is a good enough pricing method. Also, they believe they don’t need to learn new ways of thinking about pricing. They dismiss newer pricing strategies as too difficult. In addition, they assume anything other than what they know about pricing won’t work in their business because they either have a commodity mindset or they do not want to challenge themselves or the business to improve pricing. They may say they think about their customers, but they certainly do not use scientific methods to understand their customers and use consumer or pricing insights to improve the accuracy of their pricing. In effect, then, they are a self-focused business.

A lot of companies, then, appear to be developing products and setting subsequent product prices in a bubble. Often, their pricing is completely misaligned with the market and plucked out of thin air.

There also seems to be a deeply held belief that understanding customers is too difficult, even though customers keep the business open. The retailer takes too long to set prices, and they are often way off the mark. When they are ready to launch a new campaign, product or price in the market, the market has changed, the customer has changed, but the business has not. And then it all fails. Rinse and repeat.

See whether your pricing is under control

Exceptions to the Rule: Case Examples

In light of the pricing chaos occurring in retail, then, we were keen to find out if there were any shining examples of businesses attempting to improve their pricing across channels. By this, we mean thinking differently, trialling new approaches, and learning quickly from failure. Yes, thankfully there are. Here’s an overview of the notable and refreshing exceptions:

1. Walmart: an example of an omnichannel retail strategy

Walmart continues to invest in e-commerce and omnichannel capabilities, integrating its stores, digital platforms and fulfilment services to give customers more flexible ways to shop. Its omnichannel model connects online ordering with its physical store network, including services that allow customers to order online and collect purchases through stores.

2. Cartier: An Omnichannel Pioneer in the Luxury Industry

“More than just a service, an experience” is Cartier’s tagline.

Cartier provides an integrated online and in-store shopping experience, including online ordering and, in some markets, boutique pickup. Customers can also access personalisation and repair services through Cartier’s boutiques and online service channels. Customers can request services such as jewellery engraving and ring resizing, subject to product and service availability. They can then arrange the service through Cartier’s available service channels or visit a Cartier boutique.

3. Kohl’s: Its Omnichannel Retail Strategy Makes Shopping Easy and Rewarding 

Kohl’s is another retailer that integrates online and in-store shopping experiences. Customers can buy online and pick up their purchases in-store, while the Kohl’s app connects shopping, coupons, Kohl’s Cash and rewards across digital and physical channels.

Advantages and Disadvantages of Online and Physical Stores

We have discovered the pricing problems of retailers as discussed above and recognised some successful businesses that have improved pricing across channels. To better understand each channel, let’s find out their advantages and disadvantages.

1. Big scope: You can sell to the world. Online stores can allow customers to browse and purchase products outside traditional store hours. They can also meet the demand of both local and international consumers. With the Internet, customers can discover and purchase products beyond their immediate geographic area, although delivery, fulfilment, and other location-related factors still matter.
2. Convenience: Online shopping offers the convenience of acquiring any product at the click of a button. There’s no need to travel to go to the store to buy the items that you want.
3. Lower costs: The costs of opening an online store are much lower than the costs of opening a local business or a physical store.

Disadvantages of an Online Store:

1. Security and fraud: The increase in online retail markets has also attracted the attention of modern criminal elements. You need to invest in emerging security systems to protect your website and transaction processes.
2. Customer trust: It’s not easy to establish a trusted brand name, especially without a physical business with a track record. Face-to-face interaction between customers and sales staff still matters with most customers. In addition, it’s not cheap to set up a good customer service system as part of your online offering.
3. Competition: The level of instant competition is greater than with a retail storefront. There are usually a lot of businesses online selling the product you offer, and most are already established. Thus, it makes it difficult for a new online start-up to break in and succeed.

Advantages of In-Store Retail:

1. Customers can test the product before purchase (see, touch, feel): There are still people who need to touch, see and feel the product before buying it. For high-value items (like designer clothing, antiques, jewellery, furniture and cars), a physical store may appeal more to customers and generate a higher profit on individual items.
2. Increased confidence/loyalty: Even with leading online customer service, nothing can beat the close, personal, face-to-face interaction with a live person.
3. Immediacy in all senses: You will have real-time answers to your problems such as queries, returns, product modifications, etc.

Disadvantages of In-Store Retail:

1. High initial investment: The costs of the location, staff, and electricity supply are very high in traditional stores, while e-commerce requires a minimal investment in comparison.
2. Limited market: The customer base is limited to the surrounding area. Hence, when you open a retail store, your ability to attract new customers is limited.
3. Customers have to travel a certain distance for the product: Some customers find it inconvenient to travel to a store to buy the products they want.

Can Unbundling Go Too Far? ✈ Podcast Ep. 79!

Delving into the Omnichannel Retail Strategy

Regardless of the differences between the two channels, then, case examples and research indicate that online and offline channels can entirely complement each other. The reason is the omnichannel retail strategy.

There are a lot of aspects of shopping that a customer considers and values. Oftentimes, they value different things in different circumstances. They assess the convenience of immediate availability, the product’s price and the pleasure or pain of shopping in a store compared to online. Therefore, it is important that modern pricing strategies take these customer-centric considerations into account.

Having said that, let’s consider these questions: On what occasions will customers be sensitive to price variation for online/offline channels? In other words, when are they willing to accept price differences and when are they not? Let’s discuss how to make an omnichannel retail strategy work and answer the questions along the way.

How to Win Using the Omnichannel Retail Strategy

Listed below are three approaches to an omnichannel retail strategy:

1. Implement price differential strategies.

Develop business rules that combine “hard facts” with “soft facts” in deciding what prices to use for which channels. This means that you have to know about price elasticity, such as the impact of a price change on demand by segment, as well as competitive pricing. Then combine it with consumers’ willingness to accept price differences by channel. Omnichannel pricing programs should be actively monitored. Also, don’t forget to continuously optimise prices based on what works and what doesn’t. Start with a small part of the assortment, pilot the new approach, and then go over what works.

2. Train store employees properly about price differences.

A more active pricing communication strategy is key, coupled with an effective method for training store employees. Oftentimes, store employees avoid a straight explanation when asked why online prices are different from in-store prices. They’d say, “Maybe it’s a system glitch,” or “No idea. I’m just a cashier,” or “Online and in-store are separate businesses; therefore, they have different prices.”

Most customers understand the higher costs involved in stocking an item in a physical store. They also understand the value of having immediate access to the item. Front-line workers should be aware of the price differences and know how to explain the reason for those price differences. They should be trained to answer common customer questions and provide appropriate explanations.

3. Work out operational challenges by channel in managing price differences.

Customers value choice. Use a customer-centric approach. Offer the option to return products purchased online to a physical store. For example, Office Depot allows eligible online and in-store purchases to be returned at its stores, subject to its current return policy. However, providing this service means making online customer data accessible to staff in the store.

It’s not easy to put the omnichannel retail strategy into practice. However, it can start with a mindset shift to embrace a ‘license to price differently’ in all channels. An omnichannel retail strategy can be a true source of improved performance and growth with committed leadership. Leading brands increasingly use omnichannel strategies to integrate digital and physical customer experiences. They offer an integrated experience to their customers both inside and outside the digital world and across all available channels.

The boundaries of omnichannel retail are also expanding rapidly. Thus, customer expectations are increasing.

Some retailers have enabled customers to:

• Same-day delivery: Customers can order products online and have eligible items delivered to their homes on the same day.
• Fast delivery: Customers can order online and receive eligible products within a short delivery window.
• Store-based fulfilment: Customers can receive products from nearby stores, sometimes within a few hours.

The financial model for these emerging omnichannel strategies includes a minimum shipping fee for the convenience of fast delivery. Some consumers may be willing to pay to have the product delivered the same day when speed is important to them.

Using this strategy, having different product prices in-store and online is no longer the primary issue. In this model, the determining factors are speed and service, not price. The retail store has become an omnichannel distribution point as much as a point of sale, with price uniformity between online and physical stores.

Maximising the Marketing Potential of Omnichannel Retail Strategy

1. Observe your customers’ behaviours.

Understanding who your customers are and how they purchase from you is the first step toward developing a good omnichannel retail strategy. One method is to conduct a simple poll in which participants are asked about their shopping interests. You might provide a discount as an incentive for your customers to complete the survey.

You could enquire about how clients learn about new products and menu items. This could be accomplished through social media, in-store shopping, or word of mouth. You can also seek clarification about the types of goods they like to purchase in person rather than online. This type of information can help you focus your efforts and see where different channels can help each other. For example, if a large number of customers claim to learn about products on Instagram, you know that’s a channel where you should concentrate your efforts. In this respect, data is critical.

2. Create content that is both informative and entertaining.

When it comes to educating customers, addressing concerns, and creating trust across channels, high-quality, engaging content is critical. The more engaging the information you can develop to demonstrate why buying from you is a wise choice, the more you’ll sell.

Content marketing efforts can take numerous forms, including blog entries, social media, tutorials, customer reviews, and streaming videos. Visual content is attractive, helps with SEO, and does well on social media. Consider making multimedia presentations for your flagship products or services, or start a series of lessons that highlight your area of expertise.

3. Incorporate all your digital platforms into your stores.

Try to include social media in your in-store presence. Dressing rooms can contain displays that allow customers to read product reviews of what they’re trying on. This is a useful addition to existing try-before-you-buy methods. Customers can be invited to snap photos of what they bought or ate and post them on Instagram in exchange for an incentive. Alternatively, you might have panels that display a live social media stream related to your products or industry.

QR codes are just another tool that can help you take your omnichannel retail strategy to the next level. There are numerous inventive methods for businesses to use QR codes to communicate with customers, such as sharing information about the producers and chefs behind products and recreating the ambience of an in-store experience.

4. Provide free in-store pickup for suitable transactions.

Many customers value saving money on shipping charges. Consider converting your physical store into a fulfilment hub for your online channels, allowing customers to pick up their orders without having to pay for shipping.

In-store pickup can give customers a convenient alternative to home delivery while also creating opportunities for additional in-store purchases.

5. Diversify the platforms through which you market.

Offer and promote your products everywhere your clients purchase, explore, or seek additional information. Before purchasing an item, most customers will interact with several touchpoints, including brick-and-mortar shops, social media, online marketplaces such as Amazon and Etsy, your website, review sites, and larger merchants that sell multiple brands, among others.

While diversifying, make your customer experience uniform. When customers switch across channels, they should see consistent branding and pricing. Customers increasingly expect a consistent experience when they move between channels. Establish a pricing team to help coordinate pricing across those channels.

Our findings show that a well-structured pricing team can identify opportunities to improve margins, strengthen price management, and uncover previously unrealised sources of value.

See how pricing breaks in practice

Implications

The omnichannel retail strategy improves online pricing because it provides a unified customer shopping experience no matter which channel a shopper uses. Whether it is social media, a digital store, or an online marketplace, the omnichannel retail strategy provides a unified experience. In addition, it lessens the obstacles to purchase because it removes the time and hassle of comparing prices across channels. Thus, it builds customer loyalty. 

Case studies show that customers value different things in different circumstances. They consider the convenience of immediate availability, the price of the product, and the pleasure/pain of shopping in a physical store compared to online. Therefore, sophisticated pricing strategies need to take these customer-centric considerations into account.

Research indicates that online and offline channels can entirely complement each other regardless of their differences. Again, this depends on their use of an omnichannel retail strategy. With committed leadership, omnichannel pricing can be a real source of improved performance and growth.

Undeniably, the retail industry is constantly changing. Therefore, players must find modern ways to respond to the digital world, consumer purchasing patterns, and other challenges. Thus, if retailers limit themselves to one or two platforms and lack smooth integration, it can have a detrimental effect on their long-term growth. In other words, they will have difficulties thriving and surviving in the industry if they keep doing the same thing (not adapting and responding to these challenges).

---

〉〉〉 Get Your FREE Pricing Audit  〉〉〉

---

Bottom Line

Multichannel pricing is broken because most retailers don’t know what their customers value or how they use their products. In addition, retailers overuse promotions, leading customers to wonder whether they are getting value for their money or whether the promotion is simply another pricing trick. Thus, they spend too much time focusing on their competitors rather than figuring out their pricing strategy for different channels. Furthermore, they either lack a clear pricing strategy or rely on cost-plus pricing, which can result in missed profit opportunities.

However, at Taylor Wells, we strongly believe there are quick wins and low-hanging fruit for retailers willing to think differently about digital and channel pricing. Regardless of the differences between the two channels, online and offline channels can entirely complement each other.

---

For a comprehensive view on maximising growth in your company, download a complimentary whitepaper on How to Drive Pricing Strategy to Maximise EBIT Growth.

Are you a business in need of help to align your pricing strategy, people, and operations to deliver an immediate impact on profit?

If so, please call (+61) 2 9000 1115.

You can also email us at team@taylorwells.com.au if you have any further questions.