Should retail prices in-store be the same as online?
Through a special arrangement, presented here for discussion is a summary of a current article from the IMS Results Count blog.
Meeting retailers in my travels across Europe the past three weeks, one of the most asked questions was: “Should prices in-store match those online?”
Can a retailer support the same prices in-store as online? From an omnichannel perspective, can retailers afford to lose potential customers if they do not to match their online prices in-store?
E-commerce has its own unique costs for massive distribution centers, infrastructure and systems. However, online selling doesn’t require expensive store leases, expansive labor requirements and other operating costs. For a leader like Amazon, inventory turns significantly faster than in many retail store chains, boosting gross margin profit.
Charging more in-store to support higher cost structures was possible when consumers shopped online as a separate channel. It becomes a quandary with bricks and mortar transformation strategies like “click and collect.”
Many store shoppers are still being asked to pay the higher “store shelf” price to cover shipping and staff expenses. In order not lose a store sale, staff even make the defensive offer: “We would be happy to give you the online price if you order it online and ship it to your home.”
But wait a minute — today’s consumers expect to shop and purchase anytime and everywhere. And guess what — if the store price is higher, consumers can simply whip out their smartphone in the aisle, order it at the cheaper online price, and walk over to collect the goods at the “Click and Collect” counter in store. Game over. The online price is now the store price.
Retailer store profit now depends much more on total basket than item price. Indeed, the key differentiators are now speed and service, not just price.
Enlightened omnichannel retailers are even adopting a strategy of matching competitors’ online prices in-store. They realize that a slightly lower product price is insignificant when compared to the highly profitable market basket of add-on sales and services, which are not sold nearly as much online.
With the growing price parity between online and stores, the retail store is becoming an omnichannel distribution point as much as a point of sale.
DISCUSSION QUESTIONS: Do omnichannel practices such as click and collect mandate the same prices in-store as online? Will this likely lead to stores having to adopt the generally lower online prices?
J. Peter DeebManaging Partner, Deeb MacDonald & Associates, L.L.C.
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32 Comments on "Should retail prices in-store be the same as online?"
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VP of Retail Innovation, Aptos
Senior Vice President, Dechert-Hampe
Nikki, I was going to post on this thread — even though late to the party this morning. Then I read your post and realized I didn’t need to. Couldn’t agree more and I’d rec you multiple times if I could.
Co-founder, CART
Nikki is right. Omnichannel sales doesn’t mean channel-specific pricing. This is where personalization can be enormously powerful as long as the retailer can connect a consumer experience across in-store and online.
President, Max Goldberg & Associates
Consumers expect a retailer’s prices to be the same in-store as online. Period. Retailers need to factor this into their pricing calculations. I’m surprised it took so long for many retailers to figure this out, and at how many retailers still have different prices. Shopping at Gap makes my wife crazy. She’s learned how to game the system, and I wonder how many person-hours and costs Gap has incurred getting her products at their lowest price. The same is true for Target. It’s no wonder that these retailers are seeing their overall sales decline.
Managing Partner, RSR Research
Our data has shown us that channel-specific promotions might be okay but, beyond that, the answer is a simple one — yes.
How would retailers deal with zone pricing? Online is just another zone. Retailers cannot charge the same prices online as they do in the stores just the same way as they cannot charge the same prices in all their stores. Milk, eggs and bananas may need to be lower in one part of town to match a few nearby competitors. Then raised where there are no competitors or the cost of business is higher. Just like a hamburger at McDonald’s at the airport is higher than the one on the street. Some states have minimum markup making it impossible to lower prices to online levels.
Managing Director, StoreStream Metrics, LLC
Not unlike Ferdinand Magellan who proved the world was, in fact, spherical, today’s digitally empowered shopper is proving that the shopping journey is omnichannel. Retailers need to come to terms with this reality and get over it. As noted in the article- ” … if the store price is higher, consumers can simply whip out their smartphone in the aisle, order it at the cheaper online price, and walk over to collect the goods at the ‘Click and Collect’ counter in-store. Game over. The online price is now the store price.”
The store, unlike online purchasing, should be a collection of immersive experiences. It is understood that the amount of purchases (basket size) is directly proportional to the time spent in the store. The happier the shopper is during her in-store journey, the longer she’ll spend in the store. Retailers should therefore create memorable immersive experiences.
Principal, Retail Technology Group
The question points out how complex the omnichannel business has become. The optimal price is the price that averages the costs and quantities sold through each channel, but that is very difficult to do accurately. However, retailers can’t sell products at a lower retail price than the store price for fear of confusing or even upsetting the consumer.
President/CEO, The Retail Doctor
I would turn the question around — should consumers pay more for items that are in short demand in-store when buying online? Too many retailers do not have full transparency online so a low price when added to basket says “checking stock” or “limited” only to receive notification they have to wait. I would suggest that the same prices only applies if the availability is exactly the same as a store that actually has the item. Anything less is apples to oranges.
Global Vice President, Strategic Communications, SAP Global Retail Business Unit
It is simple — each channel carries the same price — except the off-price channel that may be available online-only. They are just different channels but all a retailer’s same business. In addition, who would want to do the accounting for dot-com pricing and store pricing? Physical off-price and online off-price do not have to match.
Some promotions should detail out “only available at the stores” and write off part of the profit as a donation to improving America’s health. Get people off their arses and out to a store!
Principal, Your Retail Authority, LLC
It’s all about the customer and customers don’t like inconsistent pricing. Transparency, transparency, transparency. If the retailer is going to play around with price, they better be upfront and transparent about it with the consumer or the consumer will take their pocket books elsewhere!
For my 2 cents.
Professor, International Business, Guizhou University of Finance & Economics; Executive Director, Global Commerce Education
The problem of course is consumer perception. But in the long run consumers will get over it.
From a business point of view, if I can price the same item 10 percent lower online because my costs are lower and still make the same or even better bottom line, should I not do it?
The argument would be that I am driving my customers out of the store to online. So what? My company is making more money and likely selling more merchandise.
In-store and online are two different worlds. A store would need to charge higher prices in-store in places such as difficult inner city areas where crime, theft and lack of online abilities mean higher prices can and should be in place. Stores in higher-income, suburban areas might charge lower prices in order attract customers to experience the stores’ many offerings, rather than be disconnected through online shopping. Smart customers can experience the best of both worlds. I might buy some groceries online but I won’t be getting 50 percent off sushi on Mondays if I do. I need to go into the store to do that.
President, Protonik
In general I believe they should be the same — not to maximize short-term revenue and profit, but to build the trust relationship for consumers. That said, when there is a “reason” (e.g., online event, etc.) that rationalizes why there’s a difference, I find consumers to be smart enough that it’s just fine.
Amid this discussion, a very interesting question is whether online prices shouldn’t be higher in general than store prices. The economic studies show that online stores net out have worse financials than brick-and-mortar. In a more rational world, online stores are a special offering giving added convenience to consumers for which they should pay.
Of course, that can’t fly since online price cutting is so strong at competitors like Amazon. But it’s important to remember that, despite the claims, it nets out as more expensive to sell online and that retailers lose profit by sending store customers online.
Independent Board Member, Investor and Startup Advisor
The article leads you to the answer: yes.
Consumers are not interested, nor do they care about, the internal cost structure of running the business. They care about themselves in terms of getting the best value for their money and being able to “trust” where they shop.
Both sides of the relationship are learning what it means to be in a highly-transparent omnichannel environment. Discrepancies across touchpoints in pricing, service, deliveries, packaging and so on get magnified and consumer response is immediate.
Focus on making your customers’ lives simpler, be consistent and perform across your brand’s touchpoints and you shall be rewarded. Your cost elements should be structured and optimized to deliver on consumers’ expectations and not vice versa.
CEO, Dabbl
Consumers are channel-neutral, they want to make their purchase whenever and wherever happens to be most convenient for them at that time. Having to worry about price differences introduces friction and complexity. That friction and complexity, if it doesn’t break trust, will most certainly adversely affect loyalty and share of wallet.
CEO
Different prices online vs. in-store does break trust. As a retail expert I have discussed this issue with customers in-store as they toggle through their smartphone looking for the best price before they go to the checkout.
To retail management: This is a lazy way to squeeze margin at the major expense of customer distrust. Be more creative. Cut you cost away from the customer and deliver better-than-expected products and services and you win faster.
Chief Amazement Officer, Shepard Presentations, LLC
Managing Partner, Deeb MacDonald & Associates, L.L.C.
This is a difficult question based on zone pricing, weekly specials etc. The airlines and hotels finally had to match their online sites with outside sites selling their rooms and flights. If a retailer has a rewards card and asks for the number they may be able to match the online request to their local retail store. This could be a programming and data mining nightmare! Eventually the retailer will have to decide how to proceed. However, matching prices may be the most effective and efficient way to maintain customers.
VP Planning, TPN Retail
Yes – of course.
CEO and President, Walking TALL Training & Consulting, Inc.
This is really about building trust in a brand for your consumers — if the price differs online to store, it raises a question of why in their minds. Quite simply, consumers expect the prices to be the same online and in store. They are not interested in the behind-the-scenes overheads, they just want the comfort feeling of knowing they are not being ripped off, therefore losing trust.
Strategic Market Communications, Upstream Commerce
Although the answer on the surface (that prices should be the same) seems clear, this is still a thorny question. Retailers MUST have a way to cover their costs or it’s a race to the bottom with themselves! To do so, I think retailers have to offer prices that cover their cost, while taking into consideration what their competition is doing — another facet of price strategy.
CFO, Weisner Steel
Here’s a thought: have good accounting that allows you to readily and accurately calculate profitability in various channels, and then set prices so they’re profitable in each. If you can’t match someone else’s prices (on a sustained basis, not some loss-leader promotion) then get out of that channel.
Mindlessly setting your price to match those of someone else — even if the “someone else” is your own online operation — is a good way to get, or really go, out of business altogether.
VP Marketing
One shopper. One price. Sure costs may differ by location and channel, but that’s not a debate to be won in the court of public opinion.
Managing Partner Cambridge Retail Advisors