Will Target’s dynamic pricing strategy erode customers’ trust?

Discussion
Source: Target
Feb 05, 2019
David Weinand

In a two-month investigation conducted by Minneapolis TV station KARE, it was uncovered that Target changes its prices on certain items depending on whether you are inside or outside of the store.

In one example, Target’s app price for a Samsung 55-inch Smart TV was $499.99, but in the parking lot of one of their stores that price suddenly increased to $599.99 on the app. This test was done on 10 products and found that four of the 10 jumped in price from the parking lot to the store. The price jumps were not insignificant either — a Dyson vacuum went up $148 and a Graco car seat jumped $72. In fact, the in-store price was $262 higher for the four products vs. the parking.

University of Minnesota Marketing Professor George John, interviewed for the story, stated, “Somebody at Target programmed in an algorithm which says someone who is 50 feet within the store is willing to pay more. The most reasonable explanation is that you just revealed your commitment to buying the product, you’re in the store, or in the parking lot. If you are further away, you haven’t quite committed, so I’m going to give you a juicier deal. That’s why the price went up when you got closer to the store.”

Of course for this practice to take place, Target customers must have their location services enabled for the app.

Target released a statement for the story saying, “The Target app shows in-store pricing while in store, and online pricing while on the go. If a guest finds any item for a lower price across any of the ways they can shop Target, we’ll price match it.” This, of course, puts the onus on the customer to go through the exercise of checking prices prior to every Target shopping trip.

The station also tested whether other retailers are using this practice, including Best Buy, Walmart and Macy’s. Pricing was consistent across all three, regardless of location.

For retailers that offer different prices for products bought online or in stores, a study from the Harvard Business School published in 2018 found that “self-matching” — enabling associates to match a retailer’s lower online price in the store — has a beneficial business effect.

DISCUSSION QUESTIONS: Do you think Target’s practice of varying online vs. in-store pricing will erode customer trust? What recommendations would you have for Target, now that this practice has been made public?

Please practice The RetailWire Golden Rule when submitting your comments.
Braintrust
"Brands exist because of a trust bond. If you can’t trust the brand you have no bond."
"I have never been fond of dynamic pricing, and all our data tells us that the best performing retailers have consistency between online and in-store pricing."
"This is s dangerous game to play with one’s customers. Transparency is the name of the winning game. "

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27 Comments on "Will Target’s dynamic pricing strategy erode customers’ trust?"


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Tom Dougherty
Guest

It’s simple. Target: stop this smoke and mirrors game. The algorithm is based upon a truth. But Target has confused “intelligence” with “intelligent.” Brands exist because of a trust bond. If you can’t trust the brand you have no bond. In the age of knowledge all of these deceitful manipulations will come to light. Stop it and have some integrity beyond manipulation.

Ricardo Belmar
BrainTrust

I have many doubts about pricing practices such as these. For one, it invites the development of third-party apps whose purpose is to check the pricing of items you want to track and tell you when (and in this case where) the best time to buy is. There are many of these that track Amazon for their famously variable pricing. Given that, you have to ask is it worth it when you may be risking customer trust and potentially affecting sales in the opposite direction you intended. There is nothing inherently wrong with customized and personalized pricing, especially if tied to loyalty programs, but most consumers are beyond expecting online and in-store pricing to be the same for a retailer. Target may be risking too much with this practice with savvy consumers.

Carol Spieckerman
BrainTrust
Wow. Just wow. I’m usually a fan of exception-based pricing (putting the customer in charge of calling out competitive pricing or clicks-to-bricks discrepancies) but Target’s scheme will absolutely erode trust. The fact that there are differences between online and in-store pricing (or is “in-parking-lot” pricing now a thing?) isn’t the problem — that’s practically a given for most retailers — it’s the magnitude of the differences. The types of price jumps portrayed in the article are downright disorienting and will encourage customers to keep on searching (other retailers), then pivot and head right back to the car. A loyalty-killing skepticism hangover could set in from there. I noted this past week that, for the first time ever, three different items in a row that I searched on Amazon showed wild swings in reviews. Two were staple items. One was an Amazon private brand. The five-star reviews were actual raves for the product featured. The one star reviews (which were beginning to drown out the fives) were backlash against sudden price increases. Many came complete with… Read more »
Phil Chang
BrainTrust

As a consumer, this would make me angry. Target is supposed to be the nexus for shopping experience and “almost” the lowest price on the market. I have a grocery list or shopping list I need to fulfill but now I’ve got to figure out how to get it cheaper? No thanks. I can do that online from the comfort of my own home.

If I’m a buyer – this is a nightmare. (somebody tell me I’m wrong). How am I supposed to stay competitive watching the market, watching my competition online/offline, different regional pricing and now I have graduated pricing based on commitment? I think I’d feel like I worked for a travel company – pricing based on desire.

Pricing is complicated enough as it is. This doesn’t make Target a better retailer.

Michael Decker
BrainTrust
Michael Decker
Vice President, Marketing Strategy
1 year 3 months ago

A seamless price and shopping experience across ALL business channels is something that should be guaranteed by any and all retailers, never mind a leader of the field like Target. It’s a basic tenet that many retailers got into trouble for several years ago when e-commerce was just gaining a foothold. Consistency of product and even “look, feel and tonality” across both physical stores and e-commerce elevates BOTH platforms in the eyes of its customers. Inconsistency denigrates BOTH.

Jeff Sward
BrainTrust

Somebody should have their calculator taken away and they should be issued a thinking cap instead. !@#$%^&* algorithms. They make us both smarter and dumber. In this case dumber. How many times would this happen to a customer before they would just stop shopping at that retailer? Who’s in charge, merchants or mathematicians? And I’ve been thinking such good things about Target lately.

Bob Amster
BrainTrust

This is s dangerous game to play with one’s customers. Transparency is the name of the winning game. If a retailers feels that it has to charge different prices online vs. in-store the retailer can display that message clearly on the website, and even clearly in the store. Unannounced prices fluctuations for no reason other than proximity are sketchy.

Chris Petersen, PhD.
Guest

Amazon has one of the most sophisticated pricing strategies of any retailer. Amazon item prices change multiple times, especially during peak periods. A key difference is that few customers are aware of it. The reality is that Target’s practice of varying prices by customer location is one of the coming realities of remaining profitable in omnichannel. As noted, other major retailers have been implementing similar practices for a while now. The best advice for any retailer is to follow Target’s public statement of empowering customers with effective price matching capabilities. To maintain trust retailers must also back up price matching with associates who can efficiently implement it in-store.

Paula Rosenblum
BrainTrust

They (I, at least) have become aware of it, and I really don’t like it.

Joan Treistman
BrainTrust

Once customers know that Target’s pricing is not to be trusted they will be hard pressed to trust Target overall. “What else is Target doing to me?” is the next question.

Target’s willingness to match the lowest price reinforces the dubious nature of their pricing policy: “Catch me if you can.” My advice to Target is to change their policy, dump the algorithm and promote one price regardless of where you make your purchase — in the store, in the parking lot, from home, wherever.

Target has had a reputation for great value. I don’t see the upside to having a reputation for offering a great value some of the time, depending on your location at the time of purchase.

Adrian Weidmann
BrainTrust

Target got caught with their sticky financial fingers in the cookie jar. Their corporately orchestrated silence, when confronted by the KARE-11 reporting team was deafening. Target stayed silent on this “discovery” knowing it would quickly fade away and get buried with tomorrow’s news. It seemingly worked — unfortunately. Target knew that once you were in the store, you — the shopper — were more inclined to NOT pay attention to competitive price. The experience was discovered accidentally by a Target fan. This geo-location pricing flip can be avoided by turning off the location (GPS) services on the Target app. This issue should be more widely exposed so that shoppers are informed and educated as to what their brands (i.e. Target) are doing; in effect, taking advantage of their brick-and-mortar shoppers. Target should be rewarding their physical store shoppers — not taking advantage of them!

Paula Rosenblum
BrainTrust

I have never been fond of dynamic pricing, and all our data tells us that the best performing retailers have consistency between online and in-store pricing. Consumers will accept channel specific promotions, however.

Still, for Target, this is a TERRIBLE idea. They’ve only recently regained consumer trust after their mammoth data breach and reaction, and their change in merchandise assortment.

My recommendation would be to say “We tried it, consumers didn’t like it. We’ve gotten rid of it.”

Cathy Hotka
BrainTrust

The industry jargon may be “dynamic pricing” but customers will see it as cheating. Target, back off now.

Carlos Arambula
BrainTrust

Targets needs to address this issue head-on immediately.

Consumers will forgive a slight variation in pricing, or understand if the prices differ so long as it’s indicated (online price vs in-store price), but if consumers perceive the retailer is deliberately manipulating them they will be less forgiving.

Harley Feldman
BrainTrust

If you were a shopper who checked your phone app at home or in the parking lot and found a lower price than you found in the store, you would immediately ask for a price match or walk out the door. If this differential pricing by Target is being done on purpose, it will erode consumer trust for Target shoppers, a very bad idea. The practice should be stopped and store associates should be given the latitude to match outdoor prices indoors.

Scott Norris
Guest

To Target’s credit, their staff do have the authority to price-match their website/”outdoor” pricing. My wife saved nearly $200 on a Dyson vacuum that way last year, once the price-match and REDcard discounts were applied.

Patricia Vekich Waldron
Staff

Consumers have always reacted angrily to price discrepancies, and in this age of internet transparency I don’t know why Target would implement such a pricing strategy.

Mel Kleiman
BrainTrust

Sounds like a real loser of an idea, except for Walmart who should be helping to push this story.

Neil Saunders
BrainTrust

This policy has been around for a while and it is annoying and illogical. As an example, I can go into a Target near me and buy some gummy vitamins for $16.99. However, I can also go onto the Target website, order the gummies to be picked up in that very same store and pay $13.99. I am paying less even when Target has the added expense of picking the item off the shelf and putting it aside for me. It makes no sense! Is this enough to stop shopping at Target? No! Do I think less of Target because of it? Yes, I do!

Liz Adamson
BrainTrust

Not a smart move by Target. Changing the price based on location will only erode customer trust and will drive customers to other retailers who will be transparent and consistent with their pricing. This practice is certainly taking advantage of customers who are trying to do their due diligence in searching for a good deal, only to have Target mask what their true online price is.

Bethany Allee
BrainTrust

In short, yes it will erode customers’ trust. How can it not? This is a clear example of business behaving badly. It’s also a clear example of assuming consumers are idiots.

BUT — it won’t impact the majority of folks who use apps of this nature. This app is used primarily for comparison shopping. People who want the low price aren’t driven by retail outlet loyalty.

BUT again … if I were in Walmart’s seat, I’d get app stats out ASAP. This is an opportunity to discuss their low prices and how much money they’ve given back to their shoppers for finding price discrepancies.

Ananda Chakravarty
BrainTrust

Typically not Target’s style and the response was lackluster and not trustworthy. The only redeeming fact might be a test (given this was in their hometown) and they were exploring, or… a low level mistake. In either case, the general consumer consensus has narrowed down to consistency in pricing across store and online. They need a solid public statement and to halt the practice as soon as possible. Not like Target at all….

Craig Sundstrom
Guest

People will accept differences — presumably small — that they can understand. Only the most clueless think a hotel room at the Super Bowl or a flight on Thanksgiving eve should be same price as they would be a month later, and most realize that stores have overhead to cover. But that’s not the same thing as “because we think we can get away with it.” $100 on a TV falls into that latter category.

Bad move Target (and shame, shame!).

Brent Biddulph
BrainTrust
Agree, Target failed if true. But I’d take a slightly different POV on this one … chalk this one up to a flawed Data Science experiment. Compounded by the fact that is has now been exposed and a PR issue, not good. However, let’s not throw out the baby with the bathwater here — dynamic pricing is a new retail business reality (used smartly). My take on this experiment is the flawed thinking that Target would penalize a consumer that is actually using their mobile app to begin with. Generally, traditional retail mobile apps have very low customer penetration, mostly because they lack benefits or a “reason” worthy of a customer even turning on the app, ala location based tracking (thus, why proximity marketing while promising, has a weak total ROI). Not to mention that it is highly likely that the “best” customers are the few that are even turning on the app to begin with at this stage. Silly Target should be rewarding (and finding ways to entice) ALL customers for simply using their… Read more »
Gib Bassett
BrainTrust

Remember when a Target analyst was criticized for predicting a young woman’s pregnancy before her father knew, and how the company’s marketers personalized their Sunday Circular with new baby products? This pricing issue is another similar example of not being transparent with your consumer.

The tactics of analytics are hard to get right, but so are the softer issues about how it unfolds with your customers — needing a real executive commitment to trust.

Last point: dynamic pricing is a good analytics use case (think Kroger), but better applied based on supply/demand and done at a store level than individually, IMO.

Shep Hyken
BrainTrust

This seems like a quick way to cause the customer to lose confidence. Even a loyal Target shopper might be disappointed to find out they could have bought something for less depending on the channel. And, the inconsistent pricing might move the customer to another retailer that has a simple and consistent pricing strategy. There has to be a reason for this. I hope to read more about it — and understand the thinking behind their decision — soon.

Fredrik Carlegren
Guest

As implemented, this erodes trust. There are few things worse for a retailer. Does that means it’s the end of dynamic pricing? I don’t know. While I don’t encourage it as implemented here, I think smart retailers can find ways to make consumers feel like the winner. Incentivize and excite them (and be transparent)… but, don’t rely on algorithms only as a means to maximizing profit on an items in isolation from the customer experience and long-lasting imprint on their purchasing power.

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Braintrust
"Brands exist because of a trust bond. If you can’t trust the brand you have no bond."
"I have never been fond of dynamic pricing, and all our data tells us that the best performing retailers have consistency between online and in-store pricing."
"This is s dangerous game to play with one’s customers. Transparency is the name of the winning game. "

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