Will the Internet Kill Zone Pricing?
Zone pricing, the practice of selectively raising or lowering prices on products based on a variety of factors, is common in retail.
Consumers, for the most part, understand there are differences based on factors such as real estate costs. People in the New York metropolitan area, for example, expect to pay more for a Big Mac in Manhattan than they would in the suburbs. But they are not likely to be as understanding if retailers are charging higher prices for goods or services based on criteria that is less clear.
What got me thinking about this topic was a Wall Street Journal piece this week. According to the story, Orbitz has found that people who use Apple products spend up to 30 percent more on hotels than the average traveler. The service has begun showing consumers browsing with Apple hardware pricier places to stay than people going on the site using a Windows device.
Orbitz execs told the Journal that the site isn’t showing the same room at higher prices, but is returning more expensive rooms on searches by Apple users. So, in the end, Orbitz isn’t looking to fleece Apple users, but I can’t help but think that people going on the site (like myself, as I type this on an iMac), are going to be double-checking their options before booking travel on Orbitz.
Another recent story, discussed here on RetailWire, about Kantar Retail’s market basket comparison between like items sold on Amazon, Walmart.com and Walmart Supercenters, focused on pricing differences between the stores and Amazon. A piece of the discussion that was less developed was that store pricing across the market basket was cheaper in the supercenters than on Walmart.com.
The argument against e-tailers in terms of competitive "fairness" has always been that stores can’t hope to compete on price against online merchants because of overhead issues. That difference is pretty well ingrained in the brain of every consumer who has ever purchased anything online. In fact, in a world where free shipping has almost become mandatory, the price is still expected by many (most) to come in below brick and mortar locations. How will brick and click retailers explain why a particular item costs more on its website than in one of its stores?
It won’t be long, I’ve been told, before a consumer can walk into a given store and not only compare its prices versus online competitors, but also the same item on the shelves of nearby competitors, perhaps even its own stores. What will happen then? Will cherry picking rise to new levels?
- On Orbitz, Mac Users Steered to Pricier Hotels – The Wall Street Journal
- Study Finds Walmart Beats Amazon on Price – RetailWire
Discussion Questions: How much will consumer access to pricing information support or deter retailers from using zone pricing in the future? Will brick and click merchants be able to rationalize higher prices either online or in stores in a way that consumers will accept?