Managing Pricing Strategies: E-Commerce vs Physical Store

Of the challenges faced by brick-and-mortar retailers today, one of the biggest is how to manage their pricing strategy – especially with the rise of price transparency and other price tracking technologies.

One arena where this dilemma plays out is over the discussion over price levels in a retailer’s physical stores, as compared to online channels.  These include whether an ‘omnichannel’ price strategy will allow traditional retailers to withstand challenges from Amazon and other online-only competitors.

Whilst these challenges aren’t new – Amazon has been disrupting the retail landscape in America for nearly a quarter of a century – the tools which traditional retailers have at their disposal have expanded greatly over that period.

This points to how one defines and executes a strategy to keep Amazon and its ilk at bay.  Especially as decision-makers can be overcome by the preponderance of data and ‘strategic’ options.

 

A Better Way

There is a better way, as focusing on pricing can have an almost immediate impact – and when done right can catch online competitors where they least expect it.

This is because price changes, flash sales, and other initiatives can be executed almost instantaneously.  For example, a price decision made by Friday can easily be uploaded to a retailers POS system overnight, then publicised via social media early the next day, and then tracked via the same POS system in near-real-time whilst the stores are open for business.

This allows retailers the ability to be more aggressive by experimenting via a variety of channels on an almost daily basis.

 

Winning the Tug of War

Whilst data and integrated POS systems have made it easier than ever before to experiment with price levels.  this doesn’t answer the real question, which is how to know when is the right time to experiment in the first place?

 

As such, retailers need to look at dynamics governing their market.  You see, it’s never as simple as copying a competitor’s pricing strategy or even taking a price strategy from one market and applying it to another market.

Instead, decisions regarding e-commerce pricing vs. physical store pricing should start by asking the following:

  • Are you losing a significant portion of your brick-and-mortar business to online channels?
  • What impact will the price change have on stemming this loss?

If the answer to question one is no, then you should be thankful – at least for now.  However, you also need to be mindful not to become complacent as assuming the current situation will remain stable forever is a recipe for disaster.

As such, you might want to consider an ongoing tracking solution which will lead to a deeper understanding of customer and competitor behavior whilst helping to identify growth opportunities.  Doing so will help to transform a pricing strategy from a reactive process to something which is more proactive.

But what happens if the answer to question one is yes?  Then it is time for a deep dive into the numbers.  You see, setting identical e-commerce and physical store pricing could end up doing more harm than good.

This is largely due to what you don’t know about the customers who are choosing e-commerce over brick-and-mortar.  For example, is price the only driver behind this decision and if not, how much did price weigh on the decision?

Beyond this, an ‘omnichannel’ pricing strategy might cause significant erosion to the very operation you are trying to save – i.e. brick-and-mortar.   As such, the idea of using a ‘one-price-fits-all-channels mandate can result in a disadvantage’.

In fact, retailers such as Target are using different price levels in different locations based on the saturation of competition and travel patterns of customers.  Depending on the success of these micro-pricing adjustments retailers can then decide whether expanding a price level to a larger set of locations will deliver the optimal result.

This brings us to the second question as the goal of adjusting price levels should be to achieve the desired result.  In fact, a knee-jerk reaction to low-price e-commerce competition can end up enabling the competition.  As such, a strategy which factors ‘convenience’ into physical store pricing can help brick-and-mortar retailers to compete against e-commerce options – even at higher price points.

To win the tug of war, retailers should only consider price matching as a temporary measure at best.  One which in some cases is not necessary as couponing or loyalty strategies may be better options.  In the end, retail executives need to embrace the differences between e-commerce and physical story pricing by increasing their understanding of customer price sensitivities.

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