Multichannel retailers have converged on a simple axiom for pricing across channels: in-store prices and web prices must be the same
Customers standing in front of the fixture consulting their iPhones or challenging store staff as to why the price isn’t the one they saw earlier on the website, have quickly led retailers to conclude that price differences between the channels are customer-unfriendly and indefensible.
The channels might deploy differential ranging but like-for-like items must be priced equivalently.
This increasingly received wisdom is understandable, formed from the best intentions, widely held… and dangerously wrong.
The reality is that for most products stores are a more costly channel than online, and retailers cannot be competitive in both if this is not reflected in pricing.
Typically this leads multichannel retailers to be uncompetitive online and to allow pure-play insurgents to erode their market positions. Or, worse still, retailers launch a different ‘fighter’ brand online, which denies the customer a cross-channel journey and throws away any advantage from the bricks part of bricks ‘n’ clicks.
But customers are smart enough to appreciate that price and value are a function of service, convenience and trust, and these aren’t the same between channels.
In fact, retailers already recognise this with their physical stores - shoppers are evidently quite prepared to pay a convenience premium in an Express versus a Superstore format.
So it should be in the multichannel environment: some customers will value the immediacy that stores offer of being able to touch and feel the product and take it away there and then; some will want the ease of home delivery; some will click and be prepared to wait a day before they collect, and each will be willing to pay a different price for the service that suits them.
Shelf-edge labels often claim price-matching with competitors’ stores but avoid the awkward comparison with online. Instead they should display in-store and online prices and encourage customers to choose their channel.
If they don’t need it now, customers can order and come back later or wait in for home delivery. Shops will become a combination of convenience stores with a convenience premium, and display showrooms taking orders.
Ironically the largest online pure plays already show how this might work. Buyers at eBay can ‘buy it now’ and sidestep the auction, trading certainty and immediacy against the chance of a bargain. Amazon offers the reliable comfort of its own shopfront, or else a range of sellers on its Marketplace with varying ratings and delivery promises. Shoppers place different values on trust, speed and certainty, and choose and pay accordingly. So it will be in the multichannel world.
Getting this right will be critical for many physical retailers. Customers need to be migrated to a rational model sooner rather than later, where they’re offered a transparent choice of channel and service options and differing prices that reflect cost to serve. Only when multichannel retailers can operate this new approach will they be able to survive and thrive.
Michael Jary Partner, OC&C Strategy Consultants