How to use dual pricing in omnichannel retailing to boost profits
In today’s omnichannel era, understanding what customers value from various channels and how that influences the prices they are willing to pay has become a key challenge, according to a recent article from McKinsey & Company.
Pricing strategies used to be easy to devise, uncomplicated to implement, and relatively successful. But today there is much greater pricing transparency and consumers’ behavior is much more price-driven. While browing a product in your store, they can compare prices offered on your website – and on those of competitors.
So, an effective price strategy needs to be able to respond quickly to competitors’ prices, work well across channels, and be much more granular in execution, allowing promotions be precisely targeted at specific channels, product categories and customer segments.
That represents a departure from conventional practice, in which retailers have sought to align price across channels and synchronize promotions so that the channels are not competing for the same customers.
At first sight it makes sense to apply the same pricing and promotions policies used by physical stores to the online channel.
It is easier to manage of course and it reinforces the idea that an online store is simply a larger version of a bricks-and-mortar retailer’s physical stores – the endless aisle concept.
If you cannot find the item you want in the physical store, you can buy it online with the same price and promotions that apply to the physical purchase. The idea has certain logic.
Different channels, different prices
However, there is really no reason why prices and promotions need to be the same for physical and virtual channels.
Indeed, for retailers that want to get the most benefit from the omnichannel model, it may be better to optimize price and promotions to the characteristics of each channel.
A good example is Walmart, which last year began charging higher prices for certain products if bought online instead of in its stores. Walmart has nearly 12,000 stores and while it is looking to accelerate its e-Commerce growth, the selective dual-pricing policy is designed to minimize the cannibalization effect on its in-store traffic.
McKinsey found find that for many retailers, prices increasingly vary between online and physical stores. Retailers tend to offer lower prices in the digital space, although there are exceptions, as the Walmart example shows.
According to the consultancy, retailers who implement an effective differential pricing strategy across physical and digital channels can get bottom line growth of 2% to 5%.
To find out more about how technology can give retailers a competitive advantage in pricing, watch the Openbravo on-demand webinar, “Pricing Power: Optimize Retail Promotions for Competitive Advantage.”