Retailers have a pricing conundrum in front of them. And no, we’re not talking about inflation again, although, that’s still plaguing retailers as well. No, this time we are looking at the rise of omnichannel retail and the implications on localized pricing. In a world of increasing price transparency, can retailers continue to leverage differentiated channel pricing? Or will omnichannel shopping be the death of localization?
On one hand, differentiated channel pricing can help retailers address rising competitive pressures. On the other, consumers today have a heightened price awareness, and according to RSR, 58% of retail leaders already find it challenging to keep up with increasing price sensitivity.
To help settle the debate, we sat down with two of our retail experts, Matt Pavich, Senior Director of Retail Innovation at Revionics, and Mike Hughes, Vice President, Solution Principal, Unified Commerce at Aptos, Revionics’ parent company, and asked them each to make their case.
It’s no surprise that consumers prioritize different values when making purchases. There is an almost-literal infinite number of considerations consumers can choose from, including the main ones — price and convenience.
When you combine consumer preferences with advanced pricing solutions, retailers nowadays can get very granular on how to price any given item to make sure it’s good for both the business and the consumer in a way that generates repeat business. For pricing teams, this means that if a retailer isn’t looking at optimizing pricing locally and across different channels, they’re leaving margin on the table.
"Retail is trending towards more differentiation. One way to differentiate is by personalizing pricing in different channels, so you can improve the odds of creating win-win situations for both business and customer," Pavich said. "Pricing history shows that pricing tends to get more granular and personalized as retail evolves. Until not long ago, there weren’t many ways to create that differentiation, but with so many omnichannel options to go along with known personalization variables, uniform pricing across all channels should be a thing of the past.”
Localization allows for regional shifts on different preferences, assortments, sensitivities, weather and more. Localization also listens to what the customers want: the item(s) they want, the price, the channel, and how quickly they want it. Pricing strategies should be flexible enough to account for this.
On the retailer side, costs aren’t uniform, so why should prices be uniform? There are varying supply chain costs by channel and store location and different hyperlocal competitive challenges to keep in mind. With localized pricing, retailers can determine exactly where they can grow margin and where they can grow market share with unprecedented levels of precision.
Localized pricing calculated with advanced pricing solutions allows retailers to price at optimal levels on a granular scale and quickly update as the market changes. Moving to match the market with uniform pricing, Pavich argues, would be almost impossible.
"Say a competitor changes their price on one of your Key Value Items and you need to move to match or beat it," Pavich began. "If you have the same price on that item everywhere – on your website, your mobile app, on every shelf, in every store – it will take you too long to move. Maybe if you have Electronic Shelf Labels you could take that price change fast enough. Otherwise, there’s just no way you could be competitive with uniform pricing."
With the technology available today, it’s possible for retailers to have their cake and eat it, too; they don’t have to choose between being local and being competitive.
RSR also found that 33% of retailers say growing price transparency driven by eCommerce and digital channels is a top business challenge. Consumers place a lot of value on trust, but they can be fickle, and brand equity is hard to build and easy to lose.
Price discrepancies are one issue that can erode customer trust. It creates a poor consumer experience if they purchase an item at one price through one channel, and then find out they could have had a better price through a different channel. And in an increasingly omnichannel world, pricing transparency is higher than ever.
With ecommerce, consumers can easily check a retailer’s online price versus in-store price on their mobile device while standing right there at the shelf. BOPIS also presents the opportunity for consumers to notice price discrepancies.
"It’s not uncommon for a customer to grab a few additional items when they swing by the store to pick up their online order," said Hughes. "What if they walk by the item they already bought and see it’s cheaper in the store than what they paid? Or even worse, there’s some in-store only promotion they missed out on? The customer feels they aren’t being taken care of when things like that happen."
It’s a double-edged sword for retailers. Consumers demand more price transparency than ever, but they don’t like disjointed pricing experiences. It puts extra responsibility on the retailer to justify their pricing choices in the eyes of the consumer. And even then, they may not be satisfied.
"Even if the reasons for charging different prices in different channels are valid business-wise for a retailer, a customer is unlikely to care why the retailer is doing so," Hughes countered. "Consumers don’t care about a retailer’s cost structure. They want to get the product they want for the best price and in the most convenient way – be it online or in-person."
The one possible exception to providing differentiated pricing, Hughes concedes, would be personalized pricing by consumer group. Retailers could offer special promotional pricing to their most valuable or loyal customers, and in fact, plenty of retailers already do. But the key here is personalized pricing, not localized. The promotion has to be available both in-store and online to create that consistent experience. Amazon Prime members, for example, can scan their account QR code at Whole Foods registers for a discount on their grocery purchases.
What it all comes down to is the lifetime value of a customer. Localized pricing may get you higher margins now, but it could be at the cost of the trust and loyalty of the consumer. And we are all aware that consumer loyalty is already reaching new lows.
While both sides made rousing arguments, the answer is there is no one-size-fits-all solution. While it’s true that retailers are unlikely to return to 100% uniform pricing across all channels and locations, there is a balance to strike that provides prices just localized enough to delight customers and boost your bottom line without hurting trust.
The key for retailers is to use their data to find the right approach for their unique business needs and customers. An AI pricing solution like Revionics works through all the complex influencers of consumer demand to determine where prices can be localized to create a win-win for both the retailer and consumers.
To learn more, you can get in touch with our pricing experts to discuss strategies for optimizing pricing and finding the right approach for your business.
Maisie is a content marketer and copywriter specializing in B2B SaaS, ecommerce and retail. She's constantly in pursuit of the perfect combination of words, and a good donut.