Price Transparency: How to Address the Paradigm Shift in Retail
In Part 1, we explained why price transparency is important and argued for alignment of prices across channels. In Part II we discuss common pitfalls that retailers should avoid as they adjust to the new era of price transparency.
How not to respond
How should retailers respond to the new era of price transparency? We’ll start by describing how not to respond:
Play bad cop: The blunt instrument approach some take is to disallow price comparison app use. During last year’s Black Friday, Best Buy hid the manufacturer bar codes of select items to discourage the use of scanning price comparisons apps.
One bookstore’s hardline response to showrooming
This approach is bad customer service and is a sure recipe for losing loyal customers and generating outraged re-views on Yelp—which can make or break a small business. Furthermore, not all customers use price comparison apps to simply circumvent a purchase at a brick-and-mortar store. As one recent customer review of Amazon’s Price Check app indicated: “I use this app not for price (unless a huge difference), but to check the product review. It’s so handy! I can avoid buying things amazon community doesn’t give a stamp of approval.”
Race to the bottom with discounting: Some retailers have taken a good cop, rather than the bad cop, approach and have offered to match whatever price their smartphone-toting customers show that competitors are offering. However, from the customer’s point of view, they may question why the retailer didn’t offer the lower pricing from the beginning. Consumers know that retailers have the same access to competitor pricing as they do, so not offering the lowest price upfront may be viewed as inauthentic. In addition, time-strapped customers may find it easier to simply purchase the lower priced item online, rather than haggling with a sales associate in-store.
De-emphasize sales revenue and focus on showroom fees: A few months ago, Best Buy’s (recently-departed) CMO indicated a willingness to forgo customer sales and fully embrace a showroom model: “We collect…more profit from manufacturers than we do from consumers,” he told a Minneapolis advertising audience April 2. “People talk about Best Buy as being a showroom. We’ve always been a showroom. We have a place where Sony and Samsung, etc., they pay to put their products on the floor.” Forgetting about sales in a big-box footprint clearly isn’t a sustainable strategy, however. Retail bloggers have pointed out that manufacturers can opt to simply open their own showrooms, and Amazon.com may be following Apple’s lead in opening brick-and-mortar stores.
Offer unique SKUs that aren’t really unique: In the effort to prevent price comparison with smartphones, Best Buy began relabeling the barcodes of their big-ticket items last year. Meanwhile Target, in a more honest effort to prevent showrooming, mailed an urgent letter to their suppliers asking for support by creating unique, exclusive products just for Target. However, the challenge for Target, Best Buy and similar retailers, is that a large portion of their SKUs are commodities and it is challenging to create meaningful differentiation for these types of products. A 42″ flat-panel 1080p HD LCD screen TV with a slightly different monitor design is basically the same product regardless of a unique manufacture code. And purposely making it difficult for customers to compare very similar items is a frustrating experience, and will ultimately turn customers away.
Now that you know what pitfalls to avoid, you may be curious about what strategy to pursue as a retailer. Next week, we’ll conclude this post with our recommended strategies for how retailers should respond to the new era of price transparency.