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• Cognizant 20-20 InsightsResponding to a Price TransparentWorld: A Paradigm Shift for RetailersEvolving technology and changing consumer behavior is creatingpricing transparency that winning retailers must come to gripswith to survive if not thrive in the near and long term. Executive Summary enhancing their private label development activities and collaborating with well-known With the rapid adoption of smart phones and designers to offer exclusive merchandise. This tablets and the growing use of mobile applica- can add to the uniqueness of the retailer’s value tions, consumers are more aware than ever of proposition, and make it harder for shoppers to price differences, not only among retailers, but make direct price comparisons. Yet at the same across their various channels. They know where time, retailers must continue to offer the quality, the best deals are to be had and are armed with features and value that their customers have enough pricing particulars to force rivals to match come to expect. them. Retailers can no longer set prices and price match policies for their brick-and-mortar and Given the languishing global economy, retailers online channels in silos or with minimal regard for need to understand that many of today’s competitors. They must face this new era of price shoppers are aggressively seeking the best transparency head-on. price; therefore, price matching is becoming a consumer expectation — and a core customer In today’s boundaryless environment, retailers service capability that retailers must embrace. should anticipate that consumers have easy They need to create a seamless and consistent access to information and any discrepancies will experience for providing information on product, be noticed and exploited. Retailers worldwide prices and services, and respond just in time to face the same challenge — staying competitive in customers’ price challenges. They must develop a world of price transparency. In response, many new ways to offer unique/customized offers by are taking action, such as defining cross-channel leveraging ever-increasing amounts of customer pricing strategies, refining price matching and data, so the shopping focus can shift from price price adjustment policies and more explicitly to a value exchange equally important to both articulating their customer value proposition consumer and retailer. to proactively respond to consumers’ increased awareness of price differences. In today’s dynamic retail environment, one of the biggest challenges is to build and retain trust Retailers are also focusing on creating differenti- among customers. As a result, retailers must ated and exclusive offerings to their customers, cognizant 20-20 insights | july 2012

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derive new ways to maintain the balance between sold every month in the U.S. alone,1 shoppers aremaximizing profits and creating and retaining increasingly turning towards a growing number ofcustomer loyalty by rethinking traditional pricing mobile apps and price comparison services to findstrategies and enhancing their promotion capa- the best prices while they are shopping in-storebilities. and online. A recent study conducted by the marketing and public relations firm Walker SandsPrice Transparency: Moment of Truth Communications confirms the growing usage ofA typical shopping scenario sheds light on mobile technology: traffic stemming from mobilethe growing challenges of price transparency. devices to various Web sites across industries,Jennifer scanned a product for a price in a leading including retail, more than doubled, to 13% ofretail store; it was $180 on the shelf. Checking the total Web traffic in Q4 2011 from 6% in Q4 2010.2price of the same product on the retailer’s Website using her smartphone, it was to her surprise Customer Shopping Behavioronly $115. So, she ordered it via smartphone for Shoppers are on a constant lookout for relevantin-store pickup, saving $65 in the process! information such as prices, product specifi- cations, and user reviews to assist them inWhile this is a fabricated story, situations like making informed decisions. According to thethis occur more often than you think. Thanks to RIS/Cognizant 2012 Shopper Experience Study,the rapid adoption of smartphones and tablets, competitive prices and promotions is the mostand the growth of mobile apps, shoppers today important influencer in both in-store and onlinehave access to price information anytime and purchase decisions (see Figures 1 and 2).3anywhere in the world. With a million smartphonesUnderstanding Buying Influences How much do each of the following factors influence your in-store purchase decisions? 4.4 Competitive price and promotions 4.4 Right product selection 4.2 4.1 Fast, easy check-out 3.7 3.9 Quality of customer service 3.9 3.7 ■ Specialty Products Visibility and accessibility of products 3.6 ■ Consumable Products 3.6 Ease of returning products 4.0 3.5 Compelling loyalty program 3.2 3.3 Other customers’ online ratings and reviews 3.3 2.7 Comments about the product on social media 2.6 2.3 0 1 2 3 4 5 Not an Influence Extremely InfluentialSource: RIS/Cognizant 2012 Shopper Experience StudyFigure 1 How much do each of the following factors influence your online purchase decisions? Competitive price and promotions 4.3 Right product selection 4.2 Ease of returning products 3.9 Fast, easy check-out 3.9 Ease of accessing customer service 3.7 Other customers’ online ratings and reviews 3.4 Consistent experiences and information 3.4 online and on mobile devices Compelling loyalty program 3.3 Personalized experiences 3.0 0 1 2 3 4 5 Not an Influence Extremely InfluentialSource: RIS/Cognizant 2012 Shopper Experience StudyFigure 2 cognizant 20-20 insights 2

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In the current boundaryless shopping world, researching a product while in a physical store consumers are becoming increasingly price- they look for competitive prices on Amazon. An sensitive and less loyal, continuously trolling for equal number replied that they look for com- the best deals and more aggressive in seeking/ petitive pricing at online retailers other than asking for a lower price. The Amazon.5 The shopping shopping journey is becoming • A study by AlixPartners found that 37% of more omni-channel andjourney is becoming nonlinear in nature. Shoppers smartphone owners used a mobile price search app while in a store, and 25% of those that more omni-channel may begin their journey at used an app then went on to purchase the item and nonlinear a store, use a smartphone/ from a nearby store at a lower price.6 tablet to check online prices in nature. and deals, read reviews and The use of price comparison tools/apps is also on social “likes” on the product, the rise. A survey conducted by L.E.K found that go online again to make a purchase and then a substantial number of consumers used a price go back to the store to pick up the product. comparison tool while standing in store aisles.7 This growing trend is exposing the customer to Popular price comparison apps such as eBay different prices by geography and channel within Inc.’s RedLaser and TheFind had 16 million and 1.4 a retailer’s chain and it colors their impressions million downloads, respectively, in 2011. TheFind and experiences with the retailer. reports that its mobile app averaged 18 to 20 million price checks each month in 2011, up from The Norm, Not the Exception 13 to 15 million checks per month in 2010.8 Numerous studies highlight the fact that shoppers are becoming increasingly active in comparing Retailers’ Challenges prices. Among them: According to research conducted by RSR in 2011, retailers believe that “increased price transparen- • A study conducted by consultancy IDC Retail cy” is among the top business challenges driving Insights reveals that roughly 45% of shoppers pricing strategies. Moreover, its importance with smartphones used them to perform due jumped markedly from 2010 to 2011 (see Figure 3).9 diligence on a store’s prices.4 Retailers’ abilities to use price as a key differentia- • “The 2011 Social Shopping Study” published by the e-tailing group notes that mobile phones tor and to price differently across channels is being are one of the most popular influencers in seriously compromised. The Internet and mobile shoppers’ purchase decisions. Approximately apps have conspired to break down the four walls 36% of respondents mentioned that when of the retail store. Shoppers know what and where Transparency Drives Pricing Strategy 46% Increased price senstivity of consumers 58% Increased pricing aggresiveness from competitors 38% 48% Increased price transparency — the impact of 11% comparative pricing shopping 40% Need to protect our brand’s price image 28% 38% N/A ■ 2011 Increased promotional intensity of competitors 32% ■ 2010 6% Need to provide consistency in price across channels 32% 7% Need to provide more localized pricing 14% Respond to segment blurring 16% 10% 0 10 20 30 40 50 60 Source: Optimizing Price in a Transparent World, RSR Research Benchmark Report 2011 Figure 3 cognizant 20-20 insights 3

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the lowest price is and are willing to ask for it with dependence of prices and policies in differentthe expectation of receiving it. The ability for store channels and locales. Rather than just settingassociates to match prices is the second most a chain price for all channels, or having eachdesired area of store associate improvement, after channel set its prices independently, retailers“better customer service skills,” and far ahead of are taking a holistic view of pricing and policiesthe third place choice (see Figure 4). across the enterprise, and are understand- ing what their competitors do in differentAlso, according to research conducted by the channels, even though they may not directlyonline review site Digital Trends in 2011, the search compete in all channels. Pricing, price-matchfor better pricing is a major reason for online cart and return policies must be complementaryabandonment. The findings indicate that 27% of across all channels, rec-shoppers abandon their cart to compare prices ognizing that from the Technology hason other sites and 25% abandon due to the price customer’s standpoint it’sbeing too high.10 Today’s connected consumers all one company. proven to be both aknow how to find the price they want to pay! curse and a blessing • Innovative pricingResponding to Increasing Price strategies: During the for retailers.Transparency 2011 holiday season, several retailers offered innovative price-Technology has proven to be both a curse and matching and price-adjustment tactics.a blessing for retailers. For example, while For example, Walmart launched a specialsocial media assists retailers in reaching out to time-based price adjustment program inand connecting with their target customers in advance of the 2011 holiday shopping seasonreal-time and innovative ways, conventional Web and Amazon generated interest for its “Priceand mobile apps are exposing price discrepancies Check” application by offering shoppers awithin their own channels. In today’s multichan- 5% discount (up to $5) on up to three itemsnel retail world there are few places where tradi- purchased. Most of these solutions are onlytional localized/zonal pricing can be camouflaged, temporary however, as price-matching andreducing the effectiveness of these strategies. price-adjustment tactics are in most casesTo keep their customer base intact and retain the easily copied.pricing and services high ground, retailers are • Targeted marketing: With the advent of socialresponding in the following ways: media, retailers have additional opportunities to conduct targeted marketing initiatives on• Cross-channelpricing strategies: Retailers their core customers. In a recent RSR study have begun to explicitly recognize the inter- surveying 65 retailers, 75% of the respondentsConsumer Pricing Expectations Which of the following would you MOST like to see improved among store associates? Improved customer service skills 35% Ability of store associates to match 29% competitive prices (e.g. online) More store associate engagement in the aisles 14% Better electronic access to product 10% information, inventory location and ordering Better product knowledge enabled by technology 7% Equipped with mobile check-out tools 4% 0 5 10 15 20 25 30 35 40Source: RIS/Cognizant 2012 Shopper Experience StudyFigure 4 cognizant 20-20 insights 4

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agreed that targeted promotions offer an respond to the new strategy. opportunity to overcome the challenge of price transparency.11 Sears Holdings has vastly increased its online offerings in recent years and presents competi- • Offering exclusive products: Retailers are tive prices, yet has under-invested in its brick- investing heavily in offering exclusive products and-mortar stores and has reported year-over- to consumers, as these can be less vulnerable year declining sales.13 The company recently to price comparison. Branded items that have announced plans to close 100-plus stores in a bid been slightly modified in features or packaging to revitalize its business and reduce expenses. The make it more difficult for customers to conduct Sears experience suggests that to play in multiple an exact feature-to-feature assessment when channels retailers can’t lag in any single channel. comparing prices. Many department stores and Not having a compelling shopping experience specialty retailers have been private labeling in one channel — whether it is product-, price-, exclusive products for years. Price transparen- service- or ambiance-oriented — extends to all cy increases the potential value of these types channels. of items and programs. In a nutshell, retailers must develop proactive • Advanced price optimization solutions: With the explosion of channels, competitors and solutions that can help them to create and information, and the speed of change, retailers maintain the balance between maximizing profits need better tools to make timely decisions. The and creating and retaining customer loyalty. value of advanced price optimization solutions, for initial pricing as well as markdowns, is Our Point of View increasing. These tools provide fact-based We believe there are a few key concepts that analyses of customers and competitors, sifting retailers must embrace if they wish to continue to through vast amounts of data quickly, helping succeed in a price-transparent world. retailers balance customer loyalty and satis- faction with maximized profits. It is becoming • Increase your price intelligence: Price intel- ligence can give retailers a strategic competi- increasingly important that tive advantage through insight-driven pricingIn a price-transparent retailers anticipate, not just decisions and an optimized product mix across react to pricing trends andworld, retailers cannot market changes. channels, which ultimately helps increase con- versions, sales and customer acquisition and afford to follow their However, only retailers retention. A robust price intelligence solutioncompetition blindly or with strong fundamen- should integrate market, channel and competi- let pricing strategies tals will be able to survive tive data with internal data in a near real-time environment. It allows retail management to be solely driven by today’s cutthroat market- place. Apart from competi- gain a deeper understanding of what each margin goals. tive pricing, the growing competitor price change means for margin and number of well-informed, market share, and how to formulate meaningful tech-savvy and bargain-hungry customers are responses. perpetually seeking the right product, right price, • Rethink traditional pricing strategies: In knowledgeable sales associates, comfortable a price-transparent world, retailers cannot store ambience and an overall pleasant shopping afford to follow their competition blindly or let experience. pricing strategies be solely driven by margin goals. Rather, they must create pricing policies JCPenney’s recent launch of its three-tier “Fair which are in alignment with their brand image and Square”12 pricing strategy is no doubt in and business goals and allow them to respond part a reaction to growing price transparency. to competition. Traditional pricing strategies In a heavily promotional environment, having such as HiLo, EDLP, Loss Leader, etc. will con- the lowest — or at least a “competitive” — price tinue to attract a certain segment of customers that can be viewed by the shopper or comparison and cannot be ignored – retraining customers apps at any point in time is hit or miss. This is typically takes time. Retailers should meld their especially true for occasional shoppers. The new existing strategies with new cross-channel strat- strategy may give the company a higher position egies to ensure they do not negatively impact on price rankings, but it remains to be seen if its existing customers’ expectations and percep- traditional customer base can be retrained to tions. cognizant 20-20 insights 5

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• Train and equip store associates: When and recognizes the price elasticity of each customers go to a store, they still expect to find customer. informed and accessible store associates. At the same time, they find it hard to understand why • Increase private label or “customized” prod- ucts/packaging: Price comparisons for private associates do not have the same technology label or customized items have been difficult and access to the same information they due to the lack of explicitly identical products. have. As noted in our white paper “Building However, comparisons to similar products may the Intelligent Store,” retailers need to rethink become easier with the advent of image-based the concepts of selling and customer service.14 search launched by Google and Amazon. With Retail associates need to be equipped with this new technology, shoppers can submit a technology that is on par with the customer’s. hosted or uploaded photo and the search will Associates need to be trained to articulate return images and text. the store’s value proposition and the pricing it drives, and policies/procedures need to be Conclusion streamlined to allow easy price matching while Price transparency is a hard reality for retailers at the same time having proper controls and to master. Today more than ever, “the customer monitoring. is king.” New technologies and intermediaries have given them more control over the shopping• Target promotions by customer rather journey; the ease of comparing prices plays a big than channel: Retailers must avoid creating part in that. noticeable price conflicts. Loyalty-based pricing allows a retailer to differentiate prices But in the midst of this changing paradigm, between regular customers and occasional retailers should not lose site of the fact that there shoppers in an open, yet personal “my price” is almost always something consumers value way. By using this technique, a retailer can alongside price. The challenge is to find the right differentiate between loyal and non-loyal value exchange and imbed it in the company’s customers and pass additional benefits to loyal business objectives so that it flows within the ones. It also allows the retailer to deliver on the organization and becomes a part of anything and brand promise in the way that best resonates everything which the retailer does.Footnotes1 “The Marketplace of the Mobile Consumer: What to Expect,” L.E.K. Consulting, Vol. XIII, Issue 14. http://www.lek.com/sites/default/files/L.E.K._Marketplace_of_the_Mobile_Consumer.pdf2 “Quarterly Mobile Traffic Report,” Walker Sands Communication, Q4 2011. http://www.walkersands.com/quarterlymobiletraffic#info3 “2012 Shopper Experience Study,” RIS/Cognizant, May 2012. http://risnews.edgl.com/retail-research/3rd- Annual-Shopper-Experience-Study--Enabling-Retail-Without-Boundaries803374 ”The New Era of Price Transparency,” Greg Girard, IDC Retail Insights, Dec. 2010. http://online.wsj.com/article/SB10001424052748704694004576019691769574496.html5 ”The 2011 Social Shopping Study,” Lauren Freedman, President, the e-tailing group, June 2011. http://www.powerreviews.com/assets/download/Social_Shopping_2011_Brief1.pdf6 Financial Services Quarterly, Q1 2012, AlixPartners. http://www.alixpartners.com/en/LinkClick.aspx?fileticket=YBdUg5n0eMg%3d&tabid=14267 ”The Marketplace of the Mobile Consumer: What to Expect,” L.E.K. Consulting, Vol. XIII, Issue 14. http://www.lek.com/sites/default/files/L.E.K._Marketplace_of_the_Mobile_Consumer.pdf8 “Retailers Try to Thwart Price Apps,” Dana Mattioli, The Wall Street Journal, Dec. 23, 2011. http://online.wsj.com/article/SB10001424052970203686204577114901480554444.html9 ”Optimizing Price in a Transparent World,” Benchmark report by Nikki Baird and Paula Rosenblum, Managing Partners in Retail System Research, April 2011. http://www.sas.com/news/analysts/optimizing- price-in-a-transparent-world.pdf cognizant 20-20 insights 6

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10 ”Abandonment Issues,” Digital Trends, March 2011. http://www.lixto.com/wp-content/uploads/2011/07/ Lixto-Reducing-Online-Abandonment-WP.pdf11 ”Optimizing Price in a Transparent World,” Benchmark report by Nikki Baird and Paula Rosenblum, Managing Partners in Retail System Research, April 2011. http://www.sas.com/news/analysts/optimizing- price-in-a-transparent-world.pdf12 “J.C. Penney Says ‘No Sale’: Cuts All Prices, All The Time to Simplify Bargain Hunting,”Daily Finance, The Associated Press, Jan. 25, 2012. http://www.dailyfinance.com/2012/01/25/j-c-penney-says-no-sale-cuts- all-prices-all-the-time-to-sim/13 ”Holiday Sales Woes Cast Cloud Over Sales,” Miguel Bustillo and Ann Zimmerman, The Wall Street Journal, December 28, 2011. http://online.wsj.com/article/SB100014240529702034791045771241519245 31994.html14 “Building the Intelligent Store,” Steven Skinner and Deepthi Timmasarthy, Cognizant white paper, October 2011. http://www.cognizant.com/InsightsWhitepapers/Building-the-Intelligent-Store.pdfAbout the AuthorsGreg Kameika is a Senior Manager with Cognizant Business Consulting’s Retail Practice. He has over20 years of experience consulting to retail clients in the areas of pricing, merchandising and inventorymanagement. Greg received his BA from Northwestern University and his MBA from the Kellogg Schoolof Management at Northwestern. He can be reached at Gregory.Kameika@cognizant.com.Pooja K Khudania is a Senior Consultant with Cognizant Business Consulting’s Retail Practice. She hasover eight years of experience consulting to retail industry clients. Pooja received her diploma in retailmarketing and merchandising management from National Institute of Fashion Technology, Bangalore,India, and is a commerce graduate from Delhi University. She can be reached at Poojakumari.K@cognizant.com.About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process out-sourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered inTeaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industryand business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50delivery centers worldwide and approximately 145,200 employees as of June 30, 2012, Cognizant is a member of theNASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performingand fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant. World Headquarters European Headquarters India Operations Headquarters 500 Frank W. Burr Blvd. 1 Kingdom Street #5/535, Old Mahabalipuram Road Teaneck, NJ 07666 USA Paddington Central Okkiyam Pettai, Thoraipakkam Phone: +1 201 801 0233 London W2 6BD Chennai, 600 096 India Fax: +1 201 801 0243 Phone: +44 (0) 20 7297 7600 Phone: +91 (0) 44 4209 6000 Toll Free: +1 888 937 3277 Fax: +44 (0) 20 7121 0102 Fax: +91 (0) 44 4209 6060 Email: inquiry@cognizant.com Email: infouk@cognizant.com Email: inquiryindia@cognizant.com©­­ Copyright 2012, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, or otherwise, without the express written permission from Cognizant. The information contained herein issubject to change without notice. All other trademarks mentioned herein are the property of their respective owners.