Lenati Point Of ViewAbout Lenati                            Price Transparency: How to Address theLenati is an award-winni...
Lenati Point Of ViewKey Takeaways                                        Cross-Channel Pricing: It’s Time for Consistency...
Lenati Point Of View    De-emphasize sales revenue and focus on showroom fees.               A few months ago, Best Buy’s...
Lenati Point Of ViewWal-Mart is also pushing their online store as an extension of the in-store shopping experience. For e...
Lenati Point Of View5.   Provide a Loyalty ProgramWith a look into the travel industry (i.e. airline miles, hotel points),...
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6 Strategies to Address Price Transparency in Retail


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6 Strategies to Address Price Transparency in Retail

  1. 1. Lenati Point Of ViewAbout Lenati Price Transparency: How to Address theLenati is an award-winning boutiqueconsulting firm that designs, imple- Paradigm Shift in Retailments, and optimizes marketing andsales solutions for companies thatwant to build stronger customerconnection. Based in the PacificNorthwest, Lenati is well-known for Introduction: Price Transparency is Here to Stayintellectual rigor, expertise, and an In a now-bygone era, retailers had considerable flexibility to charge a variety of prices for theuncanny ability to perceive and meetclients’ needs. same product. It was simple: in a region where customers were willing to pay more, retailers charged more. And in the information asymmetry of the pre-internet era, customers didn’t know the difference.About the Authors But today, the patchwork quilt Amazon’s Price Check app of regional price variations is no longer obscured from shop- pers. The combination of smartphones and price com- parison apps has ushered in the era of offline retail price transparency. 70% of US smartphone owners use theirMartin Mehalchin is a Principal phones while shopping in-storewith Lenati. He leads the firm’s (Source: Google & IPSOS OTX,Retail and Consumer practice and isa is a Brain Trust panel member April 2011), and mobile bar-on Retailwire.com He has dedicated code use increased 1,600%his career to working with executives globally during 2010 (Source:and managers to help them define Scanlife, December 2010). Both the Apple and Android app marketplaces boast over 100 pricetheir strategies and then translate comparison apps. The most popular apps in this category, including Amazon’s Price Check andthose strategies into results. Ebay’s RedLaser, collectively sport millions of users. And these numbers grow daily. The Dangers of Ignoring Price Transparency Many retailers have been slow to recognize the full extent of the price transparency paradigm shift. Best Buy didn’t react soon enough , and as a result, it has earned the reputation of essentially functioning as Amazon.com’s showroom. Showrooming – in which shoppers research a product in a brick-and-mortar store and then buy it online – is of increasing concern to retailers. Best Buy, with a large footprint of brick-and-mortar store space, has been hit particularly hard. Q1 results, released in May 2012, show same-store sales down 5% – while its online sales are up 20%. BestAura Cook is a Senior Consultant Buy is responding by closing 50 stores and ramping up smaller mobile locations. It remains to bewith Lenati. She has over 10 yearsof experience in multi-channel Retail seen whether these measures will ultimately be effective.specializing in strategy development,consumer insights, market research,merchandising, and business intelli-gence. 1300 Dexter Avenue North #100 | Seattle, WA 98109 (800) 848-1449 | www.lenati.com
  2. 2. Lenati Point Of ViewKey Takeaways Cross-Channel Pricing: It’s Time for Consistency Price transparency is a para- Cross-channel retailers have historically offered lower prices in their online channel: digm shift in how consumers shipping costs haven’t been factored in to those prices. Due to concerns over cannibali- shop and it’s not going away zation, this online price advantage hasn’t generally been widely advertised. In today’s Retailers need to ensure era of price transparency, however, it doesn’t matter whether retailers advertise the prices are aligned across online savings or not: shoppers can quickly discover it, wherever they are. channels because that’s The time has come for most retailers to finally align prices across all channels. Customers what customers expect indicate a preference for this (67% of customers, according to a recent Stores.org story) and its time for retailers to stop penalizing consumers (via higher prices) for making the effort to Trying to mask prices or visit a physical store. Retailers who implement an ―omni-channel‖ approach to inventory, block price comparison apps supply-chain and fulfillment can make a consistent pricing strategy work operationally and will only turn customers financially. away It is the retailers responsibil- How Not to Respond ity to stay abreast of market prices and have a proactive How should retailers respond to the new era of price transparency? We’ll start by de- strategy to add value when scribing how not to respond: competing on price is not a viable option  Play bad cop. The ―blunt instrument‖ approach some take is to disallow price com- parison app use. During last year’s Black Friday, Best Buy hid the manufacturer bar We recommend adding value codes of select items to discourage the use of scanning price comparisons apps. (NY to products, services and Times, 11/12/11) One bookstore’s hardline response to showrooming brands by: This approach is bad 1. Offering exclusive product customer service and is a sure recipe 2. Taking advantage of multi- for losing loyal cus- channel opportunities tomers and generat- 3. Marketing social responsi- ing outraged re- bility or community giving views on Yelp – which can make or 4. Developing a localization break a small business. Furthermore, not all customers use price comparison apps strategy to simply circumvent a purchase at a brick-and-mortar store. As one recent cus- 5. Providing a loyalty pro- tomer review of Amazon’s Price Check app indicated: ―I use this app not for price gram (unless a huge difference), but to check the product review. Its so handy! I can avoid buying things amazon community doesnt give a stamp of approval.‖ 6. Bringing online information into your stores  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 as- sociate in-store. 1300 Dexter Avenue North #100 | Seattle, WA 98109 (800) 848-1449 | www.lenati.com
  3. 3. Lenati Point Of View 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 man- ufacturers than we do from consumers," Judge told a Minneapolis advertising audience April 2. "People talk about Best Buy as being a showroom. Weve always been a showroom. We have a place where Sony and Samsung, etc., they pay to put their products on the floor." (HispanicBusiness.com, 4/26/12) 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 is 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 smart phones, 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. (Wall Street Journal, 1/23/12) However the challenge for Target, Best Buy and similar retailers, is that a large por- tion 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.Recommended StrategiesRather than ignore it or try to fight it, retailers need to adjust right along with their customers to this new age of price transpar-ency. Ultimately their customers will be armed with prices from their competitors while they shop, including the low marginonline-only retailers. So what is a primarily brick-and-mortar retailer to do? First and foremost, it is up to the retailer, no mat-ter how small, to stay abreast of market prices through a pricing service or simply skimming the internet. In order to stay in-tune with changing customer preferences and needs, retailers need to be armed with at least the same information that theircustomers have available. Second, retailers need to add customer-perceived value to their products and services that justify ahigher price than an online-only retailer. To add-value successfully, we recommend six strategies which will be discussed infurther detail below.1. Offer Exclusive ProductAfter house brands gradually evolved through the 20th century, they have ex-ploded in the 21st. House brands offer built-in protection against showrooming,as there exists no direct SKU-level equivalent at another retailer. Retailers fromSephora to Macy’s to Supervalu have increased their private-label penetration inrecent years due to higher margins and anticipated competition in national labels.And Target is known for their designer collaborations offering unique, limited-timecreations. For small retailers, it becomes even more critical that they stay close totheir customer needs and offer hard-to-find, limited stock items. In the day andage of abundance and unlimited choices, ―uniqueness‖ is a factor that customerswill pay for. Sephora private label skin care2. Take Advantage of Multi-channelRather than fighting to keep customer dollars inside their brick-and-mortar stores, some retailers are using their online channelto build the value prop for shopping in-store. For example, Nordstrom sales associates are now equipped with mobile POS de-vices that give them access to the company’s entire inventory, including Nordstrom.com, for expanded selection and finding outof stock items. By offering free shipping on all orders, regardless if ordered online or in the store, Nordstrom is truly becoming―channel agnostic‖ and is opening all doors to their customer. As a Nordstrom executive explained: ―Shipping costs are some-thing that have been known to stop customers in their tracks….We have tried to break down those barriers as much as wecan.‖ (Bloomberg New, 3/9/12) 1300 Dexter Avenue North #100 | Seattle, WA 98109 (800) 848-1449 | www.lenati.com
  4. 4. Lenati Point Of ViewWal-Mart is also pushing their online store as an extension of the in-store shopping experience. For example, it nowcoaches its employees to actively guide customers to visit Walmart.com on smartphones for products that are out-of-stock, and is currently investing in an initiative called Endless Aisle, which makes this process automatic. ―We are liv-ing in the age of the customer, and you can either fight these trends that are happening — showrooming is one — oryou can embrace them,‖ said Joel Anderson, the chief executive of Walmart.com for the United States. ―We have a lotof assets, but they’re only assets if you embrace the trends of the customers.‖ (New York Times, 7/4/12)And as customers get more tech savvy, retailers don’t even need a sales associate to direct them to the extended se-lection of their online store. Smartphone shoppers can be encouraged to use Quick Response (QR) codes that directthem to the online offering. ―Out of stock? Not the color you’re looking for? Scan here and shop our online store.‖ Byactively using the online channel to overcome hurdles that often drive consumers to sites like Amazon, retailers arekeeping their sales dollars in-house and providing great service by letting their customer decide how they want toshop.3. Add Value by GivingThe paying price is only one factor that impacts the perceivedvalue when customers are considering purchasing a product.Some obvious benefits, such as a generous return policy,―perks‖ with purchase (like free tailoring or annual cleaning ofan appliance), and personalized service, justify paying a littlemore. But customers also take into consideration other factorsthat aren’t so obvious. Factors such as company charity giving,community involvement, and environmental responsibility, helpcustomers justify spending money. In the end, shoppers likeshopping, so anything that helps them feel like they are giving TOMS Shoes 2011 holiday adin addition to getting (like TOMS shoes one-for-one shoe dona-tion) ups the value of a store or product for a large portion of the population, especially younger generations.4. Get LocalOne advantage that a brick-and-mortar store has over an online store is the physical location within a community,which in turn makes it easier to create an authentic connection with a customer. And actively becoming part of a cus- tomer’s local community (rather than a faceless chain store) can create loyalty and value to the shopping experience. Even within the mass coffee chain Starbucks, customers have ―their Starbucks‖ which can often be just a few blocks away from another. With this understanding, national chains such as Ma- cy’s, Walgreens, and Trader Joe’s have ―localization‖ strategies in the effort to make each store unique and become part of the community. But in order to win over the temptation of online pricing, retailers need to go beyond offering localized product – they need to actively reach out to their consumers and create a community that is specific to the area. For example, athletic retailer Lululemon’s success can be attributed, in large part, to the ―yoga community‖ they created in each store by partnering Lululemon in-store yoga classes with local yoga studios and offering free classes in store. Con- sumers are sensitive to inauthentic attempts, though – localstrategies that come from ―corporate‖ generally feel fake. So in order to really connect with the local community andcreate loyalty, the retailer needs to foster a philosophy of community outreach and connection by incentivizing storeemployees and encouraging creativity. 1300 Dexter Avenue North #100 | Seattle, WA 98109 (800) 848-1449 | www.lenati.com
  5. 5. Lenati Point Of View5. Provide a Loyalty ProgramWith a look into the travel industry (i.e. airline miles, hotel points), we can see that customers will choose to pay alittle more in the short-term if they believe they are earning a bigger benefit in the long-term through a well-appointedloyalty program. A well-executed, easy to understand loyalty program can help brick-and-mortar retail stores retaincustomers and keep eyes from wandering looking for betterdeals. Safeway’s ―just for u‖ program, for example, offers indi- Safeway’s “just for u” loyalty programvidualized, loyalty-based pricing to participating customersthrough an online or mobile phone app (in addition to their Safe-way Card discounts). Women’s apparel retailer Chico’s give a 5%discount when its members spend over $500, and reports that90% of their sales come from loyalty program customers. Tar-get provides a 5% discount on all purchases made with its TargetVisa, and is considering a subscription service that would providediscounts to customers on products that they purchase regularly.Buying into the REI cooperative gives members special couponsand an end-of-year cash dividend based on the amount theyspent the previous year. Although each of these loyalty programsare different, what is consistent is that they are easy for the customer, and provide enough reward that the customerfeels there is more value in spending in one place than shopping around for deals. And almost always, the short-termprofit loss experienced by the retailer from providing rewards is outweighed by the long term gain in customer spend.6. Bring Online Information In-StoreBrick-and-mortar stores have the advantage of physical product and sales persons, while online stores have the ad-vantage of customer reviews and an abundance of information. The value of a sales person’s knowledge & opinion isbeing replaced by product ratings, customer reviews, and the opinions of a social network. In order to feel fully in-formed, many shoppers research online before checking out products in-store, and this research often includes pricinginformation. But by using smartphones or touch screen technology, brick-and-mortar retailers could actively bring theabundance of online information in-store, and eliminate the need to research online before checking out the physicalproduct. Imagine a camera store, that provides a smart phone application for its customers that would bring up all theonline reviews of a particular product just by the scan of the bar code. Customers would be armed with product rat-ings, sales person guidance, and physical exploration of the product all in one place. Once they make a well-informeddecision, they can walk out with the product that minute.In the end, customers want information before making a purchase, and this need goes up based on the price of theitem. Letting customers physically explore the product and get all the information they want in-store essentially killstwo birds with one stone, and this convenience may give brick-and-mortar retailers added value justifying a higherprice.ConclusionIn this world of abundance and instantaneous information, it becomes even more critical for retailers to stay in tunewith their customer needs and wants. Pricing transparency isn’t a competitive threat, it is a paradigm shift in how con-sumers shop. But by understanding what your customer values beyond the price ticket – whether it be uniqueness,convenience, perks, social responsibility, community, or information - and offering it to them, what the price tag saysis only the beginning of the customer decision.For More InformationTo discuss this article or to learn about Lenati’s retail solutions, please contact Martin Mehalchin atmmehalchin@lenati.com. 1300 Dexter Avenue North #100 | Seattle, WA 98109 (800) 848-1449 | www.lenati.com