Should different channels have different prices?

One of the tougher decisions omnichannel retailers are faced with is pricing strategy across channels. Should an electronics retailer charge the same for its Sony 65″ TV on its online store as it does in its physical location? Or should the price of groceries be the same for online customers as it is for those pushing their shopping cart down every aisle?

While there may be certain circumstances where consistent pricing for the brand is called for, most of the time it makes more sense for omnichannel retailers to keep their online and in-store pricing engines separate.
Recent History of Pricing
Back in 2017, the Wall Street Journal reported that Wal-Mart’s online pricing was higher than their in-store prices. There was a method to the strategy. Wal-Mart was trying to encourage consumers to shop at their stores instead of their website. A year later, MIT Sloan reported that retailers who were effectively pricing their merchandise differently across channels were seeing bottom-line growth of 2% to 5%.

MIT Sloan, which is a publication of the Massachusetts Institute of Technology, did a fascinating study in 2018. They took three products, priced at $3, $30, and $300, and showed consumers price difference between online and physical stores ranging from 5% to 20% for the identical item.

Across the board, consumers were comfortable with higher in-store prices. They recognized the value in the immediacy of the purchase. In response to the study, which surveyed 2,400 consumers, architects of the study had several takeaways, one of which was that pricing teams should focus on implementing price differential strategies on different channels.
Multichannel Pricing Today
In our experience, MIT’s study continues to hold true today. Retailers do experience high-profit margins when they adapt their pricing to the channel, primarily because the shopping experience on each channel is very different.

When a customer is inside a store, their intention is more likely to want to buy. There is an immediate need at play, which doesn’t exist in an online store that requires anywhere from several hours to several days for delivery. While some consumers may simply be doing research before making a purchase, the majority who have come into the store expect to leave with their products in tow.

If shoppers don’t like the price, they may leave, but walking out the door means driving to an alternative store, finding the product, and assuming that the price in-store number two will be better than where they started from.

Online retailers are dealing with a completely different competitive environment. Consumers may have multiple browsers open, and they are comparing price, shipping, warranties, and other features. In this environment, retailers often need a lower price to compete with their direct competition. The nature of competition is different, so it stands to reason that their pricing needs to account for that changing circumstance.
Maintaining Consumer Trust
One challenge facing retailers who offer the same product at different price points is consumer trust. Consumers don’t always react well when they see that the same product is available from the same brand at a lower price.

Rather than have employees play dumb when asked about pricing disparities, which does nothing to assure customers of a store’s trustworthiness, retailers need to take a different approach. Consumers understand that physical stores have different types of expenses, ranging from high-rent store locations to service-level employees. Retailers need to train their team so that they know that there are different prices between different channels and be equipped to explain the reason for the disparity. Through transparency, retailers can maintain the trust of their customers.

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