Price Transparency: How to Address the Paradigm Shift in Retail — (Part 1 of 3)

Author: Martin Mehalchin
9 / 24 / 2012

In the kickoff to our series on the price transparency phenomenon we look at what price transparency is and why it matters and argue that the time has come to align prices across channels.

In a now-bygone era, retailers had considerable flexibility to charge a variety of prices for the 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.

But today, the patchwork quilt of regional price variations is no longer obscured from shoppers. The combination of smartphones and price comparison apps has ushered in the era of offline retail price transparency. 70% of US smartphone owners use their phones while shopping in-store (Source: Google & IPSOS OTX, April 2011), and mobile barcode use increased 1,600%  globally during 2010 (Source: Scanlife, December 2010). Both the Apple and Android app marketplaces boast over 100 price comparison apps. The most popular apps in this category, including Amazon’s Price Check and 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.

CROSS-CHANNEL PRICING: IT’S TIME FOR CONSISTENCY

Cross-channel retailers have historically offered lower prices in their online channel: shipping costs haven’t been factored in to those prices. Due to concerns over cannibalization, this online price advantage hasn’t generally been widely advertised. In today’s era of price transparency, however, it doesn’t matter whether retailers advertise the online savings or not: shoppers can quickly discover it, wherever they are.

The time has come for most retailers to finally align prices across all channels. Customers 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 visit a physical store. Retailers who implement an omni-channel approach to inventory, supply-chain and fulfillment can make a consistent pricing strategy work operationally and financially.

In Part II of this series, we’ll discuss common pitfalls that retailers should avoid as they adjust to the new era of price transparency.

About the Authors

Martin Mehalchin is a Principal with Lenati. He leads the firm’s Retail and Consumer practice and is a is a Brain Trust panel member on Retailwire.com He has dedicated his career to working with executives and managers to help them define their strategies and then translate those strategies into results.

Aura Cook is a Senior Consultant with Lenati. She has over 10 years of experience in multi-channel Retail specializing in strategy development, consumer insights, market research, merchandising, and business intelligence.

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