Ever since the rise of online shopping, it has become increasingly common for customers to walk into a retail store, pull out their cell phones and compare the store’s prices to those of their competitors. However, more recently customers may have noticed a pricing difference across the same store’s digital channels as well.
This is what we call multichannel pricing; a method whereby retailers charge more or less for their products depending on the digital channel in question. This means that a retailer may charge $49.99 in store for any given product, but $39.99 on their app. As you can imagine, there are a range of challenges that these pricing differences may cause.
In this article, we explain why some retailers – and maybe yourself as a business owner – may choose to adopt such as multichannel pricing strategy. Further, we identify a key challenge brought about by this strategy – customer dissatisfaction – providing useful advice on how to manage the risk effectively.
Understanding multichannel pricing
Online retailers are often able to reduce prices drastically across their digital sales platforms since they don’t have to consider the costs involved in maintaining a traditional brick and mortar store. This is one reason why customers have become increasingly fond of shopping online.
This may, therefore, explain the price differentials adopted by some multichannel retailers – those who have both physical stores and online sales platforms as well. Many retailers recognise that if they can afford to reduce prices online, doing so will attract new customers and may also help to retain existing ones.
The effectiveness of this strategy has been corroborated by some academics – according to a study by Dolan and Moon, the optimal strategy for multichannel retailers is to adopt a different pricing mechanism on each different channel. According to this approach, having an adaptive channel pricing structure will enable multichannel retailers to remain competitive and maximise profitability across all channels.
The challenge with multichannel pricing
The biggest challenge to adopting this multichannel pricing strategy is that of maintaining customer satisfaction. According to Grewal, multichannel pricing requires striking a difficult balance between consumers’ expectations of prices in different channels and the cost structure of each channel.
Customers like consistency and predictability when it comes to pricing, and a large part of this is about gaining their trust. Implementing differing prices across your channels may have the effect of causing distrust in the customer and may even deter a sale if they feel they are being undermined in some way.
So, how can you get around this? Always ensure you have a strategy for dealing with customer complaints about pricing differentials – for example, you may want to offer a credit or refund if a customer complains about a price differential after purchasing a product within a certain amount of time.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.