Multichannel retailing is a set of activities concerned with selling goods or services to consumers through more than one channel. A multichannel pricing strategy is where a business will offer their customers different prices depending on where they chose to shop. The common practice is to offer customers lower prices via an online channel.
This strategy is particularly effective for clearing the warehouse of surplus inventory stock and with the real-time functionality of an online inventory management system, the sales platform will update immediately when stock has sold out.
Customers are increasingly accepting of, and even expect different prices from different channels, but how do retailers manage the complexities of multichannel pricing?
Understanding the multichannel consumer
By understanding what customers value from each channel and how that affects what they are willing to pay, retailers can develop pricing strategies moree effectively. Getting it right pays because effective multichannel pricing across all channels can increase company profits by up to five percent.
Consumers are now, more than ever, using a bigger variety of channels to browse and buy, with over 80 percent of consumers researching both online and offline before making a purchase; in store, a shopper may stand in front of an item contemplating a purchase, then use their smartphone to see if they can locate a better deal elsewhere.
Multichannel retail now accounts for over 50 percent of internet sales, compared to around 30 percent earnt by eCommerce businesses that sell exclusively online.
When looking at the cost structure of each channel the distinction between them is at odds with consumer expectations. For example, the more direct online channels incur variable costs due to picking, packing, shipping and returns processing activities. In comparison, the costs of brick-and-mortar stores are largely dominated by fixed costs.
What this means is that from an economic perspective, direct channels should charge higher prices because of their higher marginal costs. While brick-and-mortar stores should price more aggressively because of the need to generate enough sales volume to cover their fixed costs. This could explain why some larger retailers are choosing to drive foot traffic to physical locations by offering cheaper prices in store.
Businesses need to strike a balance between customers’ expectations of prices in the different channels with the cost structure of each channel. Basing a pricing strategy on brick-and-mortar operating costs is becoming increasingly less competitive while the online eCommerce channels are delivering far more growth.
It can be beneficial for multichannel retailers to use adaptive multichannel pricing to remain competitive and maximise profitability in all channels. A self-matching price policy is an alternative way for multichannel retailers to maintain customer satisfaction by offering customers the lower of their channel prices.
Benefits of multichannel pricing
Multichannel pricing offers retailers many benefits such as increased sales, enhanced productivity, a better customer experience and bigger profits. Managing a coherent pricing strategy across multichannels can be challenging for brands, however there are several logical reasons for operating with price differences between channels.
It’s one of the many great ways to get rid of surplus or slow-moving inventory stock. One channel may simply just offer higher margins. A retailer may choose to liquidate goods in a single channel or they may opt for more competitive retail pricing in a specific geographic area.
Multichannels also offer comparative platforms to conduct A/B split testing. While certain marketing and promotional activities may prove to be more effective in one channel compared to another.
Challenges of multichannel pricing
Managing the different strategies and tactics for the separate channels certainly has its challenges. Not only do the operating costs differ per channel but each channel comes with its different set of competitors.
Businesses need to have a clear insight into their customers buying habits and behaviour across the channels. Pricing strategies should be relevant and adaptive to change. It is essential for retailers to accurately assess all factors affecting multichannels to help establish how much profit they can make on their inventory stock within each channel.
Regardless of the multichannel pricing strategies being used, the ability to effectively manage inventory stock is crucial for retailers to sustain success.
Online inventory management
Online inventory management is one of the many tools available to assist in meeting the demands of multichannel operations. Cloud-based software integrates with POS and WMS systems to provide visibility across the retail supply chain and all sales channels. With an online inventory management system at the heart of the business, it becomes a reliable source of accurate data.
If a business needs to reconcile data differences between the channels and the inventory information provided by online inventory management offers business relevant intelligence to help guide better decisions to achieve a clear end goal.
While there is currently little in the way of direct software systems that offer the complete answer to multichannel pricing and stock numbering. Online inventory management providers continue to seek solutions that allow all channels to have the same systems and business rules for individual inventory pricing and to accommodate multiple-item numbering.
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.