Price is Not a Magic Bullet Anymore - Indix



Price is Not a Magic Bullet Anymore

Bargaining is not a new concept to consumers. Especially if you are used to shopping on streets, flea markets etc. and haggling on prices. Here is a typical scenario in bargain shopping – the merchant/vendor quotes a price, the consumer negotiates, threatens to walk away, and the merchant follows with a lower price. Seeing this, another seller on that street selling a similar product, cuts into the conversation and offers an even lower price to the consumer. Lately, we’ve seen this trend translating to the online commerce space as well, making it a chaotic marketplace with different merchants calling out prices and trying to attract consumers.

The question is – is this a sustainable strategy given the direction that commerce is going in? The answer is no, it’s definitely not. Not only does it hurt profit margins, it inhibits any possibility of building customer loyalty. Commerce is becoming pervasive, with consumers shopping on infinite channels and various devices. If all businesses just keep running in a race to the bottom, we are definitely in trouble. The democratization of pricing is obvious from Amazon’s move late last year to let consumers “Make an Offer” for fine art pieces, with the announcement that it would be extended to other items this year as well. This is an indicator of the consumer-centric era of shopping that is upon us. Let’s imagine a hypothetical scenario where this extends to all the products on Amazon and then other marketplaces as well. It will mean the end of brands and retailers who differentiate themselves solely on the basis of price.

The time has come for businesses to shift focus onto other differentiating factors. It is a well known fact that Amazon changes prices on hot selling items several times a day, and other retailers are not able to keep up with that. Now think about that from the point of view of a consumer. Who among us has the time, energy or inclination to keep checking the price of a product we want several times a day? We don’t want to feel like we lost out on a good bargain just because we didn’t wait for a few days or even hours. At the same time, small price changes are not that significant and frustrating to keep track of. Then what do consumers care about?

Say someone is in the market for a 60-inch plasma TV. A person that is prepared to spend about $2000-$3000 on a TV is not going to care that much about a $50-$100 price difference offered on different sites. This is what they are going to care about:

– Am I getting all the information there is to get about this TV? Description, specifications, dimensions, images, videos, reviews – these are the factors that matters when making such a purchase.

– Do I have easy access to a comparative view of other models in the same series from the same brand so I know the exact value proposition of a particular one?

– What kind of post-purchase service will I receive? Is there assurance that my inquiries will receive an immediate response?

– Is this the right TV for my purpose? The intent of purchase is an important factor. Some might be in the market because they love watching the opera from the comfort of their home, some are sports fans, some are film connoisseurs, some just like to surf channels and watch cable TV. There is a set that caters to each of these requirements. Does your website provide enough information for the consumer to make an informed decision on that?

When making an investment of this level that is expected to last a while, price doesn’t remain an particularly compelling factor, especially as the economy improves, boosting the spending power of consumers. The game is changing even for more elastic items. It is extremely important to understand shopping behavior, preferences, history and conflate that into the pricing strategy.

Of course, price is still a critical element. However, it may prove to be a short-sighted strategy if it is the sole focus. Look at Nordstrom. They don’t offer the lowest prices on the market, but have maintained their strong position. They provide experiences that go beyond just what a low price offers. They have embraced technology not for dynamic repricing but for tying all their channels together into a cohesive whole. By integrating social media, mobile, etc. they are providing a pervasive shopping experience that keeps bringing people back into their stores and to their website. The point is that businesses need to develop a more comprehensive strategy where price is one part of the equation that balances brand promise, value proposition, personalization, service, loyalty, and other variables.

Yes, it’s still a crowded marketplace. But the time is now to rise above the noise and holler about something other than your low prices.

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