Guest post by Alex Walker.
Every business or product needs a unique value proposition, something that sets their brand or product apart from the rest and attracts a particular segment of the market. Very often though, businesses rely almost entirely on “lowest prices” as their unique proposition (though it can be argued that at that point it is no longer exclusive at all) rather than trying to differentiate themselves in a truly effective way.
That’s not to say that price matching and racing to the bottom doesn’t provide some advantages, and there are certainly companies (Walmart, Aldi, any of the dollar stores) that have turned it into a winning strategy. But you need to evaluate your brand and market position carefully before deciding this is the marketing strategy for you.
This isn’t only a consideration for etailers. As a growing portion of B2B purchases move online, business marketers will confront more of the same issues (such as price matching) of their B2C counterparts.
Before we jump into the nuts and bolts of price matching, we should state that there are more advanced alternatives for attracting potential customers with competitive pricing. Especially if your business is online, using pricing optimization tools, like Upstream Commerce’s retailer price comparison software can provide you with a competitive edge.
To help you wrap your head around the advantages and disadvantages are to price matching, here’s a quick guide on the topic.
The Pros of Price Matching
As noted above, price matching has been used successfully by many businesses. Research firm BDO came out with a study proclaiming that price matching was second only to free shipping when it came to bringing potential customers through the doors (or to the site). This means that there is quite a bit of potential for shops capable of capitalizing and sustaining the practice.
Price matching reassures customers that they have made a smart purchase at the best price. Online shoppers regularly price compare before making a purchase, so making a price matching guarantee can be a method, when marketed correctly, for establishing yourself as a shopping hub. This can be an efficient way to carve out a niche in your industry.
The success of this system relies on your ability to handle these transactions and the inevitable disagreements and confusion while still maintaining your bottom line. As detailed below in the con’s, there are quite a few roadblocks and hurdles that make long-term price matching a risky venture.
However, if price matching is a method you are locked into, you need to understand that you must be able to utilize it in such a way that the increased volume of customers is handled correctly, and is enough to outweigh the added costs and loss in per item revenue.
The Cons of Price Matching
Price matching is fraught with potential pitfalls, enough that it is recommended for only the savviest of businesses. Customers will expect you will always be willing to offer the absolute lowest price, and that statement in itself is full of potential disagreement and friction in the buying process.
Most stores known for these practices state limitations in the small print. BestBuy, for example, maintains that the rival store must be located within a 25-mile radius. I have actually seen a debate between whether that 25-miles refers to distance as “straight as a bird flies,” or by driving range, which can vary considerably. Most businesses that offer price matching have entire departments dedicated to price matching contingency issues. For small retailers, this generally just isn’t practical.
Another potential issue is that you are providing an incentive for customers to look into your competitors’ shops. This just isn’t good policy from a marketing perspective. You have possibly interrupted the buying process and may not see that customer again. In the digital realm, if they can buy it for the same low price at another site they’ve found, why not just buy it there? Did you just help them discover a regularly cheaper competitor?
Messy and expensive returns and claims stemming from these issues can also lower customer confidence in your store—something Walmart and Toys R’ Us learned the hard way.
You are also willingly lowering your profit margin with customers you may have earned organically.
Lastly and most importantly, you are ignoring all the other aspects of the business that draw customers in and retain them. If the only selling point your brand offers is price, then it is a castle built of glass. The next competitor with the means to undercut you has just destroyed your unique selling point. A focus on value/service/relationship should always be a key component in the way you handle your sales.
You can have strategic pricing that drives sales, but perhaps price matching isn’t the way to accomplish this. Modern software that allows for strategic pricing, software that can read the state of the market and help you adjust your prices to take advantage of demand better, has been a game changer for many shops.
Pricing intelligence is the future, and is how companies like Amazon are capable of fine-tuning the prices for thousands of products every day. With this sort of data at your fingertips, it is possible to both match the prices of competitors and maximize your profits, depending on what makes the most strategic sense that season.
Alex Walker is the Outreach Manager of eTraffic, a web marketing agency. Alex has worked extensively with eCommerce and online retailing brands, and has unique knowledge of pricing intelligence strategies.