How to harmonise prices between online and offline stores in a multi-channel operation

After last week’s post on DIY Consulting, I received an email and a phone call. The issue raised was similar, and I promised the caller I would take up the challenge of this particular topic since, as the caller put it, none of the ‘commentators seemed to address the issue’.

I am not sure that I am a fan of being called a ‘commentator’ – but here goes:

1. There is NO magic bullet answer that makes the problem go away, but there are several things you can do to make it better – maybe even make it good enough.

The following strategies should be seen as the sliders on a graphic equaliser, and as such are used in conjunction with each other and any/all of the strategies will achieve harmonisation to a greater or lesser extent.

2. I have stated previously (repeatedly) that for many small business operators, multi-channel is not the answer. An online retail business is very different business with a different business model with different metrics and different strategies, requiring different skills and different tools. There is nothing wrong with wanting to have another business, but adding an ecommerce site is not the same as adding another store to your network. In particular, if you are a small business operator that relies on an unsophisticated and out-of-date database and POS, you do NOT have the wherewithal to run a successful eCommerce business. (I am assuming the brick-and-mortar store came before the online store.)

But assuming you do adopt a multi-channel strategy, and assuming you are technically and technologically competent to handle the two businesses, then one of the potential issues you must solve will be the harmonisation of prices across channels.

There are two reasons why you may NOT need price synchronisation.

  1. It may not matter. You may be selling different brands online or you may be selling to different audiences- and either way price discrepancies are not an issue.
  2. You may operate under a different brand (different URL) and it is therefore effectively a different business. There is no problem because you can’t compare (or at least the customers can’t argue about) the different prices. You may be cheaper or you may be dearer, but that is normal for different businesses to charge different prices.

If you do want to operate the online and offline businesses under the same banner, you will want prices to be comparable and harmonised.

Strategy #1> Make it harder for the customer to compare prices

Offer your product in bundles/ combinations that are not the same online and offline. (E.g. create gift packs or offer different sizes etc.)

Add value differently online and offline. (E.g. include ‘freebies’ or bonuses that are not quite the same.)

Strategy #2> Make the difference matter less

  • Reduce your offline expenses to minimise the impact of the los of margin. Bigger retailers are negotiating rents, but everyone can get better at expense management and increase profits relatively easily.
  • Negotiate with your suppliers. There are at least 20 things you can negotiate that is not price, but will have financial benefits.
  • Increase your online prices (as much as possible) – even marginally
  • Reduce your offline prices (as much as possible) – even marginally. At the very least get rid of price point proliferation and reconsider your price-point endings.
  • Increase the online sales volume to make up for the loss of margin%. Presumably your online sales does not only cannibalise your existing customer base, but you are reaching new customers in new geographies. You need SEM and SEO skills to achieve this. (I am assuming your traditional offline store is already marketing effectively.)
  • Increase the average sale (online and offline) to earn the GM$ to make up for the loss of GM%.
  • Vertical integration (ala Zara) gives you control over the supply chain and hence control over costs and prices and the brand.

As mentioned earlier, there is no simple one-trick answer that will allow two different business models to operate in complete harmony. This reality emphasises the fact that online retail and offline retail are different businesses. That should not prevent one from working to wards the best possible outcome.

If you want to read some more, the Connected Store offers some interesting content and this presentation on Scribd is worth a look too.

I look forward to comments and additional strategies and ideas. What are YOU doing to address this challenge?

Dennis

Ganador: Architects of High Performance Businesses in the Retail Supply Chain.  

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