The growth of mobile technology and all of the apps being developed to meet the demand has really put the retail focus in America on the web, which is a good thing for ecommerce operators.

But it also sharpens the focus by consumers to price, and it obviously means that modern pricing strategies – by ecommerce and brick-and-mortar retailers alike – must be keen, sharp and readily adaptable.

The Christmas season of 2011 just passed was really the first major retail experience where the emerging mobile technology began to have a major impact, and this is just the first salvo in what will be a mega-war in retail fought mainly on the price front.

Newspaper and online reporting during the holidays talked a lot about people actually standing inside a traditional brick-and-mortar store, armed with a smart phone, scanning bar code stickers and comparing costs. Many examples were cited in the electronics environment, for instance, where the retailer was offering something for, say, $175, that the consumer found from Amazon for $125 with no shipping costs – and, if the retailer didn’t want to meet the price on the spot the consumer could simply push a button right there in the store and buy it cheaper elsewhere. Obviously, this brick-and-mortar retailer’s pricing strategy failed miserably.

It’s easy to see, however, why these traditional retailers have been asleep at the wheel. Over the Thanksgiving Black Friday holiday rush in 2010, a year ago, the statistical division of IBM, Coremetrics, estimated that consumers using mobile devices accounted for only 0.1% of visits to retail websites. This year, Black Friday 2011, that same number was 5.6% -- a 50-fold increase.

And, of course, it’s not just the price comparisons – the consumers using their mobile apps for pricing have also already done extensive research on the products, have looked at peer-group comments, have shared information with their friends, and everything else the modern technology allows. The clerk in the store – one of the traditional retailer’s largest cost items in its own pricing strategy – is about as irrelevant as a butcher at a vegan convention.

Things for retailers – online and in-store – are changing rapidly, and the wise retailer will have to hone skills in pricing strategies to stay competitive.

Traditional pricing strategies

There are a number of basic pricing strategies that have in in place for retailers for decades, and it all begins with the basics. The trouble these days is that the shifts are occurring daily, so new strategies must be implemented. Let’s first look at the basics:

• Cost-plus. Cost–plus is the most basic pricing strategy, and has been around for years. Very simply, it involves taking the cost-price of the product – the wholesale price, the manufacturing and delivery cost of the item; essentially what the retailer paid to acquire the product in the first place – and marking everything up a certain percentage. For instance, traditionally in the apparel business a retailer would buy, say, shirts, for $15, and mark them up 100% for a retail price of $30 – and the $15 gain is designed to cover the costs of stocking, showing, operations and profit. In fact, many manufacturers issue an MSRP – Manufacturer’s Suggested Retail Price – and it is basically a fixed price that it a multiple of the wholesale price. In this scenario, presumably, the ecommerce merchant has the edge in that they don’t have the expense of the brick-and-mortar store and staff, although shipping costs would be extra.
• Full calculations. A little more difficult that a blanket cost-plus strategy, the full calculation strategy involves taking all of the cost involved in running a business – website development costs, hosting fees, credit card processing fees, facilities rent and operations, personnel, debt financing, shipping, spoilage, telephones, merchandise acquisition costs, marketing, etc. – and then retail pricing items to achieve an overall desired margin. In this strategy, items that move more quickly and more often might have a thinner margin because of faster turn-around.   
• MSRP. Mentioned above, this has been traditionally used by smaller retailers so they don’t have to compete in a price war, and many manufacturers mandate prices to protect brand image and protect their retail customers from price-gougers. Using this pricing strategy, competition is not price-driven, but rather comes from shopping experience and other non-price factors.
• Discounts. Retailers use discounts to lure shoppers to their sites/stores and to encourage more buying; e.g. discounts that kick in at certain buying levels either in price or in volume of units. There are also discounts for certain consumer categories: repeat buyers (loyalty discounts), U.S. military veterans, students, Ladies Day, senior citizens, etc. Many online retailers offer discount coupons for the next purchase which, of course, is used to drive the shopper back to the site another time.
• Loss leaders. Loss leaders are certain products sold at or below cost to lure shoppers in with the hope that they will buy other things while there with a higher profit margin, making the whole transaction profitable. 

Even traditionally, all of this had to be designed with the competition in mind. If you sell a product that is the same or very similar to the competition, you have to constantly survey the competition and price accordingly. Convenience – like if the competition is across town, or doesn’t offer free shipping – can and should be a factor. If you offer a unique product or service, obviously you can price at, as they say, whatever the market will bear – however, these days, what with a national or even global marketplace for nearly everything, this is becoming more of a rarity.

Emerging pricing strategies

Everyone in retail has to look at pricing strategies with beginning at the basic level and then making adjustments. While retailers have always surveyed the competition to stay competitive, today that challenge is much more difficult. Your customer has the entire web at his/her disposal at all times, and a growing number of apps that widens the price comparison opportunities to unheard-of vistas – and the ecommerce merchant should be doing this as well, day in and day out.

You really have to keep a keen focus. If, for instance, you are selling dog food and have been knocking down a fairly good rate of sales, you could take a hit in a single day if a competitor suddenly has a sale – particularly a loss-leader sale – on your highest volume item. In this case you might want to look at a meet-any-price-guarantee if a loyal customer presents a legitimate lower price from a competitor. Some people feel strongly that keeping a loyal customer happy, or even just keeping a loyal customer, at a short-term loss, is better than having them creating a relationship with a competitor.

Also, remember that price is more than just the stated retail price of an item. Shipping costs play a significant role in any pricing strategy. Just recently, L.B. Bean, the giant lifestyle and outdoorsy retailer and ecommerce leader, has gone to a free shipping model on every purchase. Obviously, this makes the price of a similarly-priced shirt at a competitor less expensive if the consumer has to pay the shipping charges at the competition, but it also does something more psychological: it comes across as such a grand gesture, such as cost-cutting gesture, that it subtly takes the focus off the retail price of the item. Free-shipping in and of itself becomes the driver, and it’s likely that the consumer is paying less attention to whether the price of the shirt went up a few dollars.

Shipping costs can be played in other ways, as well. Many, if not most ecommerce sites, offer free shipping when the consumer reaches a certain level of shopping; e.g. free shipping on all orders over $50 or whatever. Assuming this is competitive, it can drive shoppers to buy more than they had originally intended, and have the effect of raising the per-transaction buy.

Pricing is always a chief consideration in any type of retail, but the truth is that it is, and will forever be, more difficult to balance that ever before. The marketplace has expanded, and the consumer is going to be more armed everyday with competitive information and a will to find the best price that is going to change the retail landscape forever.

The competition is going to be fierce, so the ecommerce merchant has to be – must be – a fierce competitor.

Unleaded Group is a leading website design and development agency, specializing in building ecommerce website platforms for businesses large and small. For complete information call 855-UNLEADED (865-3233).