Can Price-Match Deals Work? Not Any More

Maybe it's time for retailers to give up on price-matching promotions. Last Friday (Sept. 21), U.K. supermarket chain Asda all but threw in the towel on a promotion in which it promised to beat competitors' prices by 10 percent or refund the difference. The problem (spotlighted in a story by one of the U.K.'s biggest newspapers): "Professional shoppers" were milking the promotion to get as much as $14,000 in rebates in a month.

It used to be only chains that kept detailed databases of competitors' prices. Now every coupon or rebate Web site has data that's even more current, which makes beating a chain's price-match promotion trivial.

The ongoing promotion at Asda (which is owned by Walmart) is based on the chain's claim that its prices are 10 percent less than anyone else's. Under the deal, called the Asda Price Guarantee, customers could log into an Asda Web site after shopping, fill out some paperwork and point to cheaper prices somewhere else, and collect the difference in the form of vouchers.

According to the Daily Mail, one customer claimed to have collected and spent £8,670 (about $14,000) in vouchers over four weeks by choosing exactly the right items to buy during shopping trips—items that competitors were, for various reasons, selling for far less than the Asda price. Customers used a Web site called Moneysavingexpert.com to share prices that triggered big rebates. Asda has now capped the rebates at £100 per customer per month.

The fundamental problem with Asda's promotion is actually an IT issue: Asda was too efficient at scouring the Web sites of competitors Sainsburys, Tesco and Waitrose for current prices. For example, according to the Daily Mail, Tesco has 400 sets of regional price data, all of which was dutifully collected for Asda by a price-comparison Web site. The lowest price from all those data sets was used for the Asda comparisons.

If Asda had used all those price sets to identify the typical or average price for each item, that would have been reasonable. Sampling a smaller number of stores and including the prices from specially discounted items would have made sense, too. But by being so thorough in its canvassing of prices, Asda guaranteed that far more heavily discounted items would make it into the database.

Some of the problems that made it possible to make a killing on the Asda promotion were things like buy-two-get-a-third-one-free deals, which the Asda software didn't handle properly. But the biggest distortions came from the way U.K. grocers traditionally handle clearance items. They're not just marked down to, say, half-price or 80 percent off—they're priced at 1p or 2p. (In U.S. terms, that's—well, still just a few cents.)

(It's not clear how many of those penny-priced items were clearance items and how many were products past the sell-by date. We're guessing that in the U.K., as in parts of the U.S., some not especially perishable products can still be sold past the sell-by dates if they haven't actually spoiled. For example, a 1-liter bottle of orange juice showed up for weeks in the Asda database as selling for £1.89 at Waitrose, £1.58 at Sainsbury's—and 3p at Tesco.)

That means when any item went on penny-sale at any competitor's store because it was past its sell-by date, the Asda database showed that as the competing chain's price, which is what Asda's price was compared to. Asda's promotion would end up refunding virtually the entire price of the same item bought at Asda (but one that was not past its sell-by date) to anyone who knew about the opportunity.

In the past, that would have been a tiny number of people with enough spare time to visit every grocer in town (never mind in the entire U.K.) looking for the right bargains to exploit. But today, it's trivial to set up a Web site or blog to crowdsource and publish that type of information.

Asda obviously got burned by a badly designed promotion, but could any design save a price-match promotion today?Asda obviously got burned by a badly designed promotion, but could any design save a price-match promotion today? Probably not. Even if you strip away the penny-priced clearance items, there will always be past-date or loss-leader items that bargain hunters can leverage. And with an avid crowd of bargain hunters, all it will take is a quick trip to a Web site—maybe even from a mobile phone while in the store's aisle—to beat the system.

This is a price-database arms race, and customers will always be several steps ahead of chains. To be anything short of catastrophic, price-match promotions have to depend on increasing numbers of limitations and caveats that, ultimately, will irritate regular customers—exactly the opposite of what the promotion is supposed to do.

There's a reason—a legally binding reason, it turns out—that Walmart had to dump its original slogan, "Always the low price. Always." It just wasn't possible for Walmart to always have the lowest price. Every time a competitor had a loss-leader or closeout or clearance item, that turned Walmart's slogan into false advertising.

And that was in the days before price-comparison Web sites and instant customer price-intelligence.

There's an irony here: Walmart recently came up with a very different sort of price-match gimmick that it's testing in a few U.S. stores. In this case, shoppers scan their receipts from competitors into a Walmart Web site and then Walmart tells the customers how much they would have saved on certain items if the customers had shopped at Walmart.

That approach turns the Asda price-match on its head in almost every way. First, it doesn't pay out any cash, so there's no reason for "professional shoppers" to try to game the system. Second, it's focused on the items where Walmart is cheaper, not where the competing store is cheaper, the way the Asda price-match worked.

Third—and maybe most important—it's focused on people who aren't Walmart customers, who have the receipt to show they already paid what are presumably higher prices. Those shoppers are prime candidates for a price-match program: they are already paying more somewhere else. You want to get those people into your stores. You don't want to encourage people already shopping in your stores to spend less.

Price-match promotions used to work reasonably well as a way of luring customers. And there's a tremendous temptation to update those price-match gimmicks to use all the price data that's now available. As Asda discovered, though, that's a sucker's game. With real-time data available to customers as they stand in the aisle, customers are still going to be ahead of chains—and there's probably no way chains can actually fix the problems. When you can't win, it's time to stop playing the game.

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