Forrester: Having Different Web/In-Store Prices Is No Big Deal

Since the dawn of E-Commerce, retailers have struggled with whether they need to offer one price for the same product across all channels. Beyond the fact that online has a very different cost structure than in-store and can therefore profitably charge less, in-store managers have to deal with contracted minimum advertised prices (MAPs) set by manufacturers.

A new report from Forrester Research analyzes that dilemma and has one clean recommendation for today's retailers: Don't worry about it. Consumers either don't care or they understand why the prices might be different. Let the prices be different and worry about more important matters.

"Most people don't even think of doing comparisons across channels. There's this perception that retailers feel they are losing because they had this policy of having to have consistent pricing," said Sucharita Mulpuru, a Forrester VP and its principal analyst for eBusiness. "You don't need to have this religious point of view. It's OK if your prices are different in different channels."

This debate is hardly new. In one of its last moves before the chain imploded, Circuit City established a one-price policy across all channels, a step partially accomplished by simply increasing Web pricing to match in-store MAP prices.

The Forrester report challenges some time-honored assumptions. For example, it says the perception that price-comparing consumers are bottom feeders who don't have much money to spend is flawed. Well, they may well be bottom feeders, Mulpuru said, but they can often prove to be well-financed ones.

"Comparison shoppers tend to be higher income. They're more educated and they understand the value of technology," she said. "They are bottom feeders, but they're rich as well. There are a lot of cheap rich people."

Mulpuru's point is a good one, but the analysis in the report supporting that conclusion is a bit thin. From the report: "The population segment that is most likely to use comparison-shopping engines—high tenure Web shoppers with more than 10 years of Web-buying experience—has household incomes that are 54 percent more than the segment least likely to use comparison-shopping engines"—that is, those shoppers with less than one year of experience shopping online.

The report, therefore, is saying that the universe of consumers who have less than a year of E-Commerce experience tends to be lower income than the universe of consumers who have more than one year of E-Commerce experience. It's likely that in April 2010, the number of people who have less than a year of experience of Web shopping is going to skew a lot younger and/or especially Web-uncomfortable. Furthermore, I think it's safe to say that the number of people who have only one year of E-Commerce shopping is decidedly smaller than a group consisting of those with "more than one year" of E-Commerce experience.

Still, as Mulpuru pointed out, "some 10 million households are coming online every year," so it's not as though a new Web purchaser is that unusual.A survey in the report looked at how consumers say they're most likely to react when confronted with conflicting online/offline pricing. It was a multiple-choice question that permitted more than one response. The overwhelmingly most popular response (chosen by 60 percent of respondents): "Purchase the product with the lowest list price, whether it's online or in store."

Sixty percent chose that answer? I really want to meet the 40 percent of consumers who, when presented with a "multiple responses accepted" question, did not choose that option.

The report also detailed a few very concrete steps that retailers can take to deal with the pricing consistency issue. First, don't forget the age-old FUD tactics. "In the long run, retailers will have no choice but to push the age-old strategy of unique SKUs and bundles available only in their stores in order to obfuscate the fact that an item may be cheaper elsewhere," the Forrester report said.

Mulpuru said it was less a matter of confusion than being pragmatic. "There are always TVs that aren't exactly the same. There's nothing wrong with having Wal-Mart-specific SKUs," she said, adding that the original premise behind brand-specific SKUs was that it legitimately prevented a store from accidentally accepting returns from competitors.

But it has the side benefit today of making price comparisons more difficult. "You force a little bit of extra work for the consumers to price compare," she said.

Another approach is to refocus the attention from price to, well, anywhere else. "When you can't win on price, how do you get around that? You throw in gifts on purchase plus other benefits such a free warranty or some chotskies," Mulpuru said.

There's also the tactic of using extreme time limits, to pretty much make it impractical for someone to be able to price compare.

"One lesson to be learned from fashionable companies like Gilt Groupe and HauteLook is how to discreetly price-discriminate under the radar. Private sales that are only accessible through E-mail links for a short period of time are one approach that we’ll likely see more companies engaging in during the years to come," the Forrester report said. "Other vendors, like Runa, are offering retailers the opportunity to make offers that expire once a consumer exits a Web session. Calls to action like this can keep customers on a single retail site and make them less likely to leave the site and shop around for better offers."

If none of that works, Forrester suggests another time-honored tactic when a rival is underpricing you: Sick the cops on 'em.

"Companies should use solutions to help them monitor MAP violations. These are available from vendors like Where 2 Get It and The Brand Protection Agency. They can also crowd-source this process by inviting customers to E-mail screenshots of any lower prices they’ve found from competitors and then asking their buyers to address the violation issues with their partners," the report said. "Manufacturers generally will not take responsibility in these situations and will usually blame their distributors. But when confronted with physical evidence, they will be forced to be more vigilant of violations of MAP."