The All Powerful ‘P’ricing

In the third week of July, in 1995, Amazon shipped its first order, a book by Douglas Hofstadter. There has been no stopping it since then. In seven years, in 2002 it reached operational profits and last year it had a turnover of $62bn.

More than that en route it gave birth to the ecommerce industry and has created  a whole new world for customers and retailers. E com today has profoundly impacted the business model of manufacturers and retailers and has led to the closure of marquee brick and mortar brands like Borders, Comet, etc. It continues to threaten the existence of several others retailers. The retailing industry is in the midst of unprecedented change and turmoil.

Though there are several factors behind this shift to ecommerce, the principal driver for many customers has been ‘Price’. The elimination of physical stores and costly store manpower has enabled the web retailers to deeply undercut the pricing of brick and mortars. Price has upended the game. The retailing industry has to now operate on new pricing structures and so new business models.

This is the era of almost perfect price information.

Price comparison sites help the customer in discovering price across all sales points both web and brick and mortar. The proliferation of smartphones and price apps is going to make customers even more aware and alert, and intelligent about pricing.

Owing to the inherent low loyalty on the web, the ecom players are going to face a difficult battle amongst themselves on pricing. The brick and mortars of course face an existential battle over prices.

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In India, price has traditionally played a very vital role in purchase decisions. Indians are famous for their obsession with value and pricing. Literally going an extra mile is a part of the daily life of Indian buyers and there are stories of billionaires looking for deals on grocery shelves.

The sudden deceleration of the economy has also caught a large number of consumers unawares. They used to buy brands on the back of rising incomes and ever increasing salaries in the 9% GDP growth economy but suddenly are not able to afford what they want. But their aspirations for brands and lifestyles remain. They respond strongly and immediately to price impulses. We see that in stories of hundreds of them queuing up for Zara and Mango on ‘Sale’. On the first day of its sale this year in July, Zara touched 96 lacs in the Select City store. Similarly cyber week sales have generated tremendous responses.

So price, always an important dimension, is now acquiring even more weightage in the marketing mix. Barring a few top end brands, how one handles challenges of pricing will determine success or failure for most businesses.

The first thing to remember is that there is nowhere to hide in the climate of almost perfect information. Hence overall efficiency, clichéd of course, is vital to achieving price goals.

But there are several other strategies prevalent across industries for playing the price game.

a) Differentiate and compete on other features that customers look for. This is the classic recipe of most management books.

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An electronic retailer like Croma has found that customers look for someone who simplifies the task of explaining technology and they focus on this aspect more than others.

b) Load as much service as possible. So a bookshop can offer free wifi, home delivery or an electronic retailer can offer free installation.

c) Another most used and the most effective response by retailers is complex price actions like bundled prices, quantity discounts and loyalty rewards. These help in diffusing direct price comparisons.

d) Several retailers have also tried to reduce price sensitivity by making more information available. More knowledge on other dimensions dilutes the role of price in the product appeal. This is used effectively by furniture and home décor retailers.

e) Another great option has been to try and reframe customer choices. Mass food service retailers use this effectively – positioning   themselves, for example, on combo meals rather than prices of individual items.

f) Take help from the supplier and alliance partner eco-system to get benefits for the customers. Card issuers use a wide variety of benefits from partners.

There are many more ways and retailers have to be continuously innovative in responding based on the context.

The history of business is replete with stories of critical cycles and every time the best have survived. This time the best will be those who can vigorously counter all ‘Price’ challenges.

(About Author : Salil Sahu is responsible for running HSIL, a part of Wadhawan Retail Limited.  He has extensive experience in Sales, Marketing, Strategy and General Management and has spent the last 10 years in P&L management. He has worked in Wipro, Heinz, Shaw Wallace and a start-up and has been part of many pioneering initiatives.)

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