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Dealing in real time: How technology is creating a power shift between consumers and retailers

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Michael Baker
Smarter Writer

Michael Baker is a retail consultant and vice-chair of the ICSC's Asia-Pacific Research Council

Not so long ago, uttering the word 'showrooming' was enough to evoke a shudder of fear and loathing in a room full of Retailers.

The word raised the image of iphone-toting mercenaries going through stores, picking over the merchandise, running price checks on every item to see where it was cheaper somewhere else, then hot-footing it over to the lowest-price competitor to make the purchase. With their blinkers removed by technology, consumers looked like they were set to drive retailers into a frantic race to the bottom on price. And enjoying every minute of it.

Now technology, the villain of the piece, is in the process of redressing some of the power imbalance that has developed between consumers and retailers. Previously, a given retailer had operated more or less in the dark about how its competitors were pricing the same items that the retailer itself sold. This lack of real-time information made it impossible for the retailer to set its own prices at a level that was strategically the most profitable. You didn’t have the information at your fingertips to know whether your prices were too high, too low, or, like baby bear’s porridge, just right. But now, courtesy of technology, you do. It’s like switching on a light in a dark room.

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Let me explain

Say that every morning before opening time you could switch on your computer, logon to a website and see a spreadsheet right in front of you with the price each of your competitors is charging online for the same camera. If you are selling the camera for $150 and your lowest-priced competitor is selling it for $135, you can make an informed decision to lower your price to a level that reflects the true value you offer the consumer.

For example, if you believe you offer a better in-store experience than your lowest-price competitor and that the consumer will pay a small premium for that, you may decide that $142 is about right for that camera.

Let's say though that your lowest-price competitor is actually $170, or $20 above you. You may then decide to raise your price from $150 to $165, resulting in a higher margin and profit without sacrificing your price leadership.

How to create an effective pricing strategy

This is anything but a race to the bottom. It’s strategic pricing where the retailer captures the optimum value of each sale. 

One of the drawbacks with some retail technologies is that they require considerable up-front and ongoing operating costs. This puts off a lot of small businesses. Now, however, these dynamic pricing technologies are affordable for a greater number of retailers because they are cloud-based and do not require significant fixed investments. For example, a Canadian company called 360pi has adapted a comparison-shopping technology that is being used by a growing number of retailers in North America. The technology involves the use of “data crawlers” and artificial intelligence to trawl retailers’ websites and obtain information on both price and inventory for literally millions of individual items of merchandise. An individual retailer subscribing to the service can access the information daily, compare prices and make strategic decisions. 

Of course, a lower-tech and more “fly-by-the-seat-of-your-pants” way of doing things is to empower your sales staff on the shop floor or at the checkout to match prices if the consumer has found a better deal somewhere else, or at least to negotiate a price that enables the sale instead of relinquishing it to a competitor. 

But this is fraught with problems

  1. It's not strategic: It's reactive and means that the retailer is constantly on the back foot when it comes to pricing.
  2. The customer may vanish: Without the sales staff having an opportunity to intervene.
  3. It may put more discretion in the hands of employees: Than some owners might be comfortable with.

Verdict

At the end of the day, if consumers are going to be empowered with real-time insight through technology, then it makes sense for retailers to operate with full information through technology too. 

It’s time the light went on in the dark room.

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