In the wide world of retail, every product or business seems to need some kind of a unique value scheme these days. They need something to set their specific product or brand apart from all the rest while also attracting a certain segment of the market. However, all too often, businesses just end up relying mostly on having the lowest prices as their only unique plan instead of differentiating themselves from their competitors in a much more effective way.
It’s the pricing strategy of always having to have the lowest price that gave rise to the practice of price-matching where a retailer agrees to match a competitor’s lower price. Usually, this requires written evidence of the better price to be presented by the customer (like a recent ad). Now, in view of the hyper-competitive nature of today’s retail market, this type of policy could seem like a great idea. But is it? Maybe not, so here are a few pros and cons from a strategic perspective of retailers employing retail price matching policies:
1. Price matching helps to reassure customers that they’ve made the smartest purchase at the very best price. The fact is that many online shoppers do regular price comparisons prior to purchasing anything on the web. Clearly, price matching can be an effective method for some retailers to establish themselves as major shopping hubs in the eyes of consumers. It can even be an efficient method of carving out your niche in a specific industry when you market it correctly.
2. This strategy has actually been successfully utilized by a number of businesses from Kohls to Sephora and especially Walmart. And research has shown that price matching is only surpassed by free shipping at driving those potential customers through your doors (or to your website). So clearly, there’s a great deal of profit potential for retailers who are capable of sustaining the practice of price matching and capitalizing on it.
3. Avid supporters of the practice have included a number of big names in retail. For example, Walmart’s price match system was a well-known and simple method for consumers to save themselves trips to other stores just for taking advantage of a sale. Why should they burn up gas to make the rounds of all of the local stores to get advertised deals when they can just pick up everything they need at their local Walmart? All customers had to do was show their Walmart cashier the ad for a sale at any competitor’s store, and Walmart would match the price. The problem arose for Walmart when cashiers were being slowed down way too much during busy periods at their store, causing disgruntled customers behind the price-matching customer in line. So, many cashiers stopped requiring their customers to produce an ad just to save time and keep the lines moving. And then, Walmart discontinued the price-matching program completely on October 15th, 2020, stating that they did so to enable them to offer better deeply discounted rollback prices of their own.
4. One attractive element of price matching is that it can pass the responsibility for monitoring your competitors’ prices on to your customers. You’ll still want to keep a close eye on what they’re doing, however, you also get the added benefit of having customers spot price differences and bring them right to you.
5. A price match policy can help you to always offer the competitive prices that consumers are seeking. But, in the long-term, it can also start shifting your customers’ focus to the other benefits of doing business with you beyond just low prices. Therefore, many shoppers are more inclined to purchase from you based on other factors like an assortment of goods or services, customer relationships, loyalty, service, and even shipping.
1. This is a practice that can be filled with a lot of potential pitfalls. In fact, there are enough of them that it’s been recommended that only the savviest businesses implement it. Why? Because customers can start expecting you to always be open to offering the absolute lowest price. That in itself can be filled with potential disagreements during the buying process, thereby damaging your customer relationships.
2. Another negative issue is that you’re giving your customers an incentive for looking into your competitors’ businesses. From a marketing perspective, this just isn’t a good policy. You could have possibly interrupted the customer’s buying process and just might never see that particular customer again. And, in the online shopping realm, if customers discover that they can buy something for a lower price at some other site once they’ve found it, then why not just purchase it there? You may have just helped them to discover a cheaper competitor.
3. Most big stores that have been known for this pricing strategy state all of their rules and limitations within the small print. And, the majority of businesses that offer price comparisons have entire departments dedicated to handling any contingency issues that may arise but this wouldn’t be practical for smaller retailers.
4. You could be ignoring some of the other important aspects of your business that are drawing customers in and helping you to retain them. If your only selling point is low prices, then the next competitor down the street could steal them away in an instant. What actually drives shoppers to your store (online or brick-and-mortar)? For most businesses, the immediate answer is price. The bottom line is that low prices could be uppermost in the minds of consumers, but you can’t stop focusing on all of the other important factors either.
5. You have to also be willing (and able) to lower your profit margin on some products with customers that you probably already earned organically.
6. On the surface, a pricing strategy is always geared toward benefiting shoppers but to the detriment of retailers.
7. Overall, what shoppers want, besides great low prices, is the confidence that they’re dealing with fair, honest, and reputable retailers (both in-person and online).
8. On the surface, a pricing strategy is a good-faith initiative. It shows that, although you may have higher listed prices, you’re ready, willing, and able to lose a few dollars here and there in order to give your customers the very best possible deal. This gives them the confidence that you’re looking out for them, thereby increasing the chances that they’ll be coming back in the future. So, your pricing strategy may be creating more loyal customers but at what price?
9. The ultimate success of any pricing strategy system is reliant on the retailer’s ability to deal with these transactions and any disagreements and confusion (which are inevitable) but still maintain the bottom line. There are many hurdles and roadblocks that make it risky in the long term.