New Era of Online Retail Price Wars: Are You In?

Price wars are nothing new in the hospitality and travel industries. To gain an upper hand, these companies have been applying sophisticated price optimization technologies and algorithms to set the right price at the right time for the right customer. Now, according to a recent article written by Julia Angwin (@JuliaAngwin) and Dana Mattioli (@DanaMattioli) in the Wall Street Journal titled Coming Soon: Toilet Paper Priced Like Airline Tickets, the fast-moving Internet pricing games used by airlines and hotels are now moving deeper into the most mundane nooks of the consumer economy.

To effectively compete, retailers are using new generation of algorithms to change the price of products from toilet paper to bicycles on an hour-by-hour and sometimes minute-by-minute basis to compete with the likes of Amazon and stay ahead of the online price war.

According to the article, the price changes can be dramatic. Last month, retailers on Amazon.com changed prices on a Samsung 43-inch plasma television four times over the course of a day, between $398 and $424, according to Decide.com. Around midday, Best Buy boosted the price to $500 from $400 before dropping it back down, while electronics retailer Newegg in the morning raised its price to $600 from $500.

Retailers have always found ways to innovate to compete and online giant Amazon is not immune to this innovation. But let’s not forget that price has always been a core strategy in retail and “price matching” is nothing new either. With the changes taking place in retail, driven by the empowered consumer, price can quickly become a zero sum game. Successful retailers will ensure that fighting the price war is not the lynchpin of their overall strategy.

There are many other business critical elements to consider when competing in today’s challenging environment: assortment offerings, flexibility, price consistency and enhanced customer experience across all channels. Remember, today’s hyper-connected consumers no longer rely on lateral experience as they have multiple points of influence across their buying journey.

Hedging your bets on winning customers with the lowest price could be risky especially when you don’t have the backend of the supply chain connected to the front end of the in-store and online customer experience. For example, if you deliver the product at the lowest price and your demand goes up, is your supply aligned with demand to deliver on the goods? Is your price consistent with the in-store prices? How does this impact the shopper’s experience? You have to consider all the variables to effectively compete and deliver higher quality of service so you build brand loyalty.

This is evident particularly as you see more and more retailers growing their private labels. Strong private labels combined with differentiating service standards will separate the winners from the losers. I agree that fixed prices are a thing of the past but consider pricing smarter and aligned that with your overall business objectives, and never lower your standards in customer service in exchange for entering a price war. For more on this, read my recent blog post on Creating the Ultimate Customer Experience in an Omni-Channel World

Tell us your thoughts? Do you think this price war is hurting or helping consumers and what should retailers consider when looking at their pricing strategy?

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