Since the early days of e-commerce, traditional physical retail has been under pressure to deliver results justifying its existence in a competitive environment. Physical retail will never be able to compete in selection of the likes of Amazon, Ebay or even Craigslist, and at the same time they seem to be stuck in the pricing cycle model that is surely older than me: weekly flyers.
We are all familiar with them. Big box retailers are notorious for their use. But what they seem to ignore is that the second a shiny flyer is printed, the information contained in it is used by all their competitors seeking to beat them.
Many physical retailers have also adopted price matching guarantees seeking to ensure patrons get the best deal possible, however a number of pitfalls remain in making this a process with too much friction:
- Retail exclusive SKUs: Large retailers usually request OEMs to manufacture just for them a part of their products so nobody can have the same exact SKU (despite sharing all the same bill of materials as the next retailer). This causes smaller batches and in fact increases the prices for the OEMs while retailers ensure that those items cannot be subject of the price matching guarantee policy (in most cases it has to be the same SKU with the same UPC code in order to be able to honor the price matching policy.
- Processes impacting client experience: Now you actually found that an item with the same SKU and UPC is in fact priced lower at a competitor and you, as a consumer on a mission, seek to exercise the price matching policy. What happens next is that the person on the floor can rarely do that, he needs to call a manager, you as a client have to wait for that person to show up, they will go on a computer and verify that you are right and they will take you to check out approving the discount. End result, sure you exercised the guarantee and saved a few bucks (perhaps more than a few if you purchased something like high end appliance, TV, etc. But how was this experience?
Here is an idea: physical retailers have an enormous advantage over online retailers. It is the fact that they are in your way to the office or to your home. You make it a point to visit it to check with your own senses all about the desire product, but what follows next is that you likely, despite the fact of having made a purchase decision, you have chosen to log into your favorite online retailer and get it there instead
What is the cost for a retailer to lose you as a client? Why did they lose you in the first place? Chances are you are convinced there is a lower price online.
So what would happen if the price of that item changed in real time as commodities do? Basically you would pay the lowest price the market can bare for that very item on that moment.
Implementing real time /dynamic pricing:
The tools to implement real time pricing are available today. Comparison shopping tools have existed for a number of years now (e.g. pricegrabber.com) They match items with the same UPC code, have detailed metadata about the items (images, description, features, etc.) showing the best prices available in real time, which is in my view the lowest price the market can bear at that moment for that price. Sure there are some exceptions such as loss leaders, going out of business sales, but in considering large numbers that is actually the market telling us what is the lowest possible price for that very item.
Now, on the retailer side prices are dynamic. Now the consumer has a mindset that wherever he chooses to buy the moment he checks out, he is getting the lowest price at that time. Period. Price hunting is now out of the mind of the consumer. Now retailers can focus on the client experience, developing long term client relationships through loyalty programs, seek convenient locations, while leaving OEMs to battle each other on features, price, etc.
Last but not least, if big box retailers abandoned the idea of exclusive SKUs from major OEMs, prices would actually be lower since the OEM can then manufacture at a larger scale.
