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October 7, 2021
Average Read Time: 5 minutes
You’ve opened a webstore to complement your brick-and-mortar women’s clothing shop. A customer comes in and chooses a shirt to buy. But when she steps up to pay, she mentions that the shirt cost less on your own website and asks to purchase it for the online price.
What’s your answer? If you don’t know, you’ll want to think about it, because the question is bound to come up. Smartphone-wielding consumers are increasingly savvy about scoping online pricing and asking for such discounts at the checkout counter. That means you need to strategize pricing to optimize profits: understand the costs involved in selling online versus in-store and price merchandise accordingly. And then you need to decide whether to self-match pricing as a strategy to boost sales – or forgo it because it cuts too deeply into profits.
And if you want to self-match, be aware that attention to elements of your payment processing services can save you money and make up for some of the profit lost to informed customers who request the price match.
Today, it’s common knowledge that online pricing often is less than in-store pricing due not only to the competitive online commerce playing field, but to the cost of maintaining physical locations. In addition to rent or mortgage, maintenance and improvement, fixtures, and employees to serve customers, expenses include a point-of-sale system to process payments in person. Even with website development and hosting and inventory storage for an online shop, brick-and-mortar locations generally are more expensive to operate.
And that can leave retailers with physical locations at a competitive disadvantage. If they set in-store prices to compete with online rivals, they’ll lose money on those purchases. Because of that, many retailers selling through both channels have a two-pronged pricing strategy that accounts for the difference in overhead. As a result, online goods often cost less than those in-store. And that leads to the dilemma described above and the need for a price-matching strategy for their own goods.
As with in-store versus online pricing, different retailers have different policies concerning self-matching. According to research conducted by Harvard Business School Professor Elie Ofek, 55% to 60% of the retailers studied self-match prices, and the rest said they don’t self-match or didn’t respond when asked about a policy. Certain retailers, such as consumer electronics and home improvement stores, are inclined to match their online pricing, while low-end department stores and clothing retailers are less likely to do so, his research showed.
Some consultants suggest that retailers look at self-matching prices as a type of discount or coupon strategy if it can be held to a reasonable percentage of a store’s sales (say, 10% to 15%). This can satisfy customers and lead them to make additional in-store purchases, which actually can increase profits. “We found that price-matching is not just a necessary evil; it can be a competitive tool and boost a company’s bottom line,” Ofek says.
Finally, consider that some of your customers might not be sensitive to pricing differences. After all, many of us have come to accept cost differentials in such purchases as airline tickets (booked online versus on the phone), gas stations (self-service versus full-service), and even retail (regular stores as compared to outlet stores). And those who have grown up with omni-channel purchasing think little of pricing differences, according to Ofek’s research. “When you talk to millennials in particular, you find out they accept that prices don’t have to be the same across channels. That gives the retailer more freedom with pricing,” he says.
Knowing that you might have to cut into your margins with price-matching across your sales channels, it is even more important to manage your costs in the areas you can exert some level of control. Looking at practices to prevent card fraud and reduce interchange fees can restore some of the incremental profit you might lose.
Reports of online credit card fraud jumped by 107% from the beginning of 2019 to the end of 2020, according to government statistics reported by Credit Card Insider. All told, online sellers will lose $130 billion to payment fraud between 2018 and 2023. And while large companies may be better able to absorb such losses, small and mid-size retailers aren’t in such a position. To help reduce card fraud:
Learn more about eliminating credit card fraud in this blog post.
Of course, it will depend on your payment processing cost structure, but many merchants have multiple ways to optimize and reduce interchange fees, the fee they pay on every credit card sale they make. Along with using AVS, which plays a role in reducing interchange fees in addition to fighting fraud, they include:
For more on reducing interchange fees, read this post.
In the end, a Harvard Business Review article suggests, “Retailers should view their online and in-store channels as unique services . . . Relatively higher prices can capture the premium that some customers place on purchasing in-store. Web prices can be lower to compete against aggressive e-tailers.”
That means focusing more on effective selling and managing the factors you can control to keep costs in check, and less on issues with comparative pricing. Payment processing can play a role both in providing the means to complete sales in any channel – online, in-store, and, for that matter, off-site, too – and ways to support your business to make the kind of profit you need.
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