Unlimited price matching is bad for retail business

Tuesday, January 22nd, 2013 By

A dollar sign.

Retail price matching without limits is bad for business. (Photo Credit: CC BY-SA/Adria Richards/Flickr)

Price matching is becoming increasingly common in the retail world. According to the Harvard Business Review, Target recently announced that it will offer price matching at all of its brick-and-mortar stores. This means that it will match any price listed by a major online retailer for the same items. It’s a popular feature for price-conscious consumers, but it raises a big question for retailers: Should in-store and online prices be the same? And should retailers attempt to price match everything under the sun? Some unaffiliated experts say no.

Price matching, and the struggle to turn a profit

Why should in-store and online prices at a retailer be the same? With brick-and-mortar stores, there is necessarily more overhead in place, as an attractive storefront must be presented for customers. Online retailers don’t have to do this; maintaining proper staff to fill orders in the warehouse is all they need. If brick-and-mortars charged the same price as online, turning a profit would be difficult when it comes to most items. Considering that online retail is much more competitive due to the sheer number of easy-to-access options, it’s understandable that prices would have to be kept down to maintain competitive advantage.

Price matching – A necessary evil?

Even for the same product, differences in price between a retailer’s online and brick-and-mortar shouldn’t be surprising. Why should it be surprising? Some gas stations charge different rates for self-service versus full-service (or they used to, when full-service was still available in most states). Airlines and hotels charge different rates for the same seats and rooms, based up supply and demand. Both also may charge different rates online versus in-person or via phone, for many of the same reasons retailers do it. It’s the cost of doing business, and it has worked for many years.

The popular belief is that price matching is necessary, as consumers will simply go online to shop if brick-and-mortar retailers don’t tow the line. Yet evidence still suggests that consumers still enjoy patronizing “real” stores. In 2011, Target’s total revenues were $79 billion, most of those from in-store sales. Prices that are the same across the board for online and in-store among hybrid retailers are loss leaders for in-store if low enough to compete online, and loss leaders for Web if geared toward in-store profitability. In order to make price matching work, it seems that a retailer should only match online rivals in an “apples to apples” comparison. If a consumer happens to discover a lower price at online retailer B, online retailer A should only price match at its online portal, not also in the brick-and-mortar store. In the long run, evidence still suggests that most consumers are willing to pay a little more for being able to see merchandise in-store before buying.

Sources

The Consumerist

Harvard Business Review

WiseGeek

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