Which kind of e-retailer are you?
October 30, 2015 02:37 PM
In the not so distant past, retailers and brands invested heavily in the traditional four P’s of retailing – physical location, product, price and promotion. However, because today’s consumers have the ability to purchase virtually limitless products online, there is even more emphasis put on product, price and promotion. How can retailers make the most of these attributes?
Below is a brief overview of the four main e-commerce retail “types” and the various factors that contribute to each holistic pricing profile, including assortment and pricing strategies. What are the strengths and weaknesses of each?
Low- Price Leader
Low Price Leaders are committed to offering the lowest price and winning the proverbial price war item by item. These retailers, including everyday low price players such as Walmart and Amazon, are often cross-category giants that capitalize on supply chain efficiencies and purchasing scale, frequently offsetting part of the financial burden of low margins to brand manufacturer partners. In the question of breadth vs. depth, the Low Price Leader focuses on depth, sacrificing variety for heavily negotiated national brands, private-label and off-brand products. Private label plays a significant role within the Low Price Leader price position, making it challenging for the consumer to make direct price comparisons.
Low Price Leaders typically balance on the edge of a “race to zero” in pricing. They often contribute to that race by offering the lowest price as their main value proposition and training consumers to always expect deep discounts and deals. Common pitfalls for this pricing profile include being overly targeted with discounts, which leads to shoppers “cherry-picking” deals, or a sweeping approach to pricing that leads to unsustainable margin erosion.
The Category Expert strives to be the ultimate solution for a particular meta-category, interest, or lifestyle, creating strong relationships with shoppers. The reputation of these retailers, which include organizations like Best Buy and Build.com, assures core customers they can find everything they need for a home renovation project, camping trip, or crafting idea, along with advice and fair prices. The Category Expert can and should sell at a reasonably higher price to the lowest price in the market, especially on non-core categories. 5-20% is often acceptable.
With the level of retail disruption happening in the market, industry analysts believe that mediocre or “middle of the road” retailers will be the first to go, with some referring to these retailers as dinosaurs. Unfortunately, many Category Experts will fall into this category if they fail to develop a differentiated value proposition that works in a price-transparent retail market. The way forward starts with a deep understanding of existing and targeted customers and developing meaningful customer experiences to leverage bricks-and-mortar locations, assortment power, localization and personalization. The successful Category Expert will elicit high levels of customer loyalty from the initial search to post-purchase connections and repeat purchases.
The Luxury Retailer is not focused on price comparisons or dynamic pricing, relying instead on a highly differentiated luxury assortment and premium customer experience, reinforced by premium pricing. Customer anchoring and emotional drivers such as status, image and wealth play a dramatic role for this strategy. This retailer will have minimal dynamic pricing, relying more on one-to-one loyalty connections over price comparisons, promotional activities and couponing.
Amidst the current retail disruption, Luxury Retailers such as Nordstrom and Barneys New York, need to partner with brands to monitor the ever looming threat from marketplace sellers, MAP [minimum advertised price] violators and gray market goods, while differentiating themselves from mass merchants and online pure-plays encroaching on their territory. Another part of the luxury industry’s challenge is embracing the omnichannel world in a way that seamlessly extends their trademark experience beyond store walls and adds value to the customer. This must be done in a way that is clearly superior to the digital experience of a more mass-appeal store, which is a new creative challenge to the traditional luxury retailer.
The Refiner is born of big data and the exponential growth of e-commerce and is driven by a whole new set of skills and technolog,y such as automation, e-commerce experience design, online data mining and web development. These retailers, like Amazon and Overstock.com, are changing the rules of buying and selling by breaking down barriers in the traditional supply chain and store models, and focusing on customer experience first. The Refiner continually improves the online customer experience, from the initial search to post-purchase follow-up. Personalization of the customer experience is the driver for this retailer, who focuses on marketing to each individual shopper based on access to and leverage of retail big data.
The Refiner, is a known leader in utilizing big data to win the customer experience battle. By leveraging retail big data, this retailer knows which products a shopper has searched for, put in their cart, abandoned or bought; a shopper’s review and rating profile; and who the most influential shoppers online. The Refiner can also keep track of wish list items and amalgamate those at the category level for other shoppers to see. The main differentiator is that while many retailers are collecting this information, The Refiner can tie it all together and take meaningful action on those data points. Companies like Amazon and Overstock are more akin to technology companies that happen to be retailers instead of retailers that happen to use technologies well.
In the future, the Refiner will likely lead more disruption and new order fulfillment technologies, new supply chain models and new ways of developing products and pricing strategies.
Understanding high-level strategies as defined here can help retailers and brands identify their best opportunities for long-term value creation. While the actual retail strategies vary greatly, these simplified profiles help establish priorities and technology needs to create value for customers and drive sales and margins.
360pi provides data about online retail product pricing and selection.