Anybody who shops on Amazon has probably had the experience where the price of the item you just put in your cart changes while it sits there. With the recent announcement that Amazon intends to buy Whole Foods, I started wondering about this and found that the explanation is pretty interesting.
“List price” has been the cornerstone of the seller/buyer relationship in this country since the mid-19th century, when it replaced the age-old model of “price-haggling.” While consumers would occasionally be offered discounts and promotions, transactions were always based on the listed price.
In the early 90s, the internet came along and tipped the scales in favor of the consumer who now had a “tool” to find the lowest price for almost any item, anytime, anywhere. “List price” no longer mattered as retailers scrambled to undercut their competition by offering the absolute lowest price.
Shoppers quickly realized that they could visit a brick-and-mortar store to check out merchandise and then go online to find the lowest price. This resulted in something of a free-for-all among retailers fighting to maintain profitability while undercutting their competition. Not surprisingly, this was also the beginning of the end for the American mall.
Retailers fought back. They enlisted economists and academics to analyze and manipulate the massive amounts of sales data they collected, regaining the edge by using sophisticated software that identifies the items that drive consumers’ price perception. By keeping those prices competitive, they could then allow prices on other items to “float” up. Since online shoppers tend not to comparison shop for less expensive items, they often pay more while thinking they’re paying less.
Marketers not only know how much the consumer will purchase as the price of an item rises, but how that changes from hour to hour. For instance, the price you pay during weekday office hours when online purchases tend to peak could be significantly lower in the early evening. In other words, retailers literally have the ability to change prices in real time to ensure maximized profits.
In this internet-driven world, a strategically positioned brand is more important than ever. A strong brand makes it less likely that your customer will shop the competition to save a few pennies. Strong brands create consumer demand, engender customer loyalty, command premium prices and, most importantly, resist those internet pricing models that can channel sales to the competition.
Looking to create the kind of brand loyalty that resists predatory internet pricing? We can help. Give me a call at 913-236-2415 or email me at chrish@jschmid.com
Tags: brand loyalty, chris hayes, digital marketing, ecommerce, Strategy