You Can't Win on Price

This year I did the majority of my Christmas shopping from the comfort of my home office. There aren't many things in stores you can't find online these days. I find it easier to search, research, and compare products online rather than walking the mall anyway. But there's a segment of the population that likes to be in the store, touching the products. For those people, smartphones avail them some of the e-commerce features I mentioned right there in the aisles.

Amazon PriceCheck.PNG
First it was RedLaser, then TheFind, ShopSavvy and many others. But the one that should be scaring retailers is Amazon's PriceCheck application. It lets you scan the product barcode, take a picture of the product, or speak the product's name. Once the product is identified, it shows the online prices, with Amazon at the top of the list. Within 10 seconds you can order the item and Amazon Prime members get free 2-day shipping too.

I don't think fashion and grocery retailers need to worry much, but I have to believe smartphones are helping Amazon win a little more of the brand-name hardgoods market. So what's a retailer to do? Best Buy has begun to put QR Codes on their shelf labels that are easily scanned by smartphones and take the consumer to a Best Buy Web page where they can get extended information about the product. The consumer is getting the additional information they want, and Best Buy avoids the price comparisons. Of course if a consumer chooses to use the Amazon PriceCheck app, then all bets are off. That's when Best Buy has to hope the in-store experience and customer service will save the sale.

My point is that the internet makes information available to everyone, and smartphones make it available anywhere. Unless you want your store to be Amazon's local showroom, you need to be price-competitive but differentiate on other aspects of the shopping experience. With the cost of running a physical store, you can't win on price.


hi David

This is indeed a remarkable use of technology by Amazon. But I am wondering if this is also going to lead to state where brick and mortar stores will no longer be viable. There is just no way that they can compete with Amazon on price given their overheads.

So as a consumer, I would go to a Best Buy, touch and feel the product, use QR codes to get more information and then use the Amazon app to get the best deals and go for it. I get the best of both worlds.

So other than in-store experience, is there anything that a brick and mortar store can do to sell? Anything that an Amazon cannot provide?

So I think the competition will start getting into branded v/s private labels where the brick and mortar stores will have some leverage. If the brick and mortar stores entice customers to go for a private label (for some compelling reason), then they stand a chance to compete with the likes of Amazon.

-Shankar V

Posted by Shankar Viswanathan on December 16, 2010 at 12:36 PM PST #

Hi David and Happy Holidays!,
I think you should check out the facebook page of "one of your above mentioned' retailers" If social media is as real and impactful ( and I do prescribe to what my grandma told me "word of mouth is the best advertising"). They have some serious damage control to do.

I agree with what Shankar in that some people still love the "in store" experience of shopping. Like my wife for example. Shopping isn't shopping, its entertainment!

As to what Shankar said about private labels, he is correct in that they will be increasingly important. They will need to be positioned as cool and stylish in the media (including social). Many folks I talk to think the Arizona label (by JCPenney) is a National Brand. The company has done a great job of consistantly positioning it as a lifestyle across their GMA's. In their merchandise presentation they position the collection separate from their national brands and put the "look" together as a lifestyle. The other day at Kohls I saw a customer ask a sales associate "where are your Arizona jeans?"

Now more than ever it will be important to leverage near real time Private Label development tools and software such as Oracle Trade Management and MicroStrategy BI to have advanced analytics to understand what actual landed costs will be on proposed new items. With production, raw materials and transportation costs rising overseas, it will be important for the private brands to continue to have a "significant" pricing and value proposition to compete with the "off pricing" of the national brands. It is coming to the point where it may be an advantage to sourcing some private label that was formerly imported, domestically.

The point David makes that prices are quickly and easily compared on mobile phones is a risk to overall Gross Margin is well taken.
2011 should also see leading retailers starting to use Advanced Business Analytics tied to social media to "tweek" assortments by store. The retailers gain up to the minute insight on what the fashion trends are in the eyes of the customer. This may mean having more than the "typical" four selling seasons in Fashion assortment planning to at least "eight". A smart retailer could also use a facebook fan (the ones most influencial with the most friends) to particpate in timely line reviews (style, color,ect) and surveys, which in my opinion puts the retailer closer to the customer. Mobile devices and advanced portals should allow the retailers to execute advanced communications with their partners. This would hopefully reduce the number of days of order to store (lead times). This will allow more "trend correct" fashion merchandise, which means higher turnover, reduced markdowns and a win -win for both the retailer and consumer. Retailers leveraging social media with "feel good" social causes should improve the overall retail climate by demonstrating they are "partners in our communities" sharing and contributing to community and social causes. This plus delivering the best qaulity products at the best price to the consumer could minimize the influence of on the fly "price comparisons".

Again, happy holidays to all .....and happy 2011!


Posted by Mark Shuda on December 18, 2010 at 07:39 AM PST #

You both (Shankar & Mark) make excellent points. I don't foresee the end of in-store shopping; instead I see the threat of mobile apps changing the way retailers compete. Some retailers will adjust nicely, while others will struggle.

Posted by David on December 19, 2010 at 10:39 PM PST #

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