Master the Challenges of Multichannel Pricing

Retail customers may accept different prices in different channels. But are retailers ready to manage the complexities?

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Chances are pretty good that at the precise moment you last shopped in a physical store for your latest washing machine or set of steak knives, the same item was being offered for a different price on the mobile app of that same retailer.

For years, customers have been pulling out their phones in stores to see how prices compare with a retailer’s competitors. But the phenomenon of looking up how prices of the store itself compare in different channels is relatively new. It has become the subject of increased interest since The Wall Street Journal reported last year that Walmart has begun charging higher prices for products online than in stores, with the goal of getting more in-store traffic.

We find that for many retailers, prices increasingly vary between online and physical stores. Retailers tend to offer lower prices in the digital space, although there are exceptions, as the Walmart example shows.

Understanding what customers value in each channel and how that affects what they are willing to pay is the key challenge for pricing teams today. Getting it right has a real payoff: In our experience, retailers that effectively price differently across all channels see bottom line growth of 2% to 5%.

How Customers Perceive Value — and How That Affects Price Sensitivity

Of course, there’s no one facet of shopping that all customers value most in all situations. Customers weigh the convenience of immediate availability, the pleasure (or pain) of shopping in a store versus online, and a product’s price. They often value different things in different shopping circumstances. Sophisticated pricing strategies need to take these customer-centric considerations into account.

The nuanced question we wanted to consider is this: Under what circumstances are customers sensitive to online/offline price differences? When are they open to price differences, and when are they put off by them?

To understand customer sensitivities to price differences, we surveyed 2,400 customers in the United States (equally divided by gender and across key demographic cohorts) across three product categories: toothbrushes ($3), mid-priced sweaters ($30), and flat-screen TVs ($300). We showed people price differences of 5% and 20% for the same item online and offline — sometimes cheaper online, and sometimes cheaper in-store. We asked them whether these price differences were acceptable, and why or why not.

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An MIT SMR initiative exploring how technology is reshaping the practice of management.
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