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In-store vs online: five questions to ask when setting pricing and promotions across different channels

Few issues in the retail space have come under greater scrutiny in the past year than the price of goods. While grocery costs are gradually expected to fall in the coming months[1], a protracted period of higher-than-usual prices has seen the sector attracting everything from specialist parliamentary investigations[2] in the UK, through to full-scale government intervention in France[3].

While inflation might be the focus right now, though, another issue has been brewing that could have a longer lasting impact on customer perceptions. With more people now buying their groceries via digital channels, some retailers have been thrown into an unwanted spotlight[4] due to the (sometimes considerable) differences between the promotions and pricing they offer in-store versus those which they set online[5].

From the retailer’s point of view, these variations are typically there for good reason. As we’ve discussed before, online grocery presents a significant profitability challenge – something that higher prices can help to mitigate. Conversely, the data-driven and dynamic nature of digital channels can make it easier for retailers to offer reactive pricing and personalised promotions online.

Logical though the reasoning for channel-specific pricing and promotions may be, however, that’s unlikely to matter to customers (and nor should it). The risk of shoppers feeling that they’re being overcharged – or worse still, discriminated against – for choosing one channel over another can be very high with this kind of strategy.

Because of that, it is important that retailers approach this issue from a truly Customer First perspective – and I believe that asking five specific questions can help retailers get into that mindset.

 

Are our promotions universally effective?

 

Different promotional mechanisms can achieve fundamentally different objectives. A two-for-one deal might encourage growth within a certain category, for instance, while a storewide price-lock can help to boost footfall. The same principle applies between different channels; not every tactic is guaranteed to be effective both online and in-store. The trick, of course, is knowing which work where – and why.

 

Who would miss certain promotions if we removed them?

 

Evaluating promotional performance by channel is one thing, understanding the impact of removing them quite another. As well as looking at how effective your promotions are online as compared with in-store, it’s also important to consider how different customers would react to their removal from one channel and not the other. Multichannel shoppers are a good starting point for that kind of exploration.

 

 Are too many promotions undermining the customer experience?

 

It can be easy to assume that removing a promotion is inherently detrimental to the customer experience, particularly if shoppers on another channel still have access to it. That’s not necessarily the case, though. Our own evaluation programmes have often shown that too many promotions running at once can make shopping more confusing for many customers. Streamlining can have its advantages.

 

How important is price to customer satisfaction?

 

Price is a critical factor for any shopper – isn’t it? Contrary to expectations, price can often have much less of an impact on satisfaction amongst certain customer groups than others. That doesn’t present an automatic opportunity to charge those customers more; it does, however, help to understand where different tolerances exist and why.

 

What will the likely impact of our decisions be?

 

Predicting how customers might respond to changes in your pricing and promotional architectures isn’t always easy – but it’s an essential capability nonetheless. Would an online customer switch to shopping at one of your stores, for instance, or would they switch to another retailer entirely? Understanding why people “lapse” – in any form – is a useful starting point.

As helpful as it can be to learn the answers to these questions, there’s another route to being truly Customer First here, and that’s being open and honest with customers.

One of the main risks associated in this area is that some customers can feel that like they’re being “tricked” into paying more. This sentiment can be particularly acute when differences between channels aren’t well communicated, which can easily be read as a retailer hoping that shoppers won’t notice – or simply won’t care – about them. Because of that, upfront and transparent dialogue around this issue is becoming increasingly vital.

Walmart offers an excellent example of how to do this effectively. Since 2017, North America’s largest retailer has operated a Price Match Policy on grocery produce, whereby it will match store prices against online ones where the latter is cheaper (with some restrictions). While this offer does not apply in reverse, the retailer does stress that it “strive[s] to offer the best possible price on Walmart.com every day”.

More than this, however, the US retailer is vocal about the background to this policy. A popup Pricing Information banner on Walmart’s product pages draws attention to the fact that there may be variations between channels, noting that “prices, terms, and availability may vary online, in stores, and in-app”. This open communication certainly doesn’t appear to have done Walmart any harm, with its 25.2% market share[6].

With the gap between online and offline shopping continuing to blur, and “blended” shopping becoming increasingly commonplace, there will be a growing opportunity for retailers to experiment with their pricing and promotional dynamics. In doing so, though, they must ensure that the impact on their customers is taken into account, and that they are crystal clear when calling out the changes.

 

[1] Supermarket chiefs insist worst is over for food inflation as commodity prices fall – The Telegraph, 27th June 2023

[2] Food and fuel price inflation: will prices come down this year? – Business and Trade Committee, 27th June 2023

[3] France’s food industry pledges to cut prices after government pressure – The Guardian, 9th June 2023

[4] M&S and Ocado cause anger with different pricing on same items – The Guardian, 18th October 2020

[5] Digital vs. in-store grocery shopping: What you need to know about price differences – 6ABC, 24th May 2023

[6] The most popular grocery stores in the U.S – Axios, 20th April 2023

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