Harvard Business Finds Secret to Multi-Channel Price Optimization

Multi-channel retailers have long agonized over multi-channel price optimization—should prices be the same in-store as online? And, with brick-and-mortar retailers folding every day, finding this harmony is as urgent as ever.

If retailers lower online prices to remain competitive, and then match those prices in-store, they are losing profitability as their pricing does not offset in-store overhead. However, if they don’t match their in-store and online pricing, customers may balk at the different costs across channels. It is a classic catch-22.

So how should retailers optimize their in-store and online pricing?

Well, Harvard Business School has some suggestions.

1. Do not match in-store and online prices but instead think of the two channels as two separate services. Customers will pay a premium for a valuable in-store experience while others will seek out the discounts of online.
2. When in-store customers ask about price matching accommodate them on a case-by-case basis but not as an official policy. Try to keep matched sales below 15% of total in-store sales. This makes it more akin to a coupon program than anything else.

As the study points out, customers have long accepted different prices on different channels in different environments, choosing the one that is best for them. We see this with online vs. in-person airline pricing, in self- and full-service gas station options, in the premium pricing customers pay at Apple stores vs. discount electronics retailers, and even in fashion where regular and outlet stores may sell the same item but attached to a different experience.

It’s a matter of justifying the premium you charge brick-and-mortar customers with the unique and memorable in-store experience you provide.

For more market research insights about the rapidly-evolving, multi-channel retail environment, particularly the migration to e-commerce, check out our 2016 Post-Holiday Study.