If I ask most retailers do you believe that a product should have a different price in a London store as opposed to a store in Sheffield, the answer is invariably no. Retailers believe it is part of their brand promise that the product will have the same price whichever store you buy it from.
My question in this is why? Why is that important?
Could you not turn around to customers and say openly and honestly, look the rents are higher in London, staff costs are higher and distribution costs are higher, so prices have to be higher?
More importantly if I was a shopper in Sheffield, would I not want to know why the prices are not cheaper, particularly as consumers have lower incomes in Sheffield than in London.
Would it be an advantage to a retailer if they could use differential pricing? It would certainly allow margin and stock optimisation to a level that is not possible today.
Differential pricing has taken hold in Spain and Portugal, but not elsewhere in Europe, are they the vanguard of things to come or are they just different? Are UK retailers doing differential pricing but just up front about it with their customers?
We know retailers will offer the same product under different “fascias” at different prices.
What about consumers? The likes of Easyjet are certainly preparing us for differential pricing (of a slightly different form) with a vengeance. We all go onto the Internet and notice that prices for a product are different. So we realise that prices are not always the same? There are plenty of price comparison sites.
So is the retail consumer not ready for differential pricing?
Give us your views.
Tuesday, January 12, 2010
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This subject came up when I worked (many years ago) for a UK sports retailer. The main reasons against adopting this at the time were the practical ones of managing gross margin and controlling finishing costs. When we modelled a season's purchase, we made assumptions about the sell through at full price, the cost of reductions to clear stock and thus the expected gross margin at department and category level. With tens of different SKUs at category level from different suppliers on different discounts and payment terms as well as different store ranging of items (based primarily on store space), the calculations got quite involved - though not anything like as complex as say algo trading.
ReplyDeleteStock was moved to where it sold best and at the time was pre price ticketed (either by the supplier or at our DC).
Add this lot together and the decision at the time was that the costs of changing the process (either shelf only pricing or pricing in the store, mark down process at end of line) were felt to be greater than the apparent gains from the differential pricing.
I'm not saying it is a bad idea - merely that it introduces complexities that themselves have a cost.
Kirk
Thank you so much for your comments. I really appreciated you taking the time out to respond to this, I agree it is difficult, however they are doing it very sucessfully in Spain, Portugal, Brazil, France etc. Maybe its just cultural.
ReplyDeleteI'm thinking about differential pricing for our own business, but not at store level (although this is an interesting idea) but at provision level, bricks and mortar as opposed to Internet.
ReplyDeleteRichard