Way back in 2005, Thomas Friedman wrote a best seller entitled “The World is Flat: A Brief History of the Twenty-First Century”. As he explained to Wired Magazine at the time, “the world is becoming flat. Several technological and political forces have converged, and that has produced a global, web-enabled playing field.”
And don’t Australian retailers know it.
Armed with lightning-fast search engines, super smart phones, and an all-conquering Aussie dollar, shoppers now check prices across the planet and decide instantly whether they are being offered a “fair” deal or not. And if the dollars don’t stack up sufficiently, they travel either virtually or physically to shop elsewhere. (As one client of mine noted, if you want proof, just check your staff. Chances are that a large percentage of each person’s wardrobe will have been snapped up on the net or in a US store somewhere – particularly if they are younger females.)
The twin forces of globalization and digitization are making the price transparency issue more pressing by the day. Many retailers and manufacturers I know talk nervously about the gulf in pricing between Australian and overseas retailers (both physical and online) – sometimes by up to 50%.
This gap can’t last which is why Citi Investment Research noted in January this year, “2012 could be the year of the pricing revolution.”
Where we’re headed is what I call (with due credit to Friedman) “Flat Earth Pricing”– one price for comparable goods and services available everywhere, no matter the market or medium. Sydney Morning Herald economics commentator Ross Gittins foreshadowed this trend in May last year, when he said that we’d see “prices around the world falling to roughly the same level”. It’s an unstoppable force, and customers don’t give a damn that Aussie retailers are saddled with relatively hefty labour and rental costs, have enjoyed historically healthy margins, and are often forced to buy merchandise through local distributors at higher prices than other markets.
Flat Earth Pricing is not just an Australian issue (although it is being felt more acutely here because we have traditionally been so isolated). In January this year, US discount department store Target sent a letter to their vendors, demanding assistance over what they termed “showrooming” – customers shopping their stores, then buying online. Target asked for more exclusive product, and help to price-match online rivals. They also hinted at trialing a subscription service where shoppers are feted with discounts on regularly purchased products.
I can see a time soon when prices are dynamically adjusted minute-by-minute on both digital price tags in store, and online, as market forces and exchange rates affect the “go” price of goods and services.
What do you do about Flat Earth Pricing? First make sure that your competitive price checks take in not only the guy around the corner, but also popular websites around the world. Forewarned is forearmed, and you must strive to reduce prices to at least an acceptable premium over online competitors. This is particularly critical on key wanted items that, priced correctly, can have a halo effect on your whole business. Secondly, revisit your loyalty program to make sure it provides an incentive for sticking with your brand, and a barrier to exit for customers if they shop elsewhere. Next, work harder on private label brands and exclusives that are non-comparable. Finally, think like Amazon – maybe there is a whole new pricing model you can try, e.g. Amazon Prime.
One final comment. Focusing on the issue of Flat Earth Pricing should not overtake a balanced customer value proposition. As I wrote last week, value has two parts, the benefits a customer receives and the price they pay. But if the gap is too wide on what is charged, price becomes the default definer.