Everybody will tell you that customers don’t buy on price, they buy on value. I have said that. I have trained that. There are still some ways around the price barrier – but it is certainly getting tougher.
Consider this graphic carefully. I am predicting the trend of price movements. The only unspecified variable is the length of time it will take for prices to find the new equilibrium. That is because I don’t know and secondly because it will different for ever merchandise/ service category.
Price is increasing in importance, and it is getting harder to differentiate on non-price factors. For instance; once you may have had exclusive distribution to a product, but with more manufacturers entering the market online, or access via overseas online operators offering free shipping, that advantage is all but unattainable.
Convenience, accessibility, exclusivity and scarcity won’t cut it any more.
There are a number of reasons why price parity will be the new normal in many merchandise categories as more customers demand a good deal and as customers who previously weren’t price sensitive become price sensitive:
- Seeking the best price is not associated with being ‘cheap’ any more – it is smart and responsible.
- Getting the best price is possible with modern technologies.
- Competitors can price match easily and can physically change prices easily – so they do it.
- Getting the best price is easy – no extra effort required, and in fact soon it will almost be automatic.
- You can get the best price and the experience – not necessarily in the same place or from the same vendor. (Hello, showrooming…)
- Getting the best price is a game that consumers play – because they can.
- Consumers feel they can buy more when they pay less – and in a culture of excessive consumption that is the logical thing to pursue.
- Consumers have smartened up to most ‘marketing’ tactics – and they recognise when they are being sold to.
- Price convergence is happening in every category where the internet is a viable channel. (E.g. not so much in Fast Food etc.)
At some stage in the future, there will only be two dominant price points:
There will be ‘the market price’ which always will be under downward pressure. Short-term fluctuations may occur as new entrants come into the market, but in essence most everyday products will be come commoditised.
Secondly, there will be a premium version of everything simply because there will always be people who want to prove to themselves that they can pay more and have a psychological need to be different and has the wherewithal to do so. This will be a specialised market for certain product categories only.
In the medium term, there will be increasing price convergence. I don’t know what the level is for any individual product, but it is probably not much more than we are paying online now.
Online prices will (eventually) rise somewhat towards offline prices – it won’t be a one-way slide:
- As online sales become a bigger portion of sales for brands and manufacturers, they will need to increase prices to retain sufficient gross margin
- Categories will mature and there will be less pressure from new entrants driving the price down
- Globally second and third world countries will enter the market (more money into the market) and with that the ability to charge a little more. (If everyone plays the same game.)
Of course other pressures will push prices down (competition etc.) but on balance prices will be close to existing online prices.
The ONLY way to be able to charge more than a competitor is to make the purchase an emotional one. It is easier for some products than others, but in essence it is about the customer experience.
Can you deliver a customer experience that makes price irrelevant? That is the only thing that remains between you and commodity status.
In order to answer this question, you need to really understand the difference between customer service (which is cost of entry for any retail business) and customer experience. There is a difference, and it is important. (Presentation here if you have 30 minutes.)