Consumers today insist on making the retailer come to them, online or offline, flipping this long-standing relationship on its head.
To survive this new dynamic, a brand or retailer must approach multi-channel pricing to prioritize growth, profit, and customer loyalty.
Today, the average consumer uses just under six channels or touchpoints to make a purchase: mobile, PC, and in-store. In 2008, that number was only two.
The difference shows how much consumers have empowered themselves.
Omnichannel pricing has become more popular for retail and e-commerce, with brands strategizing and optimizing to keep up with the growing numbers of shopping platforms and channels.
From social commerce to marketplace behemoths to app delivery services to traditional offline retail, leaders in pricing have witnessed and taken part in the expansion of omnichannel pricing from the beginning. A decade later, it’s one of the most successful pricing strategies for brands and retailers today.
Omnichannel pricing refers to the pricing strategies and blueprints a brand develops and implements to guarantee a uniform price for products across multiple sales channels. This also includes all of the sales and promotions that may be implemented on one or more sales channels.
Retailers may have their own online shop and a branded brick-and-mortar store; brands may have both of these plus a third channel with retailer partnerships.
Alternatively, single-channel pricing refers to a brand or retailer who only has one sales method, like a physical store or a branded online store that only requires the seller to consider pricing in one channel and for one customer base.
This approach reduces marketing and operational costs, which could lower the selling price of items. However, the risk with this approach is missed selling opportunities as customers shop alternative channels.
This is particularly shortsighted, given how multifaceted and independent consumers are in 2024.
Omnichannel pricing isn’t just about paring down the pricing of your assortment across online and offline channels. It also instigates higher turnover and improves customer loyalty and longevity.
Let’s discuss.
Customer retention should not be undervalued, as a 2022 Bain & Company study found that just a 5% increase in customer retention can increase profitability by 25 to 95%.
Since omnichannel pricing opens your products up to a wider, more multifaceted customer base, your strategy has to align your products’ prices for both online and offline customers. Regular customers appreciate the reliability, which builds trust.
Additionally, millennials and Gen Z are known to use marketplaces and comparison shopping sites to research the cost or quality of a product before choosing to shop in-store.
In fact, McKinsey found that Gen Z shoppers unexpectedly enjoy in-store shopping just as much as shopping online, so naturally, it is in your best interests to maintain the same pricing across your sales channels.
Pricing is determined by supply and demand.
That has remained a constant despite its many evolutions in the digital age. An omnichannel pricing strategy allows you to optimize your clients’ willingness to pay.
Based on the specifics of your customer base and your overall business goals, you can increase prices to improve profits or decrease prices to clear inventory. If your market data tells you that shoppers with a higher income are using a particular channel, you can optimize those prices to increase profits.
If a certain segment of your customers are easily inspired to make unplanned purchases on a specific platform – which is the case for 67% TikTok users – you can up those prices, too.
Your company’s needs have to make sense for you and your team. However, for a brand or retailer to see its full potential blossom, there’s a checklist of omnichannel pricing must-haves.
You can incentivize your customers to shop online over your physical store using many different methods.
This may include offering exclusive or new products that are only available online or providing free or same-day shipping. You can also discount certain popular products on the online store that won’t receive the same in the store.
The fastest way to move sitting inventory is to initiate site-wide sales at a significant discount during a specific amount of time. This is why Black Friday and Cyber Monday are so successful – the urgency of the annual events triggers consumers to bulk shop out of FOMO.
Another strategy, known as penetration pricing, sees a seller introduce a product to the market at a lower price compared to its competitors. The plan is to have a rush of sales, but as the demand increases, so does the price.
Product bundling is a tried-and-tested method for adding to each sale’s value. This could work for both online and offline channels, but it’s important your bundle makes sense.
You wouldn’t pair winter socks with kitty litter or flip flops with shampoo. Grocery retail does this well with food basics such as bundling potatoes and onions together at a competitive price.
Offering one item in a bundle at a reduced price is also a good strategy to bump up basket value. You may have seen promotions saying, “Buy three and get the cheapest one free” or “Buy one and get the second one half price.”
You could also offer customers free shipping if they spend enough money. Global brands who may want to cover expensive shipping costs or simply want to increase their AOV often use this approach.
Creating a loyalty program is an excellent way to get customers to come back. A report found that 79% of customers stick with a brand if they offer loyalty programs.
However, because these programs are so common, they need to provide real and special value to customers to be worth it.
Adidas’ Creators Club is a successful example that shows you how to target new or existing customers. Through an individualized profile that customers log into, they get information on new products or club-only offers.
Disney gave us another instance of smart customer retention when they paired with Visa to create a credit card that encourages fans to save up for their dream Disney holiday.
The card offers discounts, quick earnings, and flight credits. Cardholders can also choose a card that has their favorite Disney character on it.
An academic paper written by Prof. John Hauser (MIT), Prof. Min Ding (PSU), and Dr Songting Dong (UNSW) says that “the accurate measurement of consumer preferences reduces development costs and leads to successful products” for retailers and brands.
This is why you need to understand data and analytics.
Using customer data to curate the shopping experience has become more vital thanks to the growth of e-commerce. As verticals become crowded with an abundance of options for shoppers, how do brands stand out? How do they avoid becoming irrelevant to customers?
Customer data allows you to use the sellability of your assortment based on what you know to be true about your customers.
Which is their preferred shopping channel? Which forms of marketing initiate a sale from them? When do they abandon their carts? You can answer all these questions when you know how to apply quality customer data as a part of your sales strategy.
Market data and competitor monitoring can’t be forgotten when it comes to analytics and pricing. Understanding the market that your product calls home is vital to its survival.
Let’s analyze the current state of the beauty industry as an example. If an entrepreneur wants to start a new skincare line, they should know that the global beauty market has never been more oversaturated.
Celebrities and social media influencers flooded the industry in 2023, all ready to claim their stake in the $1.5 trillion wellness market.
This trend coincides with the growth of platforms like Instagram and TikTok that directly reach millions of consumers each minute of the day. This has left legacy brands fighting to retain market share. Taking all this into account, a business owner in the beauty industry needs to offer customers something they aren’t getting anywhere else.
Competitor monitoring also assists in understanding the market and how to position your product’s prices when stacked against your top competitors.
You could scrape information directly from your competitor’s websites or marketplaces like Amazon and Google Shopping.
A segment of the pricing industry is already exploring its next metamorphosis with the development of solutions complemented by AI and machine learning (ML).
AI and ML are expected to generate $15.7 trillion in global economic growth by 2030, according to PwC.
However, as their use develops, one of the biggest issues facing brands and retailers is the impact on profit, future growth, and spending habits at the hands of inflation and market instability. Global prices for consumer necessities such as gas – which increased six-fold from 2020 to 2023 – have habitually changed the way shoppers spend money.
Despite some market volatility carried forward by the COVID-19 pandemic in 2020 and 2021, none of these occurrences could not have been predicted. These factors have created a precarious scenario for retail leaders where any move could equal financial trouble. AI and ML, coupled with goal-based pricing rules in your pricing system/software, can help.
An academic article by the International Monetary Fund (IMF) said that financial stability could largely be improved using AI/ML solutions.
These systems may bring increased efficiencies; better assessment, management, and pricing of risks; improved regulatory compliance; and new tools for prudential surveillance and enforcement - all of which will contribute positively to financial stability.
However, you must remember that AI in pricing is not a one-and-done solution. Instead, think about it as a complementary partner to your existing business rules within your strategy.
The behavior of AI algorithms is shaped by how and what they learn about their environment. Let’s look at what happens when bad data informs pricing decisions in a negative way.
The costs associated with product manufacturing, shipping, and customer-service data are often covered across multiple stock keeping units (SKUs).
But in reality, they affect the economics of individual products uniquely. For instance, underestimating shipping costs for bulky items or faster delivery slants your margin profile to look more abundant than it is. Based on this assumed business rule, algorithms may recommend reducing prices on items. However, these price reductions, if implemented, could result in large margin losses.
To solve this, a prioritized clean-up of pricing inputs for high-value items, along with greater granularity and accuracy in the attribution of costs, can significantly improve price recommendations from your dynamic pricing tool.
Let’s explore this in another scenario.
A retailer decides to implement broadscale price increases on products to cover losses from high energy costs, inflation, and delays related to expensive and congested supply chains. This may lead to insult pricing - a pricing decision that results in customers feeling taken advantage of - which makes your customers feel less than respected.
McKinsey recommends that you:
Go granular with pricing and promotion and tailor value delivery to consumers. Instead of implementing price increases that may erode customer trust, retailers can tailor their inflationary price response by customer and product segment, considering both margin performance and consumers’ willingness to pay.
Source: Omnia Retail
Dynamic pricing is the automation of pricing intelligence.
This allows businesses in retail and e-commerce to easily make complex, scalable decisions within seconds. Pricing intelligence constantly evolves and updates. It includes a number of elements, such as competitive data, inventory analysis, and market demand changes, all built into an algorithm that’s specific to your commercial goals.
These four components make dynamic pricing a fine partner for omnichannel brands and retailers.
Similar to the AI/ML conversation, slapping a dynamic pricing system onto your products and expecting it to work magic is shortsighted. Dynamic pricing systems and omnichannel sellers form a symbiotic relationship.
Here’s how to get the best out of dynamic pricing:
Creating a clear and strong roadmap for your product assortment is the first and most essential step. Decide exactly where you want to be in one or two years’ time and then work diligently towards that.
Your pricing strategies must reflect your objectives.
McKinsey says that “dynamic pricing is both art and science, which means that a test-and-learn approach is crucial to getting it right.”
You might never reach a point where your pricing strategy collects dust – and that’s a good thing. Get comfortable with testing and collecting insights over and over again. Making decisions based on your observations is what will keep your pricing strategies competitive, informed, and flexible.
Fashion and food retail are particularly susceptible to high demand all throughout the year, so many items experience price changes as needs change. For instance, puffer coats might have a special price for the winter.
However, the pricing of some staples, like socks, T-shirts, or underwear, should be left alone. It’s a way of honoring customer expectations and loyalty. Your base could easily find the changes insulting and move to the next brand.
PwC’s 2023 Global CEO survey found that 31% of retail CEOs say their organization won’t be economically viable in a decade if they continue on the current course. In their responses, the resounding sentiment from execs was clear: evolve, or your company dies.
Don’t get left in the dirt.
Use your innovation to drive business growth. Your ability to thrive now and in the future lies in whether you can adopt an advanced, comprehensive, flexible omnichannel pricing approach to serve your customers.
Learn how to set competitive prices and maximize profitability in the digital marketplace in this guide on e-commerce pricing strategies.
Edited by Aisha West
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