Some Strategic Considerations For Price Matching

When a large company like Amazon eliminates price matching refunds on many items -- most recently on televisions -- there's usually a very good reason. (Amazon isn't the first and won't be the last to start or stop matching prices). The most important pricing strategy question with which every retailer must wrestle is, when, where, and why and how to meet or beat a competitor's prices -- or whether to do it at all? So why is price matching a double-edged sword? You'll get more business, right? Here are some of the price matching pros and cons retailers must consider:  

  1. You get customers into the habit of expecting price matching.
  2. Customers count on you to think they are getting the best price.
  3. Customers will check you out to see if you are doing what you say.
  4. By offering a best, or low-priced guarantee, you are giving your customers incentive to look for items where you were NOT the lowest price available -- and that will undermine the customer's confidence in shopping with you.
  5. Returns and claims are messy, complicated, and expensive -- for both sides.
  6. With so much variation in customers, products, competition, and matching, it's hard to have a consistent policy.
  7. You're playing with your own profit margin.  
  8. Most importantly, you are ignoring all the other reasons a customer should do business with you (such as value, service, follow-up, etc.)

Ask yourself:

-- Do you provide post-purchase support and service?

-- How good is your service and assistance at the time of sale?

-- Is it easier to do business with you as opposed to with your competitors? (Even with something as simple as easy and quick navigation of your website -- and purchasing the product)?

-- Do you provide good all-around value for the total of your customer's shopping cart as opposed to alternatives your competition may offer?

A good case in point is the purchase of a washer and dryer. If the customer buys the appliances from you (even price-matched), he/she is then even more likely to buy the peripheral, ancillary equipment and service from you -- and much of your profit resides in that area of your business.  

Conclusion:

When it comes to price matching, a retailer should ask him/herself:

  • "When, where, and how do I make a profit?"
  • “Am I profiting from all the sources of value I provide to customers?”

There are times when it makes sense to match a competitor’s price, but retailers need to be in the proactive position of managing exceptions rather than be bound by a published policy.

When you offer price matching, you move it closer to the top of a customer's priority list and devalue your other competitive differentiators. It's tough to make good margins when price is your primary competitive weapon.

People buy products and services for many reasons other than price. The product, of course, must fit the customer's need, and then all the points made in this post such as service, convenience, and psychological satisfaction come into play. That is really important. (And don't forget that your shareholders need to see appropriate returns on their investments as well).

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Scott Francis, Guest Contributor

About Author

Scott Francis is the President of Strategic Pricing Solutions, a management-consulting firm helping clients with pricing strategies, data analytics, and pricing processes. Scott has more than 25 years of pricing experience both as a consultant and in roles leading the pricing function at large corporations. Scott's thinking is heavily influenced by the data-driven approach he learned studying finance and behavioral economics while earning an MBA at the University of Chicago. Prior to forming Strategic Pricing Solutions in 2005, Scott held a variety of corporate positions including CFO, SVP of Marketing and VP of Pricing. Follow Scott on Twitter@StratPricing and at http://www.Stratpricing.com
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