Retail business is changing fast. Whether it is a small shop that sells limited items or a large departmental store, they need to stay competitive. Many brick and mortar stores are losing business to online stores because of convenience of shopping and lower prices. So, how should you set prices if you are selling through a physical store or even through multiple channels?
Setting the Price
Pricing has always been a difficult aspect of a retail business. How much margin can you set on the cost price? Physical store operations does involve a lot of overheads like rental for the space, displaying the items on shelves, labor costs etc. All these need to be taken into account when pricing items for sale in your physical stores.
Does this mean online selling is always cheaper? Not necessarily. As some studies have revealed, the delivery costs involved in online sales can sometimes make it a more expensive sales channel than in-store sales.
However, this is not the general rule, so mostly, web store prices are lower than in-store prices. So, setting prices for sales through physical stores becomes a challenging task. Price Optimization Software like Intelligence Node’s Incompetitor can help make this task easier.
In-store shopping gives a personalized experience, regular customers are recognized and greeted by the stores sales people. You also get to pick up and feel the items you buy. This sense of touch is still a very strong influence that brings many customers to physical stores.
No Single Formula for Setting Prices
When it comes to pricing, different factors come into play. Generally, online stores do not have the overhead of paying for store space, keeping a large inventory, paying salespersons and other staff. This enables online shops to offer items at lower prices.
Still, in-stores sales mostly avoid packing and delivery costs as the customers themselves pickup the items at the store. Sometimes, this can make a big difference as one study showed. The package and delivery to home involves overhead costs that can lower the profit margin of online sales as compared to in-store sales. Even for retail stores that sell products like Home Appliances, the delivery costs will be lower as the items are mostly shipped to local areas.
Each channel offers its own unique experience, and each retailer has to decide pricing based on their own strengths and the products they are selling.
For instance, clothing and other apparel are better items to sell through physical stores. Statistics show that around 30 to 40% of clothing bought online tend to get returned. This is understandable because customers cannot be sure about the texture, feel, and fit of the clothes they buy online. So, they may be willing to pay a little more for items bought in-store, as they can be sure of the style, color, texture and fit of the clothes.
Online Vs In-Store
Many figures are quoted to show that online sales are still a small percentage of retail sales, but more and more retailers are adapting the web and mobile platforms to stay competitive. Online sales percentages are increasing each year and the younger shoppers prefer the convenience of online shopping and shopping on the mobile platform.
Should Physical Stores Always Match Online Prices?
This is highly subjective. Pricing is very relative. The same retail chain may have different prices on many items based on store location. If nearby stores selling similar products are selling at lower prices, other shops may also have to reduce prices to attract more customers.
The Web is a universal location, accessible anywhere and everywhere. So, you will always have to take into account the pricing strategy of online competitors to set your prices.
When shopping at physical stores, customers now have the facility to check online prices for the same item, using their mobile phones. Many customers may ask you to match the online price at the sales counter. If you feel that you are losing a lot of customers because of this price difference, then you might consider matching the price. If you can limit this price matching to a smaller percentage of your sales (around 10 to 15%), you may even gain more customers and more sales through this strategy.
In-Store Sales Strategies
Physical stores can use different pricing strategies to stay competitive. Based on the products you sell, you can set lower prices on certain SKUs, you can offer add-ons and incentives.
Lower Prices On Many Items: Retailers who sell groceries, cosmetics and other such products can offer certain items at much lower prices than the MRP. They can even offer them at lower prices compared to local competitors. Customers like this kind of pricing, they become regular buyers as they know that they can trust this store to offer them good prices on many items, even if they know that online prices are lower. This especially works with customers who value the touch and feel aspect of in-store shopping.
Value-Added Sales: In-store salespersons can induce customers to buy add-ons, related products and think of other ways to boost sales, which is not always possible through online stores. For instance, if a customer buys a new brand of dog treat, your salesperson can point out that the new brand is offering a set of dog treats at a promotional price. If they buy an oven, you can offer to include baking trays, cake molds, oven mitts and tongs as a bundle, at a discount rate. You can offer free delivery and installation for products like Refrigerators, Televisions etc.
Discounts and Sales: You can hold seasonal sales, offer discounts and coupons. Though online sellers also use these strategies, you can find ways to make these unique in your physical stores. Promote local goods, hold special sales to mark local events and occasions, and so on.
Price Optimization Software
Price optimization applications take in many metrics like your historical sales data, prices, items that move fast and items that stay on the shelves, competitors pricing and inventory strategies etc. So, they have a large data set to analyze and come up with competitive pricing strategies.
Still, before you use these softwares, you need to do a thorough study of your sales data yourself. You need to gather data on SKUs that sell quickly, SKUs that sell more during seasonal sales, slow moving items, pricing strategies used by local competitors as well as online rivals. If you have access to customer data, study customer preferences and buying trends.
Then, study your store’s strengths and weaknesses. Can you afford to sell certain items at lower prices? Is your shop well laid out so that select items can be prominently displayed to attract customers? Is your shop easily navigable, so that customers can easily go to different aisles and spot the products they want quickly? If not change the physical layout, if needed, add more salespersons. All these can help further attract more people to shop in your brick & mortar store.
Then use the price optimization software to help you set the prices for the various products you sell, dynamically change prices depending on market trends, competitors strategies, product trends in different categories and in different price segments, etc. Review your pricing strategy periodically. Stay informed and be ready for necessary pricing changes when needed. In the current scenario of increasing online and mobile platform sales, your In-store sales and pricing needs to be dynamic in order to stay competitive.