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How Retailers Should Think About Online Versus In-Store Pricing | Harvard Business Review

Should brick-and-mortar retailers set different prices in-store and online? If Amazon (or another web retailer) is not significantly stealing business away, it doesn’t make sense to slash online prices. Best to accept the minimal customer loss, maintain current prices, and be thankful.

However, if a web retailer is successfully poaching a sizable number of customers, it’s time to reconsider whether having identical online and in-store prices makes sense. Making this decision gets at the pricing dilemma faced by many brick and mortar retailers: If a company sets rock-bottom prices in order to compete against internet rivals, it will lose money on in-store purchases due to the store’s higher costs (employees, high rent locations, etc.). But if prices are set at what’s profitable for in-store purchases, web prices won’t be competitive. A one-price-fits-all-channels mandate can result in a disadvantage in one market.

Many retailers set different prices in different stores based on competition. Target is on record as stating, “Select items at an individual Target store can be impacted by prices on identical items at other nearby retailers. Therefore, it is commonplace that prices on selected items may vary from Target store to Target store within one metro area.” This makes sense, so why not extend the philosophy to online pricing? If the “store location” of “online” is more competitive, then discount prices there.

Retailers should view their online and in-store channels as unique services, much like gas stations offering self-service and full-service options. Relatively higher prices can capture the premium that some customers place on purchasing in-store. Web prices can be lower to compete against aggressive e-tailers.

Will discount web prices mean that everyone will purchase online? No. Many people choose to purchase in stores and pay premiums even though they can order from Amazon. In the third quarter of 2016, e-commerce accounted for 7.7% of all retail sales.

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How Retailers Should Think About Online Versus In-Store Pricing.

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