Editor's Note: The following is a guest post from Nikki Baird, managing partner at Retail Systems Research (RSR), a market intelligence firm focused on the retail industry.
When it comes to pricing, retailers’ top business challenge has long been — and continues to be — consumer price sensitivity.
In fact, a Retail Systems Research's survey of retailers’ pricing strategies shows that three of the top four business challenges they report have something to do with consumer reaction to prices.
Price transparency, price sensitivity, demands for price consistency across channels — these are all things retailers worry about when it comes to how consumers perceive their price strategies. But how do consumers feel about it?
They certainly support retailers’ fears about price transparency. RSR surveyed 1,250 U.S. consumers to see how their points of view matched up to that of retailers, and the results show that their top issue with pricing strategies is when they can find a lower price elsewhere.
Consumers also don’t much like when prices are different online versus in store for the same retailer — so retailers are right to fear consumer concerns over price consistency. After that, consumer concerns drop off quickly. Sure, they can get everything they need from fewer retailers these days. But for retailers, that means increased competition and pricing aggressiveness from unexpected competitors.
What is most interesting about this data is what falls to the bottom of consumers' lists: In retailers’ perpetual search for relevancy, consumers seem least concerned with getting relevant offers from retailers, and it's younger generations that are more put out by irrelevant offers.
Younger generations are also more likely to be price conscious and to price compare, as over half of those two age segments report they are annoyed when they can find products they want for lower prices elsewhere.
If you combine those two issues together — they’re not the lowest price, and they’re not providing consumers with relevant offers, which can undoubtedly influence consumers’ competitive price perceptions — it’s easy to see why retailers are so deeply obsessed with the price sensitivity of consumers.
However, there is a bit of light at the end of the tunnel, or at least a possible opportunity to create some differentiation and alleviate younger consumers’ obsession with price. While 18-29 year olds and 30-44 year olds are fairly aligned on getting products at lower prices and getting irrelevant offers, the 30-44 year old group is not nearly as sold on finding the best price at the expense of finding unique products.
It may be that these consumers — now on the life milestone-driven consumer lifecycle of getting married, having kids and buying a house — find themselves in a position where the best price isn’t as important as the product itself. It doesn’t take much investigation to find mommy-bloggers who devote hundreds of articles to creating, finding and buying the exact right products for their children. It’s not that these consumers aren’t price conscious. It’s just that there may be life situations where retailers can find opportunities to pry them away from a focus on just price — if they can resonate to the right consumer need.
The bottom line
In our benchmark report of retailers' pricing strategies, we found that they were extremely wary of consumer backlash against efforts to create more personalized prices and offers. It appears their fears are justified: Consumers report placing little value on relevant offers and much more on finding the absolute best price for the items they want.
However, that doesn’t mean retailers are pursuing a hopeless course by investing in personalization strategies. Consumers just aren’t aware of how much thought may or may not go into the offers they receive. As long as they feel like they are winning — as long as they perceive that they are beating retailers at their own game and finding the best prices — they don’t care how they achieve that end.
But it’s not impossible to think that consumers can be won away from an obsessive focus on price. As long as the offer hits on a true consumer need — and these grow as families do — then retailers do have an opportunity to win on more than just price.
Price strategy as a way of engaging and keeping customers is more important than ever — and that’s not going to change anytime soon.