Is price parity right for your business? That depends on a number of factors that we will discuss in depth below.
First things first, though. What is price parity? Let’s find out.
What is Price Parity?
Pricing parity is the practice of keeping your prices consistent across different distribution channels and/or in different marketplaces. For instance, maintaining the same price whether a customer orders a product online or buys it in-store. Or, maintaining the same price on the Amazon marketplace and on eBay.
What to Consider with Price Parity
You need the right pricing strategy whether you sell on Amazon, eBay, your own webstore or any other in-store or online marketplace. Here’s how to decide if parity is in your future.
An important element to consider is the role of different sales channels in your company’s overall strategy. What is the role of direct selling versus wholesale? Is driving sales on your website more important than selling on your retailers’ sites? Or in retailer stores? What about the role of online marketplaces?
For brands looking to support their wholesale brick-and-mortar partners, their own website is an important tool. By keeping the price on their own website set at MSRP, brands can potentially help their brick-and-mortar retailers sell.
The concept of showrooming is well-documented: when consumers visit stores to shop for a product, they often use their mobile phones to search the web for a lower price on the same product once they’ve decided to buy.
Brands have a decision to make: is it more important to support the brick-and-mortar retail network or drive direct sales from their own .com? By maintaining MSRP on their site, it is reasonable to assume that showrooming consumers will buy in-store because the price they see online is at least comparable with what they are seeing in-store and they’ll be able to walk out of the store with their purchase instead of having to wait for it to ship.
It is critical to align the whole organization around whatever strategy is chosen. Without alignment between the wholesale team and the direct team on price parity, brands send a confusing message to consumers and retail partners alike.
Reseller and Distribution Agreements
As usual, the 800 lb gorilla in the room here is Amazon. According to what’s known as Amazon’s General Pricing Rule, the item price and total price for a product listed on Amazon’s marketplace must be equal to or lower than the price of that product listed on any other website (in the US, but not in Europe). The item price is the price listed for that item, and the total price is the actual payable amount (inclusive of shipping and any discounts.)
According to reports, Amazon scans their marketplace as often as every 15 minutes to find infractions of this rule and they will enforce it by suspending third-party sellers. So, if you sell on the Amazon marketplace, you will need to make sure your strategy follows their policies to avoid suspension.
Another question brands should ask when designing a price parity strategy is how easy it is to segment their customers. Today’s omnichannel world makes it harder than ever for brands and retailers to understand which shoppers are shopping where. The consumer’s path to purchase is no longer easy to map, in fact, it has become quite unpredictable.
It is critical for sellers to be aware of the various ways customers learn about, consider, and ultimately purchase their products. It is not unreasonable to assume for many products that the journey would entail visits to a brand’s website, a retailer’s website (or even an aggregator like Google Shopping), an online marketplace, and a visit to a store. Price parity ensures that consumers will see a unified message along that journey.
If you determine that consumers can be segmented and that there are advantages to be gained by having variations in pricing based on the channel, brands should proceed with caution. Walmart is known to charge more online for certain products that are unprofitable to ship than they charge for those products in-store. While this may make sense for Walmart’s bottom line, shoppers don’t like to feel manipulated. In this specific case, Walmart may be eroding consumers’ belief in their core brand promise of “Everyday Low Prices.”
On the other hand, Target offers consumers a price match guarantee stating that if consumers find a product listed for less at Target.com, they are eligible to receive a refund for the difference. Target offers this guarantee while at the same time being open about the fact that they don’t guarantee geographical price parity in their brick and mortar locations.
The Bottom Line on Price Parity
As the Target example demonstrates, there are a lot of potential ways to segment consumers and vary your pricing: .com, online marketplaces, in-store, or geographical.
Making good decisions on how to price, if and when to adjust, and then actually carrying out the tactics requires help from technology. Online pricing optimization tools are an essential element of any good pricing strategy enabling brands and retailers to quickly see the pricing in the market and then adjust prices on their own .com or on an online marketplace, if necessary.
Ultimately, customers make up the group that determines if your pricing strategy works in today’s omnichannel world.
For brands and retailers who can find advantages by varying their pricing across channels, our advice is to make sure employees throughout the organization understand the strategy and are empowered to match prices—whether a frontline store associate or customer service rep in an online chatbox.
It is likely that there will be savvy consumers who notice the price variation and are looking for an explanation.
Editor’s Note: This post was originally published in February 2018 and has since been updated and refreshed for readability and accuracy.