Price parity: Succeeding Across Online and Offline Channels
In the era of predatory pricing, price parity comes across as the opposite.
Despite having online stores, or planning to open them, many brands are still trying to find the right balance between the online and offline world. That dynamic can be overcome with certain pricing strategies such as price parity.
In case you’re interested in knowing how to achieve that balance and maximize profit, we invite you to keep reading.
Understanding the background
One of the changes that accompany the turn to the online world is the dynamic movement of prices. In order to attract as many customers as possible, online brands often resort to lowering prices. However, the problem arises with resellers. If different resellers sell the same product at different prices they can create mistrust among customers, and therefore, affect brand loyalty.
Creating clear policies helps both brands and resellers set the record straight and build a trustworthy relationship.
Another important aspect is the conformity that customers strive for. Therefore, if you are a brand, it can happen that your online store starts to operate much more than the offline one. Hence, brands that seek to build their presence in both the online and offline world, need to know that this requires two different pricing approaches.
That’s where price parity comes in handy.
What is price parity?
Price parity is a pricing strategy meant to enable you to achieve the same price of a particular product on two different platforms. For example, if you want to be present both on Amazon and Walmart – price parity will help you to set the same price on both platforms.
The same goes for selling products offline and online.
Besides these two situations, price parity has another dimension when it comes to businesses operating abroad. Different countries have different currencies, so due to currency fluctuations, resellers have to rethink their pricing strategies.
In such situations, price parity can be very challenging.
Why is price parity important for businesses?
We already briefly mentioned some of the situations where price parity is important, but let’s explain them in more detail.
Finding the balance between models of online and offline stores
Online and offline stores work in a completely different ways. This difference is mostly reflected when calculating the fixed and variable costs that both options will have, and thus, what kind of profit you can expect in the future. Offline stores require capital for store building and maintenance. On the other hand, online stores require working through distribution centers. Hence, you should consider all these expenses when trying to reach the profit margin.
Relationships between brands and resellers are important
As much as brands need resellers, resellers are also necessary for brands. Therefore, establishing good communication and cooperation is crucial. There are many resellers today, the competition is huge, and sometimes resellers decide to offer a lower price than the competition, even though it was not the original agreement with the brand. Such actions, of course, have a bad effect on trust and damage the relationship.
To avoid such inconveniences, it is useful to have a contract that defines the price at which resellers can sell your products.
Helps deal with predatory pricing
On large marketplaces such as Amazon, resellers often practice predatory pricing. Although customers are looking for lower prices, the constant change makes the brand seem frivolous and the product low quality. On the other hand, price parity and stable prices make the product look good and show that the brand is focusing on quality.
Price parity helps to understand the region specifics
It’s no secret that customers vary by country and region. Therefore, each country and region requires a separate strategy. In addition to the need to pay attention to currency fluctuations and the cost of storing and transporting products, there are other aspects that price parity can help with.
Buyers are driven not only by price but also by other factors. These other actors are not always easy to recognize, especially if the price is one that’s constantly changing.
With a price parity strategy, you’ll have a stable price, and you’ll be able to dedicate yourself to analyzing why, despite the stable price, customers may have chosen your competitor. Or why one region responds better to a given price than another.
Price parity vs. Dynamic pricing
Okay, we can see that price parity has its advantages. But, what bothers eCommerce professionals around the world is the following dilemma – price parity or dynamic pricing?
What is smarter to do when selling on a multichannel? Have the same price everywhere, or adjust different prices for each channel respectively? How will customers take it? Is it worth investing in repricing software that can help you detect the right price for each channel?
So many important questions.
If we go back to the eCommerce beginnings, we’ll notice that price parity has been a business standard. It’s simple – the number of products, as well as the places where they can be sold, was much smaller. However, with the rise of big players like Walmart, eBay, and Amazon, the situation has changed drastically. The first to do something about it was Amazon.
Amazon has added a clause under which sellers undertake not to sell the same product at a lower price on another marketplace. That put the situation under the legal framework, but the debate on price parity was restarted in 2019 when Amazon repealed this rule. As a result, dynamic pricing flourished. But how do you know what is the right option for you?
The answer is not simple, but as is often the case, it all comes down to your business goals and type of business.
If your brand is oriented towards the niche market, building a stable customer base and trust, then you should stick to the price parity strategy. These types of customers usually only buy on one platform, but that doesn’t mean they don’t check prices on others. If they notice price differences, they’ll perceive it as a scam that can have a very bad effect on your brand.
If, after all, your brand lives only from sales, then it would not be bad to turn to dynamic pricing. Different prices on different platforms will also negatively affect customers, but since in this case, your sales do not depend solely on customer loyalty, it is possible to make up for the loss of some customers with the arrival of others.
The bottom line here is to know your business and customers. If you’re selling one-time products (those are usually low-cost items) loyalty is not so important. But, if you’re selling items that customers buy periodically, you should be very careful. Earning a couple more dollars is not worth losing a potential long-term customer who could have been loyal to you in the next couple of years.
How to perform price parity?
The most important question is – how to perform price parity?
Price parity requires price correctness across all channels, and this is not easy to achieve. If you want to reconcile online and offline prices, it’s necessary to analyze data from both locations, which means that your colleagues will have their hands full.
Matching prices on different online platforms isn’t easier either. However, what makes things easier here is the existence of automated software solutions. Such tools use web scraping technology to collect prices from different platforms. At the same time, the whole process is automated, which saves your team time and resources.
Today, prices are changing at a tremendous rate, competition is increasing and manual monitoring of all market changes is almost impossible. Depending on your needs, price monitoring tools can also offer different price scraping frequencies. This can be done only once a day, or even several times during the day. In addition, such tools can also offer a MAP feature, so you’ll be notified if a reseller has decided to break your agreement.
Conclusion
We have shown you what could be the benefits of price parity. Being present on various channels can be a challenging task, but it’s far from impossible.
However, what you’ll definitely need is accurate data. Big brands and marketplaces perform price checks every couple of minutes, so make sure to keep up with that pace.
Are you using a multichannel strategy, or do you prefer a single approach?
Your experience and comments are always welcome!
