Name Your Price: Multichannel Product Pricing


It's been less than a decade since the word “multichannel” came into use to describe selling through more than one medium. But the complex new world of multichannel merchandising includes potential pitfalls that at best may confuse customers and at worst will alienate them. Chief among these pitfalls: maintaining different strategies and tactics for different channels.

For instance, a sales representative from one of the country's top office products retailers made a call to our office in Richmond, VA, to invite us to participate in its business account program. The rep said our company was among the top 10 purchasers at the local store. The program includes a separate business catalog with discounted prices for business accounts and free overnight shipping; it also offers monthly billing and allows participants to order online or via phone.

It sounded good, but in shopping for a specific product, we found that prices differed in the store, in the business account catalog, on the Internet, and via the business account contact center. We generally did not find the business account to be the lowest price, and you can't get a business discount with your account at a retail location. One problem could be that the store managers view this program as a threat, thinking it will “steal” top customers. (Although the manager of our local store, when asked about the corporate program, had no idea of what we were talking about.)

Experiences like this, which are all too common in the multichannel world, make customers feel that they must shop across or investigate all possible channels to be assured of getting the best price. Not only is this frustrating, but it deflates a customer's confidence in a company.

Shopping study
To assess how widespread product numbering and pricing differences across channels is, we conducted a survey of 25 major retailers for 145 products on April 4 and 5, both at their stores in Richmond and on their Websites.

The Multichannel Product Pricing chart (at end of article) shows the results of the survey. For 42% of the items, the item number on the store price tag did not match the Website product number — or we couldn't find the in-store item on the Website at all. For Web searches, we started by searching product category, vendor, or designer, then drilling down to item, color, and size. Then we visually matched the image on the Web to what we remembered and had noted in the store.

We were able to find an identical cross-channel match for 47% of the products — in other words, those items had identical product numbers and prices online and in the store. The remaining 11% of the products had some difference in price. Five of these 16 products had price differences of less than $1.00; these are probably errors.

We started shopping in the retail stores with the assumption that the Web would generally have a larger product assortment than the stores. Some merchants (Bath & Body Works, Best Buy, Coldwater Creek, Office Max, and Staples) promotionally priced products at retail and/or online. It was very easy to find the identical product on the Web for Best Buy, Crate & Barrel, Lowe's, Office Max, Staples, Sur La Table, and Williams-Sonoma simply using the product number to search.

At, if you purchased more than one of an item (such as a cotton duck slipcover) you received a combo discount of $59.99-$149.99 each. Yet there was no in-store signage indicating the promotion, though an item might have been promotionally priced in the store at the point of sale. In fact, in the Eddie Bauer store the salesperson offered to price-match if we found a store item priced differently in its catalog or on its Website.

But playing catch-up by price-matching won't prevent the sort of frustration we witnessed at a major home decor chain, where two women who had researched the product on the Internet had come into the store only to find the bin empty. This raises the question of how retailers can help keep cross-channel shoppers from wasting their time and blaming it on the retailer. Might this sort of problem lead to online inventories by store, for instance?

Open channels
The good news is that the Internet is open. And the bad news is that the Internet is open. As technology has become more sophisticated, shoppers in general have also become much more savvy. They now have a serious tool to help comparison-shop.

Years ago many national retailers preferred to keep their prices consistent: One item, one price, except perhaps where they had to be regionally competitive. Some people we spoke to feel that fewer than 50% of the retailers out there are single-price companies, and that guesstimate is certainly borne out by the sample shopping survey conducted for this article. Yet consumers are still encouraged to look at major retail brands as one company, not different channels or separate businesses.

In a way, customers' ability to do fairly sophisticated comparison-shopping would seem to demand much more synchronization between retail and direct channels. Yet one large apparel catalog and Internet business with whom we spoke says that it intentionally has different prices for the same products sold through multiple titles and business names: In catalog A an item might sell for $39.95, while the identical item may sell for $42.95 in catalog B. Evidently customers have failed to notice the differences. The company also feels that customers do not recognize that the titles are owned by the same parent.

There are several logical reasons for operating with price differences between channels. A retailer may choose to liquidate goods in one channel but not in the other, or it may want to conduct A/B split testing, or it may opt for competitive retail pricing in a particular geographic area. Certain promotions may be more effective in one channel than another, or there may be higher margins in one channel over another.

Software directions
Another reason that many multichannel merchants don't provide consistent pricing may be that they simply don't have the systems to help them do so across media channels and organizational silos. To date there does not appear to be any retail or direct software systems that offer the complete answer to cross-channel item numbering and pricing. Retail-oriented solutions have functions that are effective in pricing and markdown systems at store levels but are light in terms of catalog, drop, source code, versioning, etc. Conversely, direct-oriented solutions lack the ability to handle information by retail region and by store. In terms of internally developed systems, this kind of sophistication is a development priority for the larger multichannel businesses.

Direct software vendors Ecometry and CommercialWare say they are moving toward solutions that will allow all channels to have the same systems and business rules for item pricing and accommodating multiple-item numbering.

Jane Cannon, chief operating officer of Natick, MA-based CommercialWare (which was acquired earlier this year by Datavantage Corp.), describes the CommercialWare pricing engine under development as centralized and stand-alone. This solution will “define pricing [and] track, monitor, and react to multichannel prices across the channels,” she says. “There will be four levels of price configuration and hierarchy: global [across the chain and channels], by channel, by category, and by store. This design will cover both stores and direct. ‘Category’ is meant to accommodate both types of stores — by sales volume such as A,B, or C stores, or by urban/suburban/rural — and catalog version and drop. It will work on an exception basis to minimize the maintenance and input involved.” The engine will also include analytics to help users understand the effects of pricing decisions and plan the future on units sold by price point. CommercialWare's beta testing is scheduled for fall 2006.

Brian Dean, vice president of strategy and marketing for Delray Beach, FL-based Ecometry, says that “the heart of Ecometry's advanced system will be the configuration rules across the chain, Web, and catalog, with the essential marketing and pricing functions inherent to the channel.” Ecometry's pricing engine, designed to serve both retail and direct channels, is scheduled to be released in version 9.0 of Ecometry in late July.

Customer cross-channel shopping brings up several thorny tactical questions for multichannel retailers, Dean says. For instance, how does your selling price change if the customer orders on the Internet (or via catalog) and picks it up at a local store? If the business model is that the customer pays when he picks it up, and he adds items while in the store, how does this potentially change your selling prices? Will you honor a price on the Internet at store level? Do you adopt the price book of the store where the customer is shopping? Will there be a best-price guarantee? Will you require pay on pick-up or pay on ordering?

A possible dream?
What does it take to develop consistency between channels? Obviously having a single system of record for multiple channels is a strategy at the heart of the multichannel business of the future. At the moment, however, many companies manage retail and direct channels separately. Likewise, their systems, policies, and processes are also often organized and conducted in silos. While we don't see separate management going away, it will eventually be imperative for management to think like customers and to view the business as one rather than separate channels.

Some of the basic system requirements for consistent cross-channel pricing and product numbering include providing visibility across the retail chain and across all channels. Merchants will have to reconcile data differences between the channels.

Any solution must also deal with the realities of pricing inherent in each channel, recognizing the complexities of retail pricing related to discounting and mass-merchandising. Item pricing across channels must be rules based.

In short, you need to decide on a strategic corporate philosophy as seen from the customers' point of view. And you need to develop a customer service policy to take care of customers when they bring up cross-channel pricing, whether in the form of downright errors, competitive pricing, or the effort they've put into cross-channel shopping research.

Tips to minimize pricing pitfalls
If a customer complains about a difference in pricing between what he paid and the reduced retail price within 14 — or even 30 — days following a sale, give a credit or a refund.

Get the direct channels (catalog and Internet) in sync with each other as a first priority. Tightly integrate your order management systems to the Internet and the catalog. Then over time integrate campaign management and pricing among all channels.

When preparing an e-mail blast promoting markdowns, try to suppress customers who have just purchased products at full price.

Develop an IT strategy so that channels use the same systems and business rules for item price, item numbering, shipping and handling tables, and value-added services. Obviously there will need to be exceptions for the logical times when pricing really needs to differ by channel.

If you don't offer uniform pricing across channels, remember to have your returns staff look up the selling price when returns come back into the store or the distribution center without an order number or a receipt.

With direct returns, retailers will want to attribute the return back to the original order and the channel.

Curt Barry is president of F. Curtis Barry & Co., a Richmond, VA-based consultancy specializing in multichannel contact centers and fulfillment and systems strategies. He is also one of the speakers for MCM Live, a two-day educational event presented by Multichannel Merchant.