Wednesday, September 6, 2017

The Right Pricing Strategy for Offline Retailers Moving to Online Marketspaces

Businesses are moving to online retailing but often find that their local strategies don't work as well as they once did. The online world is so much more competitive than brick-n-mortar companies. According to research in the Journal of Business and Retail Management Research the low price strategy seems to work the best for most retailers moving into the online world (Kimpel & Friedrich, 2015).

There are a number of major major strategies used by German companies:

Everyday Low Price: Maintains low prices and avoids variations.

High-Low Strategy: Offer products at a higher price then the competition but offer very low prices on select products.

Value Differentiation: Competing on value based on services and additional additives customers may find important.

Regional Strategies: Changing prices based on the earning power and differences in regions.

The study found that the two main strategies that are successful are everyday low price strategy or regional strategies. Everyday low price strategies make sense in the online world but will need to be used locally in order avoid price comparisons. While regional strategies work they are less effective online but more effective offline.

Online retailers in the study were most effective with low price strategies because price comparisons are quick and exact. Consumers are also highly attracted to prices and have difficulties understanding and seeing warranties, services, or other value differentiation methods that might attract some customers over others.

Kimpel, M. & Friedrich, C. (2015). The right pricing strategy for offline retailers when expanding into the online sales channel. Journal of Business and Retail Management Research, 9, (2).

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