Wednesday, December 12, 2007

Pricing and the Retail Paradox

I'm going through the data from my next benchmark report, on Pricing. I have to say, I feel vindicated. We at RSR have been arguing for awhile now that price is no longer a differentiator - that technology in the hands of consumers makes for price comparisons and information transparency that makes it nearly impossible to maintain a competitive differentiation based on price. It's simply not enough anymore.

Some retailers have shifted to a product strategy, where exclusives or private label merchandise that you can't get anywhere else becomes the basis of differentiation. I would argue that this is not sustainable over time. With supply chains getting faster every day, today's product innovation is tomorrow's knock-off.

That pretty much leaves customer service as the differentiator, and a strategy that we've seen everyone from Best Buy to Wal-Mart attempt to undertake. The problem - and thus the paradox - is that retailers don't operate in a world focused on customers alone. Wall Street demands performance, and a lot of the tactics of a customer service strategy are in conflict with containing costs. So retailers have this paradox they have to unravel: how do I focus on the customer, while maintaining my efficiency and price competitiveness?

Now, this makes a great story, but is this really a question wandering through retailers' heads? The answer appears to be yes. While some retail segments are more focused on price as a differentiator than others, within those segments retailers who are outperforming their peers in same-store sales growth (a key Wall Street metric) are more focused on price than their colleagues. They haven't forgotten the need for efficiency and competitive prices even as they try to become more customer focused.

The pricing report will be available in January.

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