Circuit City Cross-Channel Pricing Strategy Strikes A Positive Note

Good news out of Circuit City has been tough to find of late. But maybe it’s onto something with its recently promoted “one price” strategy. Analysts have lauded the move as a positive and even essential cross-channel strategy.

The “one price” promise policy guarantees the same price for merchandise regardless of whether it is purchased online or in-store. It was announced in mid-October and is the focus of Circuit City's holiday marketing program. However, the policy has not been copied by any major retailer. In fact, Best Buy’s policy states that consumers will be given the lower price if they find that an online item is available in the store at a different price. Translation: Best Buy, and other retailers have priced in-store items differently than their website says.

Circuit City believes the policy’s need is backed up by research. SPSS, Inc. studies showed that nearly half of consumers surveyed (47%) believe retailers post different prices for the same merchandise in their stores and on their Web sites. Moreover, more than half of shoppers (51%) said they would place more trust in a retailer who offered the same prices on the Web and in their stores.

New research supports the consumer expectation of consistent cross-channel pricing. Greg Buzek, Founder and President of IHL Consulting Group, says his company will release a report in the coming weeks that quantifies it. According to IHL, consumer electronic stores over the past 30 days have seen 26% of their in-store customers leave without purchasing for various reasons. However, of that 26%, 21% left because the in-store price did not match online pricing, or other promotional pricing. That means 6% of all customers are leaving due to pricing differentials.

“Retailers who don’t align their pricing are hurting themselves,” Buzek says. “One of the most frustrating things a consumer will come up against is finding that the in-store price does not meet their expectations. It is completely within their expectations to get that, and retailers will lose sales if they don’t meet that expectation.”

George Lawrie, the Forrester Research Senior Analyst who wrote a study earlier this year on consumer cross-channel expectation, agrees that Circuit City is addressing a critical issue. “In general, guaranteeing the same price through all channels appears to fly in the face of common sense and even of customer expectations,” he says. “But there are good reasons that Circuit City and other retailers selling home computing and consumer electronics are obliged to offer ‘Internet prices in our stores.’”

Lawrie believes the “one price” strategy is a hedge against aggressive discounting by competitors. He says discounters use supply chain muscle to encroach on consumer electronics retailers’ territory, and then lack the in-store expertise to add peripherals or even enhance the customer experience. Smart consumer electronic retailers, will use the internet, he says, to drive in-store traffic because their competitive advantage is in the store.

“Consumer electronics purchases are complex and the decision making process is information intensive,” he says. “Consumers often spend hours understanding technical specifications and researching online even if they need to pick up the product for an urgent deadline such as a college start or a birthday. Window shopping now has an entirely new meaning: 54% of online consumers researched a product online and purchased it offline, and 37% researched offline and purchased online as long ago as 2005. Half of these consumers cited price comparison among retailers as the reason for researching online, more than any other factor. When it came time to buy, those who purchased offline cited immediacy, the ability to see an item in person, and shipping costs as the top deterrents to online purchasing.”

The pricing alignment will require infrastructure alignment as well. Any retailer who intends to promote their capacity to price consistently, and then have the ability to be agile with inventory, needs to be prepared on the back end.

“No doubt that Circuit City has raised the bar for expectations of consistency, and I give credit to them for that,” says Escalate Director Of Product Marketing Dave Bruno. “A lot of retailers would struggle with the need to have accessible information across all platforms. The technology is certainly available to accomplish that.”