Consumers love low prices, but retailers shouldn't overlook the way shoppers perceive value online and in stores.
In our experience working with dozens of offline, online, and multichannel retailers, we've found that they can use certain pricing moves to play the value card. The first is identifying key value items—products that have the greatest impact on value perceptions. In consumer electronics, for example, flat-screen TVs and computer hard drives are hot-ticket products that draw customers to stores or Web sites. Second, these items must be priced competitively to create a public perception that a retailer offers good value, and discounts on them can be recouped with higher prices on less visible products. Finally, prices should be the same no matter which retail channels a consumer uses: stores, the Web, or catalogs.
Retailers also can carefully craft product assortments in ways that influence value perceptions. For instance, in categories with clear "good," "better," and "best" ranges—such as flat-screen TVs—retailers can display models side by side, attract consumers with hot prices on good models, and then encourage trading up by clearly articulating the features and benefits of the better and best options. This strategy has proved to be as effective online as it is in stores.
Second, value "heroes" with low price points should be overrepresented in online, in-store, and external marketing. An apparel retailer, for example, can disproportionately showcase $15 men's business shirts in marketing materials while keeping the majority of its product assortment well above that price point. Third, tactics such as free shipping, in-store pickup, generous return policies, and price-match guarantees are critical drivers of value perceptions. For the consumer pondering the wall of TVs—or, for that matter, browsing a Web page of them—any money saved by purchasing one elsewhere may seem trivial compared with benefits such as free shipping, in-store pickup, a range of financing and extended-warranty plans, and options for expert installation.
About the Authors:- Jeffrey Helbling is a principal in McKinsey's Chicago office, Josh Leibowitz is a principal in the Miami office, and Aaron Rettaliata is an associate principal in the Pittsburgh office.
Thanks to McKinsey & Company
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