Channel-Based Pricing for Retailers: Setting Prices on Different Channels
Channel-based pricing means differentiating your pricing strategies between channels on which you sell your products.
However, it doesn’t necessarily have to mean one strategy for one channel. You can, for example, employ only two different strategies on 4 channels of sale. This decision depends on numerous factors and we’ll cover the most important ones in this blog post.
Firstly, as you are probably already aware, there are numerous options available regarding where and how you want to sell your products.
You can open a brick-and-mortar store, an online webshop, sell through social media, an online marketplace, something else, or even any combination of these methods.
There are many factors influencing this decision. You can say that — even though you may stumble upon some soft guidelines that cover a wide array of businesses — each business has its specific factors which it needs to consider.
It can and it often does get confusing. First of all, should you even consider opening up an additional channel? If yes, which one is the most appropriate for your business? Are some factors more important than others? What is my competition doing?
There are many more questions and we’re going to tackle some of the most important ones in this blog post.
What is Channel-based Pricing?
As we’ve already mentioned in the introduction, channel-based pricing is a type of retail pricing strategy that means you’ll form your prices primarily based on the channel of sale, the delivery method, and the channel’s reach.
In this section, we’ll go into a bit more detail about the strategy itself, its evolution, how price monitoring software has changed the playing field, and how changing customers’ expectations has influenced this pricing strategy. Also, we’ll touch upon the differences between multichannel and omnichannel retailing approaches.
Channel-based pricing is inextricably linked to a multichannel retailing strategy. The multichannel retailing strategy started developing with the first catalog and phone sales being done while simultaneously making sales in the standard brick-and-mortar stores.
Businesses have to follow technological developments, otherwise, they’ll find themselves lagging behind their competitors.
Now you may be asking yourself, what if one of my channels starts underperforming? This is where you start differentiating prices on different channels and enter the world of channel-based pricing.
This can be done through the straight-up slashing of one price, but this is not recommended. The reason behind this is that your customers will eventually notice this discrepancy, and when they do they’ll start becoming suspicious and start losing trust in your brand.
There are much more nuanced approaches to this, and we’ll cover them later on.
When the world of eCommerce started spreading out, many businesses saw an opportunity to expand to an additional sales channel. Initially, most of them priced their products and services the same way they price them in their other channels.
Nowadays, it’s a commonplace occurrence to price your products based on where you’re selling them. You may do this because you want that specific channel to cover its costs (eg. overhead costs for brick-and-mortar stores), or because customer experience differs based on a channel. For example, the attentiveness of your staff in physical stores is a factor that significantly changes customer’s experience.
The point about customers’ experience is an important one because that’s what dictates their willingness to pay, right after the price.
Today, convenience matters a lot. Fierce competition in many industries (especially B2C) has made it so that customers’ expectations have soared through the roof. It’s expected for most retailers to offer their products at least online and in physical stores.
Another important factor that has essentially changed the “rules of the game” is the appearance of price monitoring software. In the early 2010s, it was considered avant-garde, and now — it’s a must! Even if you do not monitor your competitors’ prices, you can be sure they monitor yours.
Different Types of Channels
Today, there are numerous sales channels and as many (or even more) channel-based pricing strategies out there.
One of the main reasons why retailers are looking to expand on multiple sales channels is that it increases their chances of intersecting with their customer’s path to purchase.
For example, some customers may be more inclined to have dedicated shopping days where they visit shopping malls and other physical stores. In this case, your eCommerce platform may not be sufficient.
Also, some customers on their “lazy days” may just browse different online stores, compare products and prices, and maybe decide to make a purchase. If you don’t have an online store, there’s no chance you’ll even be on their radar.
So, what different types of sales channels are there?
So far, we’ve mostly covered two of the most important pricing channels. Those are online shops, whether your personal or marketplace listings and physical stores. However, there are many more, some being more important than others in today’s market conditions.
As you’re probably aware already, many social media platforms have added the possibility of selling directly through them. Facebook and Instagram are the frontrunners in this regard, but Pinterest is also up there. A great advantage of this channel is that it is suitable for any business size – from small to large.
Also, some customers may come upon your products or services through a comparison shopping engine, such as Google Shopping or Idealo. What these platforms do is that they allow retailers to list their products and services while simultaneously providing consumers with an easy way to browse and compare prices.
Another, sort of specific, way of selling is promotion through newsletters. This is not a direct way of making sales but you can make it so that, for example, certain discounts and promotions are only accessible through your newsletters.
Or, slightly adjusted, you can give out a coupon code for a certain channel of yours (in most cases this is your online shop) if people sign up for your newsletter.
You can also sell through catalogs and phone calls, and even apply channel-based pricing strategies there. However, you may need to do some research before opening up these channels because they may not work for all types of businesses.
Types of Channel-based Pricing Approaches
There are, on the most fundamental level, two basic types of approaches when it comes to channel-based pricing.
You can either set up different prices on different channels (a differential approach) or unify your prices (a unified approach) across them.
While unifying price can be applied to multichannel retailing, it’s usually more appropriate for omnichannel retailers (ie. a more integrated approach).
Let’s see first when you should decide to differentiate your prices across various channels and how you should go about it.
When it comes to differentiated channel-based pricing it’s much more common to see discounts on one channel rather than deliberate price increases on another. Even if there are such cases, they are not promoted and are mostly done quietly.
One of the main reasons you, as a retailer, may want to give a discount on a certain channel is if that channel is underperforming.
Let’s say that you notice your physical store is not generating enough sales and it’s getting difficult to cover even the overhead costs, let alone earn some profits. A possible approach would be to start offering a loyalty program for customers who purchase your products in your physical stores rather than through other channels. You can design it in numerous ways. For example, you can give out points for every X amount of dollars spent and those points can be later redeemed for a certain discount in the physical store.
A similar thing can happen to your online shop or eCommerce store. Understandably, you will want to increase your sales on the platform or online store. What you may want to do is to start giving out discount codes that can be applied at the checkout (or some other place on the platform), and which won’t be applicable in your physical stores.
It’s important to note that many channels have different operating costs. It’s up to you to decide whether you’ll cover each channel’s costs with the revenue coming from that channel or if you’re going to cover one channel’s bad month with another channel’s good month.
Let’s now cover why it’s maybe better not to simply cut down the base price of your products or services, but rather give much more effective incentives to your customers to purchase on a certain channel.
The advantage of coupons, codes, points, and similar approaches compared to straight-up discounting is that your customers start interacting more with your channels and potentially start feeling loyal to your brand.
Also, even with discounts, it’s important to promote them whenever there’s a special occasion for them — perhaps your store’s birthday. This is also applicable to other channel-based pricing approaches, like awarding more loyalty points during a certain period.
A unified channel-based pricing strategy is more appropriate for omnichannel retailers. In short, omnichannel retailing is an integrated approach focused on bringing a seamless experience to your customers. An example of this approach would be a retailer that offers refunds for a price that the customer paid on any channel.
Benefits & Challenges of Using Channel-based Pricing
We’ve seen how channel-based pricing works. Now, we’re going to talk about the benefits of a properly applied channel-based pricing strategy, and what difficulties and challenges you might encounter in the process. Do have in mind, though, that even though challenges appear there are tools like Price2Spy which can make your life easier. But, more on that later.
- Increased revenue – for businesses this is the strongest motivating factor for making any changes (most of the time, at least). When you appropriately apply a channel-based pricing strategy you may see an up to 5% increase in your bottom line, and this is directly related to our next point.
- More chances to meet your customers on their path to purchase – at different times some customers may be more inclined to purchase through a certain channel instead of another one. As we’ve already mentioned, if it’s not a matter of price, it’s a matter of convenience for your customers. Opening up the right channels increases the chance of your customer’s path intersecting with one of your channels.
- Inherent benefits of being listed on various marketplaces – this is mostly related to their analytical functions. Amazon, for example, is a default option they check first when wanting to purchase a certain product. Being unlisted on various marketplaces is more likely than not costing you missed sales.
- Getting more data – once you see how your channels are performing you’ll be able to adjust your channel-based pricing strategy accordingly. Besides the data you get from external platforms you are listed on (eg. marketplaces), you also get first-hand data regarding your sales. This data and data on your competitors’ prices are crucial information when it comes to pricing.
- Choosing the right channels – Why is this so important in the first place? Wouldn’t expanding wherever you can be only beneficial? Not really. There are a couple of things to consider here. First of all, as in every business – your resources. Spreading yourself too thin is a real danger if you don’t know your customers well. Simply put, there’s no justification to spend money, time, and manpower on a channel that won’t bring in enough revenue. Also, being listed on certain channels can alienate some of your customers.
- Allocating resources – Any type of expansion is expensive. Especially when you are adding sales channels and applying channel-based pricing. You need to cover the setup costs, probably put in additional hours, etc. But, the payoff is real if you base your decisions on data and stick to your process.
- Managing the process – This is an especially difficult part for small businesses. If you’ve been managing your business on your own until this point, you may want to consider hiring some help. Otherwise, things can get out of hand relatively quickly. One thing that can help you with this is focusing on the expected benefits and going step-by-step.
- Managing your inventory – depending on how you’re organizing your business tracking changes in inventory with inputs from multiple channels can be very time-consuming. If not done properly this can lead to unfulfilled orders and customer dissatisfaction.
- Communicating with your customers – we’ve already mentioned that your customers may start being suspicious if they notice too many price variations across your channels. This is why you need to have a trained team that will be able to address (at least) some of the most common questions your customers may have.
Let’s now see how price monitoring software can help eCommerce businesses overcome challenges when choosing the right pricing strategy for their products or services.
First things first, as mentioned several times, an ideal pricing strategy can not be set just like that. Businesses must have complete market and competitors’ price insights beforehand. However, as the price is the greatest weapon on the market, the most important element of a marketing mix, it is highly variable in eCommerce and must be continuously adjusted.
To avoid manual work and redirect that time to decision-making processes, utilize a price monitoring tool, to not just monitor but also get full pricing analysis, set clear goals, and create a precise set of repricing rules.
That is correct, some price monitoring software offer a repricing module, meaning it can fully take over your prices. Check out one of the most powerful and reliable price monitoring software on the market and its repricing module. Price2Spy’s Repricing module can help you define your pricing strategies, which can be segmented either per product category, brand, or supplier, and it can keep track of decisions made in the past. This software offers a free 30-day trial for you to test the software, which is more than enough time to experience its benefits.
Sign up for a free trial.
A key takeaway from this article is that you need to assess your business needs properly. Then, if you conclude that expanding to an additional channel is the right move, differentiate a new channel’s pricing strategy, but tailor it around your overall business strategy.