The great pricing debate

2 May, 2012 Company, Marketing, Online, Retail

I was warned against purchasing BigBrownBox.com.au from Thorn Group, with my peers telling me that the world of televisions, home entertainment systems and sound equipment was the place of a great pricing war, where once sound marketing strategies were being held hostage to diminished margins and loss-leading products. I was told the AV market was home to a war with no winner in sight, a land where many businesses died well before their time.

Yet I purchased the digital assets because I believe there is a place in the market for a business willing to service consumers’ needs – where a service (over the cheapest price) model would come up trumps.

It has been widely reported that electronics retailer JB Hi-Fi has slumped to a three-year low, after the chain cut its full-year profit outlook because rampant discounting has damaged margins.

Are you honestly shocked?

When your tag line is “Always Cheapest Prices” it should be no surprise they would continue to discount against other retailers to the point of not being profitable. Price has become the only trick left as many businesses swap knowledgable sales personnel for a cheapest price guarantee.

JB Hi Fi is not the only store with this cheap pricing mentality - other reputable brands stand by similar slogans and fellow online retailers even use words such as ‘cheap’, ‘discount’, ‘cash’, ‘negotiate’ and ‘price’ in their taglines.

I find these kinds of promises troubling – particularly those that incentivise negotiating or paying cash. They suggest a consumer will pay too much if they don’t negotiate – and many shoppers would rather not.

We love dialogue with our customers, but we’d much prefer to be educating them about a product and having them assured that we’ve set a competitive price to begin with. There’s something quite aggressive about ‘haggling’, and it’s not likely to result in a great experience between retailer and customer. We’re more aligned with the “Everyday low prices” angle in this regard, to borrow another retail catchphrase.

Many businesses have put everything into having the cheapest price instead of innovating and building up their retail options and investing in customer service.

In contrast, while our prices are competitive, a cheap price proposition is not our core business driver. Customer service is what sets us apart and helps us stay profitable. We have invested in expert AV sales staff, warehouses, trucks and drivers, and have $2 Million of Big Brown Box products in stock around Australia to provide next day delivery to most metropolitan areas.

I’m well aware of the conundrum: cheapest pricing devalues a customer service proposition, yet consumers deserve the best price available. Therefore we have a best value guarantee in place for people who ask for it but it is not overt, and it is not our core business driver. Our best price guarantee also includes the fact our delivery is free, and before price-matching we ensure we are comparing apples with apples. Consumers also deserve to have their products delivered on time, with an Australian warranty and after sales service – which is what  our business offers.

We absolutely refuse to use loss-leader tactics to attract people to our site. Retailers who do this also use price to upsell customers to higher price products with greater perceived value. Customers are pushed to sale in haste, without having done the right research and end up going home with the wrong product. We know this because these customers come to Big Brown Box, Appliances Online and Winning Appliances for their next purchases looking for genuine customer service and advice on buying the right product.

The success of Appliances Online has led me to believe the recipe for retailing success is simple: If you put your customer into every business decision and think about how this will affect them, your retail outlet will have something its competitors don’t offer. What the AV world is lacking is customer service and expertise. When buying a TV I want to be able to ask someone about the latest technology and have them design a package that suits my needs – including a TV that is the correct size for the room it will be in, how the light of the room will affect visibility and how to get the best sound depending on where I live and the surrounding noise.

Yet many larger retailers have failed to recognise this, putting financial statements ahead of providing a wonderful retailing experience. They look at staff costs and make a move to cut staff numbers instead of investing in staff and their customer experience and cutting costs in other areas of the business. They also place the cheapest price as the key driver for business which means that over time margins have decreased so much they make serious profit downgrades.

In the words of  Seth Godin:

It might be that low prices are the final refuge of the marketer who has run out of ideas and is left with nothing but a commodity.

Or it might be that organizing your business around lowering prices through efficiency, mass scale and smart choices is a powerful way to grow.

My guess is that both are true, but you better be really sure about which one you’re choosing. Hint: doing the second one successfully is really quite difficult, so if all you’re doing is writing a lower number on the pricetags, you’re probably playing the first game.

As with all my blogs, I am sure that many people will not agree with my views yet this blog is how I view the retail space. Feel free to comment and add your thoughts to the debate if you wish.

3 Responses to “The great pricing debate”

  1. Paul says:

    Hi John,

    Nice post. I honestly think you should look at both models. I believe you make an assumption that everyone that wants to buy a new television WILL need help and “sales” assistance. However, I think that ‘online’ provides a plethora of reviews and help which can make up a persons mind on a particular product. By the time they get to you, the only thing left to ‘compare’ is price.

    Here’s an example, I am currently looking to purchase a new Samsung 65″ TV, I know the exact model number and I’ve read all there is to know about it from blogs, review sites, forums and Samsung’s own site. Now I start my search for where to buy. At the end of the day I am not comparing brand vs brand or whether I need new speakers to go with it, I am a savvy tech buyer and without a competitive price, you will not even be on my (price) comparison list.

    Don’t forget your affiliate traffic too, good affiliates should be doing the pre-sales qualification for you (hence why you pay them the sales commission).

    Anyway, back to my first point, I think you should have both. I am a domain name guy and there is a registrar in the business that have a retail front door with high prices and great service. This same business also offers domains at “crazy” prices on another doorway. This site gives absolutely NO service, it’s even got a really bad piece of software to manage your domains, however the price is not much more than their wholesale fee.

    You can use these leads to drive business to your other site later, or you just have another brand that sits out there and you don’t put any phone numbers on it and spend no time with the customer.

    It’s the internet John, how hard is it to create another website (whitelabel) and just discount the prices to rock bottom – you need to employ a different set of marketing techniques for this one, eg. this is the one you’d stick your PPC campaign on the price comparison websites.

    Anyway, in general I am a price smashing hulk, I will negotiate prices to the lowest dollar or I’ll walk out, but I recently purchased a coffee machine at RRP from a local guy who had stock because I wanted it TODAY. The experience really changed my mind about service and for the first time ever I thought to myself, “Wow, that is what customer service / sales assistance should be”. The guy made me a coffee on the machine I was purchasing, basically taught me how to use it (manual coffee machine, I was a newbie) he even upsold me to his “course”. It was such a brilliant experience. Since then I’ve purchased another machine for the office and I order my coffee beans from this guy. His 10 minutes with me will have paid off 10-fold.

    Overall, I actually agree with your whole philosophy of great service. There’s nothing worse than going in to one of those big bricks and mortar retailers and having the stupid sales kid read the side of the box to you when you ask a question about the product. But online, I definitely think it’s worth a white-label of your software and running both side-by-side – it really isn’t offensive to some savvy-buyers to have a 0-service proposition if they’ve done all the work (research) themselves.

    Good luck with BBB, I am still eagerly awaiting the affiliate program.

    Paul

  2. John Winning says:

    Hi Paul, thanks for your comments.

    You raise some good points – there are some customers, certainly, who will sell themselves on a product and require little sales assistance, but I don’t think this is the majority of consumers, and most Australian CSE/affiliate sites aren’t currently offering consumers much pre-sales qualification, in my opinion. This is something I hope to see improve in coming years.

    There will always be retailers that service this market, but offering limited service isn’t something we’ll ever look to do – particularly not with a secondary storefront as it would only dilute what we’re trying to achieve, and customer service is at the heart of our businesses’ success. It’s who we are and it’s what we do best.

    As I wrote in the original post, I don’t think a business can survive with next to no customer service and purely selling on price – educated consumers like yourself will be happy with their purchases as long as they don’t ever require after-sales service, while un-educated consumers will go home with the biggest bargain, not the best product.

    In the end, consumers will end up disheartened and won’t return for a secondary purchase. I know this because we constantly receive positive feedback from customers who had previously purchased online with our competitors and were reluctant to do so again. It’s rewarding to see these customers buying online again, especially when we can be confident we’ll change their opinion.

    PS – Sorry for the late response!

  3. Scott says:

    Hi John, I like the philosophy you’ve focused on, it’s nice to see it can work, and hope to emulate this with our business. I think the best summary of this strategy is a value focus. Price is a part of the value equation, but as you outline service is important too. And since customers value pre and post product purchase support, quick and reliable delivery and dealing with a business they can trust, this looks like the best way to long term success over merely focusing on price. Hope we can succeed in making ti work like you have :)

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