As the holiday season swings into gear so does competitive shopping with consumers scoping out merchandise in physical stores and then comparison shopping for the lowest price on their mobile device or computer, dubbed showrooming. In an effort to combat or embrace this phenomenon some retailers led by Best Buy have implemented strategies including price matching to convert more shoppers into buyers. Nobody is winning in this new game — manufacturers, retailers or the customer.
While I applaud retailers' recognition that mobile technology is here to stay and for building a strategy they can use to their advantage, they are embracing short-term solutions at best. Just as Ebenezer Scrooge clung to his tight-fisted and greedy ways before he was enlightened, retailers and manufacturers need to embrace new methodologies and practices to combat showrooming, as price matching may have a negative impact on everyone in the purchase stream, not just the retailer.
Sadly, retailers may find themselves matching prices with unauthorized, fly-by-night retailers that have a few units. While the rogue sellers have very little inventory, they can impact price matching generated by algorithmic price dropping, which results in margin pressure on everybody.
As bricks and mortars begin to match the price with online retailers, they will have less money available to promote sales in their stores, maintain the requisite levels of employees needed for great customer service, and will drop lines that are no longer profitable.
Ebenezer has a "bah, humbug" effect on manufacturers as retailers responding to the ever decreasing prices below minimum advertised prices or suggested retail prices often look to the manufacturers for financial compensation. This compensation can come in the form of deductions from invoices being paid, demands for other discounts or other benefits to help subsidize the retailers' marketing decision to match the lower online price.
The manufacturers' sales force need to spend quality time promoting the benefits of their products to retailers to ensure the consumer becomes a satisfied purchaser. The price gauging turns the sales team attention to why one retailer is getting a lower price than another. Ultimately, manufacturers may be forced to only work with retailers who sell their products for the value the manufacturer attaches to the product.
The money that the manufacturer is forced to spend on compensating retailers, monitoring price issues and dedicating resources to detail with the resulting customer service issues has to come from somewhere. It may result in the loss of jobs, reduced marketing and research and development budgets.
While the consumer will have short-term gains with reduced prices, the long term forecast will likely result in fewer choices, less innovation and reduced quality as the manufacturers seeks to eke out acceptable margins.
As an industry, we must continue to look for ways to promote products that protect reasonable margins for the retailer and manufacturer while still providing value for the consumer. As the number of smart phones and comparison shopping tools increase, the impact of showrooming will continue to mushroom and everyone but a select few will lose.
— Jeff Mariola is CEO of DigitalBrandWorks, a digital consultant company that specializes in representing manufacturers in the digital marketplaces and ensuring proper overall representation of product's pricing and content online.