By Sanjeev Sularia
According to the Canadian Competition Bureau, when a retailer sets a sale price, that retailer must have already sold a reasonable quantity at the ordinary selling price or offered the item at the ordinary selling price for a reasonable amount of time. Misleading customers about a regular price is prohibited, as is advertising a sale price and not having enough stock available.
The problem is, the vast majority of Canadian and United States vendors aren’t sticking as close to the law as they should be – as many make the claim that what is being sold at a “.ca” e-tailing URL is “cheaper” than the list price the vendor would charge me in a physical store.
According to a recent article in The New York Times, list price discounting has become “a sales tactic that is drawing legal scrutiny, as well as prompting questions about the integrity of e-commerce”.
E-commerce retailers draw buyers in with “list prices” or “official prices” and mark them down dramatically to get a sale. Online shoppers want to feel they have a bargain, and online retailers want to satisfy that desire. With so many online retailers jostling for business, it seems that it’s becoming increasingly impossible to pay the list price for a product. And given that anyone and everyone shopping in cyberspace is after a deal, this matters.
In fact, our systems, which every day monitor 130,000 brands in 1,100 categories, has itself discovered that in North American sales, only a small set of items are ever sold at list price anyway (no more than 45%). In the case of precious stones & gems, camera accessories, bakery products, baking ware, food cupboard staples like sauces, marinades & dressings, ready-for-consumption frozen and pet care merchandise, with only 1 in 10 instances are sold at list price.
I say Canadian and US, but this is really a global issue. Internet retailers including Wayfair, Walmart, Rakuten (formerly Buy.com), Crate & Barrel and Williams-Sonoma employ list prices to varying degrees; Amazon, the biggest e-commerce player, uses them extensively and prominently. But it’s one that’s come under scrutiny, given recent US legal moves that look set to curb the whole practice, and so will obligate all North American retailers to swiftly change their digital sales techniques.
The backlash against list-price discounting first rose its head in 2014, when a group of California district attorneys brought a false advertising suit against Overstock.com, accusing the online retailer of using misleading list prices in order to exaggerate the amount of a customer's savings. The firm was fined US$6.8 million, twice the size of the next-largest penalty for false advertising in California, and has also cost Michael Kors US$5 million to settle a class action suit challenging the prices offered at its outlet stores.
With the US government’s FTC (Federal Trade Commission) first off the blocks in investigating these tactics, the mythical iron “standard price” could soon see its demise in cyberspace. According to David C. Vladeck, the former director of that organization’s Bureau of Consumer Protection, after all, “If you’re selling US$15 pens for US$7.50, but just about everybody else is also selling the pens for US$7.50, then saying the list price is US$15 is a lie… And if you’re doing this frequently, it’s a serious problem.”
Contextual understanding is key
The problem here is that getting the pricing facet of online sales is one of the most difficult parts of cyber retail. It is a huge challenge to keep up with a dynamic, ever-changing marketplace; if the price is too high, online shoppers buy elsewhere, if too low you risk your profit margin.
What’s more shoppers thrive on comparing prices, so your relative prices compared to your competitors are paramount. Smart pricing technology will become the next way of enticing and satisfying bargain-hungry visitors to your website, as great data and smart, real-time optimization really is the only chance to evolve your sales strategy past this now-outdated trick. According to Rafi Mohammed, a consultant and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow, “Online retailers don’t use blowout sales since it’s so easy to shop there. But to provide confidence to consumers that they are consistently getting good deals, it’s even more important for them to provide price comparisons.”
Real-time, constant pricing adjustment based on market factors has to be the solution to satisfying the bargain-hunting appetite of online shoppers in the form of automated price optimization. To get there, pricing response time is key, as automation enables online retailers to optimize pricing 24/7. The market changes quickly and to succeed online retailers need to be able to change pricing to keep up with it.
Technology that can really analyze big data to enable online retailers to get full visibility of new and returning customers, enabling you to optimize for demand, trends, products, price architecture and regional behavioral differences has to be the way forward. But you need a smart, flexible system to get this right.
The verdict’s clear; old techniques can’t be relied on any more. You need real-time, accurate pricing and merchandising intelligence no matter the geography, vital as country boundaries disappear with the rise to dominance of e-retail – and also vital as the threat of legal action if you make any mistakes in this regard takes root.
Volume, pricing and revenue goals with automated price adjustments constantly taking place will enable online retailers to operate with confidence in this “list price” free world. Don't get left behind.
The author, Sanjeev Sularia, is CEO at Intelligence Node, a leader in the field of pricing strategy automation