This one's for you retailers out there. We're going to talk about pricing--and how it's different now than it's ever been. Unless low prices are part of your go-to-market strategy, competing on price is a race to the bottom--and one you will likely lose.
While dropping prices might temporarily boost sales or drive more traffic, what it will cost you in terms of reputation, brand identity, and value proposition may be impossible to recoup--and there is pretty much no turning back.
This is the dilemma facing all retailers, because retail one of the few segments that has thus far been immune to price-cutting. Even companies like Macy's, Bloomingdale's, and Lord & Taylor are now discounting luxury lipsticks and the like.
Trying to compete on price is one thing if you're Walmart, whose reason for being is low prices, but it's a dangerous strategy if you're a retailer, because it isn't the basis of your value proposition--or what we call your service design archetype.
We've identified nine service design archetypes--nine generic ways to play the game that embody different value propositions. Each can be highly successful. And they are as different as chalk and cheese.
The winning playbook for Lord & Taylor (which we define as a Classic, also known as a best of breed) is not the same as those for Macy's (a Safe Choice, which means the kind of place where you can't go wrong) or Sephora (a Specialist--the one who does only one thing, but does it really well).
Even though these kinds of companies have all increasingly relied on coupons and special discounts, particularly for favored customers (also known as "friends and family") in a variety of departments, none of them is what we'd term a Bargain--the archetype that competes on price.
So what should retailers--and anyone else tempted to play this losing game--do instead? Focus on the core of their value propositions and see what they can adapt and adopt while still staying true to themselves.
Here are four suggestions:
1. If you can't beat 'em, join 'em--or invite them to join you.
J.C. Penney linked up with Sephora, one of the giants of specialty beauty retail, to place Sephora stores inside Penney stores. The two have also coordinated so that Sephora items can be ordered online and picked up at Penney.
Sephora's taken of, course, but what about Ulta, the other cosmetic retailer powerhouse, or local stores, like Portland's Blush Beauty Bar, or Columbus' Mukha Spa?
2. Let customers enjoy the shopping, not just the fruit of the purchase.
Buying makeup at a department store can be intimidating, where clerks in uniforms that resemble lab coats aggressively offer samples and fragrance sprays for the brand they're hawking, but make it difficult to sample, smell, touch, and experience the makeup without their help.
People buy makeup not only to look better but to feel better. And that starts with the experience of buying. Like Sephora and Ulta have, move the makeup from behind the tall glass counters and out of the hands of lab-coat-clad clerks and into the hands of would-be buyers.
3. Offer more value.
Enhanced value can be in the form of loyalty programs, points applicable for purchases elsewhere in the store, adjacencies (increased emphasis on hair products, tie-ins with jewelry and accessories) add-ons (lessons, personalized shopping, and samples that aren't forced on the customer). Ideally, look for value-adds that discounters and online rivals cannot match.
4. Find ways to deepen loyalty and engagement.
Customers want an in-person experience to find the makeup and perfume that are right for them, but may want to reorder online. Traditional retailers should embrace that opportunity--capturing a customer's preferences, sending reminders and offers for refills.
It's possible to create personalized landing pages on websites, reminding customers to reorder products they bought in the store or buy new makeup as the seasons change, or to adapt the personalized aspect of companies like online stylist StitchFix.
Before you lower your prices on a premium product or service, think instead of who you can partner with, how to make the entire customer journey more enjoyable, ways to increase value, deepening and broadening engagement with your customers.
Yes, all of these things would cost money. But discounting may be even more costly. Think twice before you lower your price. You'll have trouble raising it, and you've just raised the stakes for a game you aren't equipped to play.