Pricing in online retail – when is it key? An interview with Francesco Donato
- 15 July 2021
Prices influence the strategy and the image of the company as well as its profit margin. That’s why it’s usually treated as a key element of the company’s strategy. However, there are situations where an online shop should focus on different elements. What are they? Read the article with Francesco Donato, Head of Pricing at SSI Schäfer Shop GmbH.
Aleksandra Hołownia, Dealavo: Over the last few years, you have had a chance to observe retail from several perspectives – at such companies as Gfk and currently at Schäfer Shop. What, in your opinion, has changed in retail the most?
Francesco Donato, Schäfer Shop: It’s a very interesting topic because retail has been in reinvention for the last 10-15 years. It is in the nature of retail because being a retailer is all about being dynamic and it has been like that for the last thousands of years. Everyone who has tried to sell or offer something, had to adapt.
In my opinion, the most impactful thing was the technology used in the retail market that has completely changed the game. E-commerce, even 5 years ago, was different than today. Real-time data and big usage of data in retail are things that weren’t even there a few years ago (or weren’t truly used, even if they were available on the retailers’ sites). Today, retailers cannot make any decision without data anymore. They need to speed up the adaptation – when it comes to the assortment or prices – because the changes happen extremely dynamically. There are some industries in which the prices can change every few minutes or at least once a day.
I remember that when I started my first job in market research in the 90s, my first work in pricing was to note the prices of products in a special database by hand which was highly time-consuming. Now it’s incredible how transparent and easily available all the data is. And I think that this is what is currently the most disruptive part – technology and transparency. We have never had as well informed customers as we have today.
A.H.: What information and data is the most relevant to analyze in your opinion?
F.D.: When you read studies, it always turns out that pricing is a key element in decision making processes. It’s something you need to be aware of because, after all, it influences your profit margin. But on the other hand, it is still not the number one topic. It is not the only factor that gives you success as a retailer or a brand. There are topics that are more important to consumers.
One of such topics is user experience on the website. As an example, Amazon is used more often than Google for product information search. Why? It’s because Amazon has a good search engine. And it is crucial for Amazon because it’s one of the first touch points with customers that retailers have. If your search engine doesn’t work properly, the consumer won’t come to your store for the third time. So the UX or customer experience can be even more important than prices. And then, of course, there is something I call “the choice” – that is, the proper assortment.
The price is key if a product is available everywhere. But if the availability is low, the prices are subordinate. Price is important and often serves as a trigger to attract clients to your website from Google Shopping or other price comparison sites. Retailers feed such platforms with specific prices just to get the clients on the website. But I think that the real magic happens later – when you need to keep the clients. Usually it is at least as expensive as getting new ones. In the end, price is not the only triggering factor.
A.H: Does it mean that retailers should use different pricing strategies for different products? As an example, should their pricing strategy be different for more popular items (that can trigger the traffic) and the less popular ones?
F.D.: From the retrailer point of view, prices influence the strategy and image of the company. A product management team needs to assess whether the specific assortment fits into the overall strategy of the company and what the pricing towards this assortment should be. There is no one assortment – there are several because there are several targets as well. That’s why a retailer has to distinguish between those different assortments. But you need to remember that even if you have the cheapest offer, you won’t sell if you don’t target the right customer.
Today, the market is transparent and the customers, including the B2B clients, are all very well informed about the prices. They tend to purchase at different retailers. So you need to communicate with the right target to make sure they repeat the purchase in the future.
You should also remember that ads and offers on price comparison websites can be expensive. To be efficient in communicating the offer and prices in different channels, you need to have the right pricing. If you have it, you don’t need to overpay for ads and extra pushes. But for that, you have to track the market in real time, at least for your key assortment.
A.H.: And what is your opinion about differentiating prices between different target customers and channels?
F.D.: It is something that needs to be really thought of. Differentiating prices between channels is nothing new. But now, because of the transparency, you have a very well-informed consumer. The danger that I see in differentiating the price by communication channel is that it can be distracting for consumers. If the consumer sees it, it will give a negative transfer on your brand.
What I agree with, especially in B2B, is differentiating prices by clients. It is closely related to quantities – you don’t sell one product (e.g. a table) in B2B, but ten tables.
In general, I’m a fan of transparency and harmonized pricing, but also – of knowing what kind of products have to be promoted in different channels. I would rather choose to put a few chosen products on pricing portals rather than do that with the full assortment and differentiating prices. Such an approach helps you to save money as well.
F.D.: Yes. What’s more, you need to have people who manage it, the proper infrastructure and integrations.
A.H.: You mentioned differentiating prices by clients. What do you mean by different customer types? B2B and B2C?
F.D.: These two segments are of course different but I think that even if your main target are business clients, you always have to consider a B2C client. Why do I say this? Because I think that every B2B client is somewhere a B2C client. The person that buys an office table as a purchaser of a specific big client, in private is a consumer. And the decisions that he makes as a B2B professional can come from his experience as a B2C client. That’s why I think that it is clear that every B2B client is somewhere a B2C client.
A.H.: And what are the changes that you expect in the future? The motto of Schäfer Shop is “Think tomorrow”. What can you see there?
F.D.: When we think about tomorrow at Schäfer Shop, we think about the real omnichannel. It’s a combination of technology and human interaction with clients.
As a B2B retailer our technology has to be as good as if we were a pure e-commerce player. This means that we have to be prepared that a customer can come from anywhere and have different needs. We have a client that still sends faxes; the other one has a dedicated key account team that contacts him; and then the other one buys directly on our website. But the same client can do all these things – he can have a dedicated key account manager, but he can make a purchase by going to the website and making the order.
So that’s what I mean when I say real omnichannel. I believe it is the best way to serve clients. You need to have good technology to improve the experience with your online shop, but you also need to have people for those clients that demand for direct contact. And that’s the pure omnichannel as I understand it. The challenge here is to understand where the conversion comes from. And here usually stands a big question mark.
Let’s imagine that our client purchases on our website, but has a dedicated customer account manager. Who converted this client? This changes the way you look at e-commerce growth. You can, of course, say “My e-commerce sales grow”. But maybe it’s because the guys outside do a great job. Measuring the efficiency in terms of marketing return on investment is more difficult today with omnichannel. And I think that the proper calculation of ROI in e-commerce is an issue that has not been solved yet.
A.H.: Is there any way that companies can manage it better? How can they understand what had the decisive contribution?
F.D.: From the brand’s point of view, choosing the right partners is crucial. It’s because you can’t make the same initiative at 10 retailers and track it efficiently. I think the choice of your retail partners is even more important than the volume of what you do. A closer collaboration between the manufacturer and retailers can help brands in getting access to clients and understanding them better.
On the other hand, one of the biggest trends today is that many manufacturers try to make direct sales as well. There are some success stories, like Dyson. They have the direct to consumer model, are present on every platform and usually the Dyson shop is one of the biggest ones there. But even they come from traditional retail which helped them to understand the customers’ behaviour.
I don’t think that the pure direct to consumer model can do the same work as the retailer does. There is more tension, relationships and taking care of customers in retail.
Of course, the direct to consumer approach abbreviates the chain. You don’t need to rely on the retailer to get clients’ feedback. I think that’s where the main motivation comes from. But when it comes to bigger players, they would never go to the full D2C. They would always rely on the foundation of the retailers and retail partners.
A.H.: How are brand’s and retailer’s perspectives different when it comes to customers’ feedback?
F.D.: At the end of the day, retailers and manufacturers target the same consumer. But in the case of a brand, even product development can be treated as a marketing activity. After all, the innovation should come from clients. Before, product innovation was more about industry production and technical features. Today, it’s about creating fully experienced products. And I think that creating brand equity is something that the brand has to do – also to help the retailer. And that’s why the direct contact between the manufacturer and consumer makes sense – because then the innovation can be directly developed.
I see it very simplistic – that everyone has a role. So we are the window and somebody else says: “this is what you have to put in your window”. And when we both agree that this product makes sense for the customers, we put it in the window.
A.H.: Do you think that retailers should help brands to understand customers better? Should they give feedback to manufacturers?
F.D.: I think that sales results are the best feedback to the manufacturer and the best way to get rid of products that nobody needs.
Of course, when we, as a retailer, speak to our clients and if they have some problems with products, the product management team informs the manufacturer about claims. And then the manufacturer embraces it and improves the product.
A.H.: And how about innovations from the retailers’ perspective?
F.D.: During the pandemic, many companies had to speed up the technology adaptation and sometimes reinvent themselves.
During the first phase of the pandemic in Germany, some of the local retailers put the posters on the door with their phone number and information that if someone has a request, he can text them on Whatsapp. They were very innovative. Due to the pandemic, they had to find new ways. And that’s why I say that retail has to be dynamic. Retail never stands still. I think that it’s the DNA of retail.
A.H.: The last question will be about your recommendations. Are there any books or articles that had a special impact on you?
F.D: I can still recommend the basics of marketing readings. Everything that comes after is still valid from that period. So I would recommend reading Kotler because marketing hasn’t changed – it’s still the art of selling. Technology opens you new dimensions and possibilities, but the ground idea is still the 4P – no matter what you call it today.