Price match is a campaign tactic where a retailer promises to match competitor pricing and give you the exact same product cheaper. Naturally its a tactic many brick and mortar retailers have taken in US and Europe as well. Bring a proof, like a competitor advertisement or a receipt and you are eligible for a lowered price. But is price matching a clever strategy for retailers? Is it really good for your business? Is it even good for the consumers? Price match is a tactic you should think twice before starting it and here’s why.
Price matching is not a cost leadership strategy
There is a big difference in being a genuine dynamic cost leader and being a price / margin cutter with a price matching policy. First is strategy based on your effectiveness, second is a weak tactic that might kill you. Cost leadership is based on actual business effectiveness that is turned to customer value in a form or low prices. Price match, unless you are a cost leader, means you are just cutting your margins. Therefore, unless based on actually lower business cost base, its a tactic that will eat your profits.
Price matching reduces customer loaylty
Every retailer knows that loyal customers bring in more money. Price matching offers consumers the possibility to hunt down the cheapest price. Not the best retailer, not the relationship, not the atmosphere or service for that matter. Just price. Think about it. Your role is just to give the cheapest price and nothing else. It is not about building loyal customers, its doing something totally different.
Price match policies might reduce competition
Harward Business Review points out that price matching might be actually reducing competition. Price match campaigns decreases retailers willingness to lower prices because those are quickly matched by competition. If you lower a price, your competitor matches it automatically and you both loose money. So in the end its a spiral out of control. Its like the butter that started loosing fat. At some point there is only 0% fat left.
Customers might find your price matching distorting your prices
An interesting paper was published by academic researhers Maria Arbatskaya, Greg Shaffer, and Morten Hviid where they studied the price matching with an empirical test. The study showed that companies (86%) that promised to match any price – no matter if it was advertised or not – did not actually offer the lowest price. On the other hand the companies (75%) that did offer to match only advertised prices did actually have the lowest prices. This shows you how the perceived cost leadership, low price value and promise does not necessarily make a fit. It might turn against you easily in a mobile world when consumers can check actual prices online.
You might end up cutting MAP strategies
Most brand owners are interested that you sell their products with agreed level of pricing. Following MAP strategies become harder when the end selling price is dictated by your competitors price cutting. If you continue selling brand products cheaper than expected you might find the brand owners and suppliers unhappy.
As a retailer you are consentrating to war you can’t win
Price mathing is a tactic that will not take you far. Especially if you are mainly brick and mortar retailer, it is not advisable to take on price mathing campaign. Why? Because your operating costs are higher than with ecommerce competitors. They will always have a cost advantage against you.
Building something long lasting means you build a brand with an exceptional service and customer relationships. Price matching policy is a double-edged sword that you should think twice before starting.