A decade ago, many observers predicted the rise of ecommerce would doom Best Buy Co. Inc., as many shoppers were going to its stores to check out TVs and computers but then purchasing at lower prices online. Best Buy flipped that script in 2013 by making permanent a policy tested during the previous holiday season of matching prices on Amazon.com Inc. and other major web retailers.
Today, Best Buy is thriving, and many retailers have followed its lead. During the 2022 holiday season, 42 of 100 leading retailers Digital Commerce 360 checked offered some form of price-match guarantee on their websites.
Among them is Newegg Commerce Inc., No. 40 in the 2022 Digital Commerce 360 Top 1000 database, which introduced price matching in 2015. The web-only retailer of electronics and computer components marks with a Price Match Guarantee badge products for which it will meet the price of several major competitors, an offer that extends for 14 days after purchase.
“In a highly competitive ecommerce market, Newegg wants our customers to have peace of mind throughout their shopping experience,” says Vince Aguilar, director of platform experience.
That’s the point of price-match guarantees: to reassure consumers that they’re getting a good deal, says Shikha Jain, partner at consulting firm Simon-Kucher & Partners, which focuses on pricing and marketing strategy.
“It’s a psychological nudge that tells the consumer subliminally that you have the best price,” she says. While she doesn’t have data on how many shoppers request a price match, she says the incidence is low. “I’ve worked with retailers for 11 years on price strategy, and redemption rate does not come up as a data point.”
Is price matching a good strategy for retailers?
Jain says more retailers may have offered to match prices in 2022 because of high inflation and consumer fears of an imminent recession. Those kinds of economic worries often lead shoppers to trade down to lower-priced goods or value-oriented retailers, and merchants often respond with tactics like guaranteeing to match competitors’ prices.
It’s a strategy, she says, that may make sense in some categories and for some retailers. But it is not the only way to win loyalty and may be somewhat outdated given other changes in pricing strategy prompted by the growth of ecommerce.
She says it makes the most sense to offer to match prices in categories like consumer electronics, where shoppers are looking for brand-name goods available from many retailers. In fact, five of the eight consumer electronics retailers checked by Digital Commerce 360 editors offered a price-match guarantee during the 2022 holiday season, versus only 40.6% of retailers of apparel and accessories, a category where products are harder to compare. Plus, consumers often want to touch, feel and try on clothing.
Retail chains and web-only retailers also were more likely to offer to match prices than consumer brand manufacturers and direct marketers, a category that includes retailers that sell through catalogs and TV shopping shows as well as online.
But Jain says price-matching may be less important today than it was a decade ago because more well-known consumer goods manufacturers are enforcing minimum advertised price (MAP) policies that prevent retailers from discounting products below a set price. There’s not going to be much, if any, difference in price for the latest iPhone, for example, because Apple would cut off retailers that violate its MAP policy.
Alternatives to matching competitors’ prices
With many major brands limiting discounting, retailers like Best Buy compete in other ways, such as by providing consumers guidance about complex and expensive products, like TVs and audio equipment, Jain says.
“When you speak to a Best Buy sales rep on the floor, they’re so knowledgeable and they guide you and answer your questions,” Jain says. “That’s an experience you can’t get online and what differentiates Best Buy from Amazon. The consumer says, ‘It’s the same price, so I want to get the best product for myself. They know the category and that’s why I’m going to buy from Best Buy.’”
“If you’re looking to talk to someone, to get your questions answered, that’s why Best Buy and other retailers aren’t going out of biz,” she says. “It was a brilliant pivot to lean into that differentiation.” Best Buy is No. 6 in the Top 1000, a ranking of North American retailers and brands by their online sales.
Jain adds that there are many other ways retailers can attract and retain customers. They include product assortment, service, free shipping and generous return policies.
She also encourages retailers to compete on price strategically, offering low prices on the items for which shoppers are most likely to compare prices, and earning extra margins on less-competitive items.
“It’s important to take a differentiated approach and to understand which products drive price perception and traffic,” she says. “In grocery, that’s milk, eggs, bananas, and that’s where you want to be competitive on price.”
Retailers can beef up their margins, she says, on less competitive products, such as extra virgin olive oil.
What retailers should not do, Jain says, is raise prices across the board to match increases in the prices they pay.
“That’s a surefire way to lose some of your most loyal customers,” she says.
Newegg extends price matching to promotional periods
Jain says price-matching can be effective for retailers targeting price-sensitive shoppers, and that likely would include web-only Newegg, whose tech-savvy customers can easily compare prices for electronics products and components online. Newegg also appeals to younger consumers, who typically have lower incomes. 56.1% of visitors to Newegg.com are between the ages of 18 and 34, versus 40.7% for the Top 1000 as a whole, according to web traffic monitor SimilarWeb.
Newegg’s Aguilar says the e-retailer evaluates the success of its price-match policy by tracking repeat purchases and customer lifetime value. For example, Newegg says it’s repeat customer rate of 32% is above the ecommerce industry average. By comparison, ecommerce platform provider Shopify Inc. says its retailer clients get 28.2% of sales from previous buyers.
“Our results show customers are highly favorable about the price-match guarantee, so we continue to make that policy available,” Aguilar says. Jain notes, however, that it’s hard to attribute a high rate of returning customers to one factor, such as a price-match policy.
Newegg is sufficiently convinced of the policy’s value that it’s extended it to the retailer’s annual FantasTech sale, which typically takes place in the summer, and to its pre-Black Friday promotions.
The policy now “guarantees the lowest prices on select items for the duration of each promotion period,” Aguilar says. “If the same product is available from Newegg at a lower price after their purchase, we will automatically send the amount of the price difference to them until the end of that promotional period so they can shop with confidence.”
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