Every once in awhile, someone runs an idea by Marketing Daily that sounds simple, crazy and brilliant all at once, like this one: If brick-and-mortar stores are to survive, marketers should sell them products at a discount, while Internet retailers should have to pay more. It's the brainchild of Rafi Mohammed, a pricing expert and author of The 1% Windfall: How Successful Companies Use Price to Profit and Grow, and something he's written about recently for the Harvard Business Review. We asked him to explain the idea a little more.
Q: Why should a retailer be able to ask for a lower price than those who sell strictly over the Internet?
A: If I were a physical retailer, I would be demanding a lower price. Think of all the additional costs of running a physical store. They hire and train employees to show off the merchandise; they pay for and maintain the space to display it. Retailers add a lot of value to the process, and they should get some recognition for it. And that value goes up as the products become more complex. Take TVs. Or dishwashers.
Q: Why is this more of an issue now? Customers have been shopping online for ages.
A: It's driven by mobile. There are now so many apps that allow consumers to shop solely on price, and we've really seen the effect of that in recent months. They can go into a store -- again, let's take the dishwasher -- and physically see and compare all the models. The stores' sales associates spend valuable time, explaining and educating the consumer on the various models and features.
But then, shoppers can scan a barcode and find the lowest price for that item, either online or at nearby store. And that is hurting stores. When Best Buy reported disappointing third-quarter results in early December, analysts attributed the poor numbers to increased competition from online retailers. Smartphones increase the threat, because shopping only on [a factor of] cost is now easier.
Q: So how would it work?
A: I call this discount the Physical Store Equalizer, or PSE. Retailers should point out what they provide to brands that online sellers don't, and how the opportunity to touch, feel and see goods -- not to mention ask questions to knowledgeable sales staff -- helps educate shoppers.
Since retailers bear the cost, it's fair to ask for a price of 10% less than what Web retailers pay. I just think it's time for manufacturers to compensate physical retailers for the value they bring to the sales proposition.