Article
The pros and cons of concealing product prices online
Keeping the price tag somewhat hidden is part of a strategy by major brands to counter the Internet's tendency to drive prices down.
February 10, 2010
What follows is an excerpt from one of RetailWire's recent online discussions featuring commentary from its "BrainTrust" panel of retail industry experts.
Much like some fine jewelry shops, some e-commerce sites are making prices for items difficult to spot. Only by adding the merchandise to their shopping carts are consumers able to see the cost. According to an article in The New York Times, keeping the price tag somewhat hidden is part of a strategy by major brands to counter the Internet's tendency to drive prices down.
"You are seeing firms of all types test the waters" with strategies to control online pricing, Christopher Sprigman, associate professor of intellectual property at the University of Virginia School of Law and a former antitrust lawyer at the Justice Department, told the newspaper. "They feel they have more freedom to do it now."
Manufacturers' ability to control prices got a shot in the arm with a 2007 Supreme Court ruling (Leegin Creative Leather Products v. PSKS) that gave them considerably more leeway to dictate retail prices. Brick-and-mortar retailers can no longer drop prices in circulars below minimum levels. But manufacturers also consider any price online as an advertisement and complain whenever e-commerce sites set prices below the minimum.
That's why statements such as "To see our price, add this item to your cart" frequently appear on e-commerce sites. The Times noted that last week that prices were missing on Amazon.com for a number of products, such as the Milwaukee Sub-Compact Driver drill kit, a Movado men's Esperanza watch and an Onkyo 7.2-channel home theater receiver. One noticeable result is that the items don't show up on search sites like Google Product Search and PriceGrabber.com. The article noted that this trend "has arguably weakened one of the implicit promises of e-commerce: that quick searches and visits to comparison shopping sites will yield the best deals."
Most online retailers complain that the missing prices confuse consumers and give an advantage to big chains, which have circular restrictions but can mark down prices at the store level. They also say the practice of enforcing minimum advertised prices has spread from consumer electronics to other industries like sporting goods and jewelry.
"We think consumers are best served when the retail marketplace is open and transparent and retailers have an opportunity to offer the best prices and services, and are not controlled from above by manufacturers," said Brian Bieron, eBay's senior director for domestic government relations.
But manufacturers contend the frenzy around ever-lower prices online, fed by search engines and comparison shopping sites, has some Web sites selling product at a loss to capture market share. Another concern is that their largest retail partners will not match online price cuts and may stop carrying their products altogether.
"At the end of the day, it will become a race to zero if you don't do anything to manage the issue," said Jon C. Jordan, CEO of Southern Audio Services.
Discussion Questions: Do you think being evasive with pricing is a good policy for e-retailers? Do you agree that brands should be allowed to establish a minimum advertised price for their products? Should a product in an online store be considered advertising in this context?
RetailWire BrainTrust comments:
RSR's research has found that multi-channel shoppers are more profitable than single channel shoppers. The idea behind it is that the more engaged a shopper is, the more opportunity you have to make a profitable customer. But more and more e-commerce people tell me that they don't buy it — that the e-commerce channel specifically is not as profitable as the store channel, in part because price transparency drives down margin, and in part because online has become the preferred closeout channel for getting rid of overstocks. "How do you resolve the conflict?" I have been challenged. My response is, we're talking about two different things — channels vs. customers.
That's the challenge here with prices. Price transparency squeezes margins, but hiding prices removes you from a traffic driver — these shopping sites. I know that a lot of these comparison sites, worried about retailers hiding prices and removing themselves from searches, are happy to come up with ways that allow retailers to put more forward to the customer than just price. Sounds like retailers and these meta-sites need to get creative. - Nikki Baird, Managing Partner, Retail Systems Research
Hiding prices online is like covering shelf tags at the store; you just don't do it. I noticed that Walmart.ca has no prices (which could be because you can't buy anything online) posted. I can assure you customers are coming to the site looking for info but Walmart forces them to come into the store to verify pricing. Good strategy in my opinion. You can't buy anything online anyways; might as well force them into the store to see if you can build a bigger basket.
As for other merchants that engage in monkey business when it comes to pricing, you are setting yourself up for cart abandonment. In a recent study I took part in for a large Canadian telecom, I discovered that a confusing pricing structure created a huge distraction for customers which led to inflated cart abandonment stats. Price should be visible and easy to find. Always. That's retail. My crotchety mentor used to say: "If it doesn't have a price, it's too darn expensive." - Doron Levy, President, Captus Business Consulting
I agree with most of the comments above. Why would you want to make customers work harder for anything? Anything at all. If your price is being scraped and it's 'not worthy' or price is all you've got to go on with that particular product (commodity), it's your own damn fault. If there's one thing we know for sure about branding/marketing in this day and age, it's that you have to be an open book — and that not being such or being deceiving is a really bad word-of-mouth tool. - Lee Peterson, EVP Creative Services, WD Partners
The hidden price tactic is a turn-off for online shoppers, plain and simple. I'm certain it depresses sales and shopper experience ratings.
If manufacturers are uncomfortable with price transparency, they should switch to government contracting. - James Tenser, Principal, VSN Strategies
The problem for manufacturers is they must have a way to ensure their product is not sold below a specified price level. If their customers will not comply, they should stop selling to them and sell direct themselves. For the online retailer, their greatest problem is one-item selling. Unless you can get the consumer to purchase a basket, it becomes a price play versus completion. The world of limited category online retailers is numbered. The future is large department store websites or industry-wide websites. For example, all electronics manufacturers only sell through one website all their wares. - W. Frank Dell II, CMC, President, Dellmart & Company
