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Pricing Transparency: How to Keep Margins and Customers

Posted by PriceBeam on March 16, 2017


pricing transparency

20 years ago, buyers didn’t have much to go on when they went to purchase insurance, a new car, or a gallon of milk. They could only compare the price to those of a few other stores, and as such, didn’t have any indication whether the price was fair or not.

The game has changed with price comparison platforms such as MoneySupermarket and Pricerunner that allow consumers to compare prices before buying a new TV or computer, and more recently, price comparison has expanded to comprise fast-moving consumer goods, too, and generally, the platforms are so convenient nowadays that the pricing transparency is almost complete. 

Consequently, many retailers are fearing a “race to the bottom” where margins will be razor thin and only cost leaders will be able to run a sustainable business. However, it doesn’t have to be that way.

Embracing pricing transparency
If a customer wants to compare prices between different retailers, your price will have to be part of that comparison to even have a fighting chance to begin with. Unless your price varies greatly with every purchase, don’t try to hide your price behind “Contact us for price” or “Request a quote” buttons. For some companies it makes perfect sense, but if that’s the case, you wouldn’t be too worried about price comparison websites to begin with. If you don’t feel you can stand by your price, maybe it’s time to set a new one.


Customer-centric companies WIN
Price comparison websites are not the only platforms that have gained prominence in the last two decades. Customer review websites have, too. And these are becoming increasingly important as the standards for customer service are increasing at a rapid pace. This is where you stand out, for two reasons.


1. Customer reviews are a qualitative source
Typically, a customer review will involve some sort of ranking, so it’s not entirely qualitative - but the review itself is! And that’s very important, because this allows you to appeal to customers even though you’re not the best on the market. With price, there’s a “superstar-effect”, where the winner takes it all. If you’re only looking at price, why on earth would you buy the second cheapest MacBook on the market?

With customer reviews, it’s not like that. Customer service is, indeed, subjectively assessed, and therefore, it would be impossible to compile a descending list of the retailers that all customers would be happiest to visit. You remain in the game, even if you’re the 2nd best or the 10th best.

2. Customer service can be differentiated
If you’re competing solely on price, you will not be able to differentiate yourself in any other way than having the cheapest price - and that price point is typically where your profit margin is so thin that no other company will bother to sell at that level.  

With customer service, you can appeal to specific segments and tailor your customer service experience to their needs. Is your store easy to access for people with disabilities? Does all of your staff speak Mandarin? Or do you have a play area for families with children? These are examples of ways you would be the number 1 choice for specific, niche segments even though you’re not to find anywhere in the top 20 on Trustpilot.


Summary: You Can’t Fake it
Both price comparison websites and customer review websites have generally increased the customer expectations by increasing transparency and hereby competition. This transparency also means you can’t get away with not offering value to your customer. The purpose of this article is not to suggest ways in which to cut corners, but more so to encourage competing on other parameters than price. There’s really only one winner in the price competition, and most likely that won’t be you unless you’re a big, incumbent firm.
Instead, use your price to drive in profits that you can reinvest in the customer experience: here, you can truly stand out, even if you’re not the biggest player in the game.

Learn how you can set a price that maximizes profits here.

Topics: Pricing

Written by PriceBeam

PriceBeam posts regular guides, articles and news related to pricing and strategy. Go have a look!