From free shipping to rapidly fluctuating prices, here's what consumers should know about new strategies in online pricing and marketing.
In e-commerce's infancy, a few key players competed for business online, so comparing prices and shopping online was relatively simple. Now, as big retailers gain market share and startups roll out innovative new strategies for pricing and marketing, identifying the best value is anything but clear-cut for the average consumer.
In fact, fluctuating prices and abandoned shopping carts mean the price you pay for a new camera or leather couch may be a lot different than what your friend pays, even if you buy from the same online retailer. Here's a look at several trends to watch.
1. Fluctuating prices. Thanks to dynamic pricing, which is used by retailers like Amazon, online prices tend to fluctuate more than prices in physical stores. Online stores can easily update prices minute by minute, but "in a physical store, they're not going to go around and retag everything," points out Niraj Shah, CEO of Wayfair.com, an online retailer for home products and furnishings.
Prices might vary depending on an item's popularity, your proximity to a brick-and-mortar store carrying the same item or other intelligence gathered through Internet cookies. "With popular items, the volatility of the market will be higher," says Arie Shpanya, CEO of WisePricer.com, which helps companies monitor and adjust pricing. "Electronics is the category that's having the most price change." Keep in mind that if you see a price you're happy with, you may want to buy right away because the price might be higher or lower when you refresh the page.
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Some retailers have been accused of discriminatory pricing based on information gathered about the customer - for instance, past buying history, whether the customer browsed a price-comparison website first and their location. "If I'm shopping from my office or my home, I might get two different prices," Shah says. For more expensive purchases, try checking the price on multiple devices, such as a laptop, tablet and smartphone, to ensure you're getting the best one.
2. Abandoned shopping cart offers. When you add an item to your online shopping cart but stop short of checking out, some retailers will use an abandoned shopping cart offer to lure you back to the website in the hopes you'll complete the transaction. "They keep track of each session when you come onto the website and keep track of what you put in your cart," says Rick Miller, vice president of e-commerce at Hanson Dodge Creative, a design and advertising agency in Milwaukee, Wis.
The retailer might initiate an online chat asking if you need help or follow up with an email in a few hours or days to remind you about the item in your cart and offer free shipping or a one-time discount. However, as consumers have caught on to this strategy, retailers have also wised up. "We don't want to reward them for every abandoned cart, so we might do it randomly," Miller says. Still, even if leaving an item in your shopping cart doesn't score you a discount, it could give you time to sleep on a purchase instead of impulsively checking out.
3. Sales tax for online purchases. Some consumers choose online shopping as a way to forgo sales tax. Technically, consumers are supposed to pay sales tax for online purchases when they file their taxes but few actually comply. Brick-and-mortar retailers say not collecting sales tax offers online retailers an unfair competitive edge, so the Marketplace Fairness Act - which the Senate passed last month and is now headed to the House - would require "remote sellers" with sales of more than $1 million to collect and remit sales tax for online purchases. (Some retailers already do this if they have a warehouse set up in that state.)
If the act passes, will retailers drop prices to compensate? Will consumers shy away from shopping online? Shah doesn't think so. "We started to collect tax in Utah and Kentucky when we set up operations in those states, and while we did this, we did not factor this into our retail pricing," he says. "I don't think it will slow e-commerce adoption in a major way. What is driving the growth of e-commerce is convenience and selection."
4. Online retailers merging online and real life. While commodities like toilet paper or printer ink can be easily purchased online, it's sometimes hard to tell how a pair of boots will fit or what shade of blue a pillow really is without seeing it in person. That's long been one of the drawbacks of shopping online and a reason why some retailers like Zappos offer such generous return policies.
In recent months, online retailers such as Warby Parker, Piperlime and Bonobos have opened brick-and-mortar stores or temporary pop-up shops where consumers can actually interact with their products in person. (Zappos has had an outlet store in Kentucky for several years, but it's not widely publicized.) Although renting prime real estate can be costly for retailers, Shpanya says the trend doesn't necessarily drive up the cost to consumers. "Bargain hunters are medium-agnostic. Hence they will just want to get the best deal out there: offline or online," he says. "Sellers know that and will take into account that their online and brick-and-mortar stores' margins will be different. However, they will try to keep a consistency of the tone with their pricing."
5. Free shipping. Amazon Prime has set a new precedent in which many consumers expect free and fast shipping. Amazon, Walmart and eBay now offer same-day delivery in several cities for a small fee. These developments could pressure other retailers to follow suit if they want to remain competitive.
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"Free shipping is almost a given across the board. Other competitors who are not Amazon players are now doing it. They don't care if they make money or not on shipping," says Miller, explaining that long-term, businesses will get more revenue from building customer loyalty through free shipping.
Factoring in shipping costs used to make some items more economical to buy in a store, but the rise of free shipping means that's not always the case. Do the math before you buy.