June 20, 2005

Regional Pricing Should Be Slashed Into Oblivion

By Evan Schuman, Ziff Davis Internet

Under The Damned-If-You-Do category, Best Buy in-store Web displays seem to show different pricing. It's innocuous, but it shows why regional pricing may no longer be worth the effort.

Sometimes, pushing the technology envelope is simply not worth it. The thought leaders tend to get criticized for the flaws of the new approach and, if it does take hold, they rarely get the credit years later for having taken the chance.

In the retail space, there are clearly a handful of technology pioneer chance-takers and far more followers. The most obvious example is Wal-Mart and RFID, but with more than $285 billion in revenue last year, it can create a de facto standard by edict. That's kind of cheating.

On the other end of the retail spectrum is unassuming clothing retailer Burlington Coat Factory, with some $3 billion in revenue. But BCF has taken the technologically unsafe route repeatedly over the years, with everything from Linux, e-mail and Unix to the Web, TCP/IP, symmetrical multiprocessing and support for Oracle.

Not coincidentally, BCF has had the same CIO at the helm for longer than any CIO in retail and—most likely—anyone in the industry. Mike Prince just celebrated his 25th year in charge of BCF IT.

But BCF has an impressive record of having practically never backed a technology loser, so they've avoided the negative spotlight.

Not so lucky is retail technology leader Best Buy. Clocking in with $28 billion in revenue last year, Best Buy is often cited as leading in buy-online-pick-up-in-store, trying to discourage bottom feeders (the store's least profitable customers) and trying to bring the Web experience into the store.

Being out in front technologically means they have to take the heat. A good example came last week when a respected online technology site—gizmodo.com—reported apparent pricing differences between the Best Buy Web site when consumers viewed it at home or at their office and then when viewed from within the Best Buy brick-and-mortar's Web connection.

To quote from the Gizmodo report: "The web browsers from within the store show many prices that are $20-$50 higher than the same web page when accessed from outside of the store (like in your house). This was confirmed to me by two store managers. If you ask for the lower price, they'll honor it. So, you see a low price on the website (even when you select 'in-store pickup') and when you get to the store, the actual price is much higher."

For the record, Ziff Davis Internet tried to re-create the pricing discrepancies—even using the same product the Gizmodo story cited—and was unable to. Every price we grabbed from the site at our office was the same when we looked the price up on the site in the Best Buy stores we visited.

Officially, Best Buy corporate didn't comment by our deadline, but Best Buy store managers defended the discrepancies as resulting from two unrelated—and seemingly innocuous—situations.

First, most stores with Web displays are not constantly refreshing pages, which means they are being read from cache. Given how frequently Best Buy's systems update pricing, two managers theorized, it's bound to happen that someone checking a price at home will find a different, older price at the store. It's rather non-intuitive that a Web site viewed at 8 p.m. at a Best Buy store would be older than what customers viewed at their homes at 7 p.m., but it could easily happen.

Short of having the system constantly refresh itself or having Best Buy change prices less frequently—neither of which seems to make a lot of sense—there's little that can be done to avoid that problem.

But the second explanation has a more interesting fix. The second scenario for the pricing discrepancies is Best Buy's use of geographic pricing, where customers in Los Angeles may pay more for the same printer than someone in Akron, Ohio.

One of the managers said that a customer might live in the most western ZIP code of a particular region and could travel a seemingly short distance to a Best Buy, which might be in the most eastern ZIP code of a neighboring region. If that were the case, it would explain why the customer would see a different price.

The ways of the Web make such geographical pricing differences so transparent as to be begging for consumer controversy. Is the minimal additional revenue that geographic pricing can deliver worth undermining the customer confidence that pricing is fair and consistent?

With pricing comparison and competitors both large and small overflowing the e-commerce landscape, consumers can choose to be choosey. Although that's true, it's actually not especially likely.

As has been proven by quite a few marketing studies, consumers often do not necessarily want the best price. They want a fair price that is consistent and comes with a pleasant customer service experience and a trusted vendor.

Just because a consumer can spend an hour or two comparing the 290 camera options out there, very few actually want to. If they are confident that the Costco down the street is probably near the lowest, they may prefer to go there than spend the time seeking the absolute best price. That's especially true if that absolute best price turns out to be from someone they've never heard of. This is similar to points raised in a recent report from the University of Pennsylvania about e-commerce consumer trends.

When weighing the consumer effort-to-benefit ratios, "good enough" often beats "terrific."

So if consumers value trust and customer service so highly, why risk scaring them off with a transparent geographical pricing strategy? The problem with cutting-edge is that it can often cut both ways.