2018-06

How to avoid becoming a casualty of a price war

by Clare Henderson
 | 
07 June 2018
How to avoid becoming a casualty of a price war
Many small to medium retailers have been decimated by the growth of the price-crushing retail giants. We show you how to do battle.

From the perspective of a retailer, a price war simply encourages the ‘sale mentality’ amongst customers. It comes to a stage, and actually much of the retail has already arrived at this point, where customers simply expect that retailers should always be on sale.

Walk into any shopping centre on any day of any week and it will be filled with sale signs. In the past this only happened twice a year, but now it is the permanent state of retail. Consumers have been trained to wait for sales before making a purchase, and why wouldn’t they? I don’t think it’s unusual for a consumer to see a product at full price and instead buy something similar that is on sale, or simply wait for a deal to come along.

The Salmat Marketing Report 2018 revealed that 83% of shoppers say their purchases are driven mainly by price. Consumers will jump ship to a different brand because of price. They will abandon long relationships with particular retailers and products because of a better offer. Brand loyalty amongst consumers is a thing of the past, mainly thanks to seemingly endless sales.

The Psychology of Pricing

These sales haven’t done retailers any favours and have destroyed many retail businesses who struggle to maintain competitive pricing. Suppliers have seen their margins shaved to a sliver thanks to corporate buyers driven purely by the need to send prices ever lower. 

It sounds as if it’s the end of the world, particularly for mid-sized retailers, but it’s not. Retailers unable to compete on price alone are simply having to be more creative in order to sleep in this bed the industry has made. 


Launch more often

What I’m seeing across some of my fashion clients, for example, is that in order to overcome the ‘sale mentality’ problem they’re doing more releases of new fashion lines more often. They’re launching new stock more regularly to hold the interest of their regular customers. Some customers will still pay full price for the latest and the greatest, for something that feels a little bit exclusive, something that nobody else owns. 

Of course, this means the store needs to hold more stock and organise more marketing. It means there’s a new launch, and all of the management and expense that goes with that, every couple of weeks. All of that, in turn, drives a need for greater sales in order to recoup costs. 


Find a unique selling proposition

Another option is to find a unique selling point that differentiates your product enough to convince people that there is no option but to purchase at full price. Apple does this well with a sense of quality, design and exclusivity. 

Perhaps your brand’s USP is service. In the impersonal world of major, ubiquitous retail, personalised service is a thing of the past. Hence, many consumers are surprised and delighted by personalisation. It brings back quaint memories of the good, old days when staff at local stores knew you by name. How much consumers are willing to pay for personalised service is untested in many markets.


Create an ecosystem around your core product

A third way to compete in a price-obsessed market, especially for mid-sized players, is to create peripheral services around your core products. 

It means not just focusing on one product but instead diversifying, but within a niche. One fashion retailer was quite famous for a single type of core product. Now they have created a number of jackets, jeans and accessories that work very well with that core product. Their product set is now broader, but it all relates and feeds in to that original core product.

So there are ways around price wars, but retailers will never escape the fact that price is now king. Who wins a price war? The only winner of that war is the retailer who broadcasts their prices in the smartest and most effective way. 

After that, smaller retailers in particular who are smart and creative enough to find a way around the battlefield will improve and grow and might even become immune to the effects of price. That’s a wonderful place to be.

Find out more about how we can help you reach, convert and serve your customers here or call us on 1300 725 628.

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About the author
Clare Henderson
Senior Manager Client Engagement, NSW

Clare has extensive experience in client services and senior account management. Her career has spanned roles with Nielsen, Bazaarvoice and Hostworks, amongst others. In March 2017 she joined Salmat as an account director, and today she heads up the Client Services team in NSW where she spends her time working to guarantee client success within the ever-changing marketing services space.