Consumers love low prices, but retailers shouldn’t overlook the way shoppers perceive value online and in stores.
McKinsey QuarterlyMAY 2011 • Jeffrey Helbling, Josh Leibowitz, and Aaron Rettaliata
Source: Marketing & Sales Practice
… Yet while price competition is tough, our consumer research and client experience show that perceptions of value still matter in the ever-more-complex multichannel-retailing environment. Retailers can employ proven tactics to shape perceptions and take advantage of the fact that consumers care about more than just the price tag when they buy.
A recent survey we conducted1 shows that price is just one of a range of factors consumers take into account when buying products: they also consider the degree of trust they have in a retailer, its product assortment, and their previous buying experiences (Exhibit 1). So even in the most competitive product categories, … retailers can look beyond price and actively shape perceptions of the value they offer. None of this happens by chance; retailers can implement strategic moves to get credit for superior value.
Consider, for example, how consumers view leading sellers of women’s apparel in the United States (Exhibit 2). While actual average prices at Kohl’s and JCPenney are similar (the x-axis), consumers clearly perceive Kohl’s as offering lower prices (the y-axis). Amazon.com—which typically has among the lowest prices in categories such as consumer electronics—charges more for similar types of apparel than Kohl’s and JCPenney do, yet retains a “halo” of value among the consumers we surveyed.
In our experience working with dozens of offline, online, and multichannel retailers, we’ve found that they can use certain pricing moves to play the value card. The first is identifying key value items—products that have the greatest impact on value perceptions. … Second, these items must be priced competitively to create a public perception that a retailer offers good value, and discounts on them can be recouped with higher prices on less visible products. Finally, prices should be the same no matter which retail channels a consumer uses: stores, the Web, or catalogs.
Retailers also can carefully craft product assortments in ways that influence value perceptions. For instance, in categories with clear “good,” “better,” and “best” ranges—such as flat-screen TVs—retailers can display models side by side, attract consumers with hot prices on good models, and then encourage trading up by clearly articulating the features and benefits of the better and best options. …
Second, value “heroes” with low price points should be overrepresented in online, in-store, and external marketing. An apparel retailer, for example, can disproportionately showcase $15 men’s business shirts in marketing materials while keeping the majority of its product assortment well above that price point. Third, tactics such as free shipping, in-store pickup, generous return policies, and price-match guarantees are critical drivers of value perceptions. For the consumer pondering the wall of TVs—or, for that matter, browsing a Web page of them—any money saved by purchasing one elsewhere may seem trivial compared with benefits such as free shipping, in-store pickup, a range of financing and extended-warranty plans, and options for expert installation.
About the Authors
Jeffrey Helbling is a principal in McKinsey’s Chicago office, Josh Leibowitz is a principal in the Miami office, and Aaron Rettaliata is an associate principal in the Pittsburgh office.Notes
1 Multichannel pricing survey of 6,000 US consumers and price checks (conducted during September and October 2010) of more than 1,100 items at 20 retailers.
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