We know the phrase ‘Location Location Location’ and the impact it has on house prices, the effect it has on fuel prices if you are on the M6 and the fact that retailers can differentiate on price if you are shopping in a convenience location like a train station or airport.
The advances in technology and tills means that many retailers could set a different price for every store. Higher prices have been charged in convenience locations, where a retailer ‘takes advantage’ of the fact that a customer in that location has less choice and will pay a higher price in order to purchase the item, thus boosting the retailer’s profits despite higher rents in premium locations.
The recent revelation that retailers request boarding cards in airports is not a matter of security but rather a way to reclaim tax, has brought into question the ability for a retailer to differentiate its prices and to deduct tax at airports for customers travelling outside the EU.
The short answer is yes, retailers can have different prices for the same item and could pass the tax saving back to the customer. There is a longer answer though which considers the retailers ability to be competitive, the cost to operate in premium locations, and the knock on effect to other locations such as High Street convenience stores.
This recent revelation could have a far reaching impact on price strategy for retailers and what impact it might have across the whole offer. If prices are reduced in convenience locations, how will shareholders be guaranteed returns on investment when margins are therefore cut? Dixons and WHSmith have said the price at an airport is part of a pricing mix which enables the retailer to offer the best price it can to the customer across all locations. A change in price in one location will therefore offset another price elsewhere.
The airport retailing debate will continue with probably little change to prices but possible change to in store process, following Boots’ lead. The customer may understand the reason for price differentiation and be tolerant of it as long as there is transparency. Mobile use in retail gives the customer easy access to price comparisons between retailers and there is no reason that this shouldn’t be possible between locations using geo-location technology.
Retailers can also utilise geo-locations for marketing purposes. For instance, Morrison’s has completed a trial of location marketing to promote its fresh produce, targeting customers within a 5 mile radius of a store using geo-location technology. The results are reported to be excellent and open the way for a more location based marketing strategy and a way for retailers to compete by location with a message unique to them and beyond that of price.
Location has always been critical to a retailer’s success, being where the customer is when they want your product, and this remains the case. Customers will not stop making last minute holiday purchases at airports because they now know the reason for showing boarding passes, they always knew the prices would be higher there than elsewhere, but they may have second thoughts for a short time. But if one retailer changes its pricing strategy others will inevitably follow.
For help with your pricing strategy or marketing mix, give us a call.