Let's define the difference between:
Low prices: Retailer in general has lower prices than other online retailers or less than the products are priced offline. Examples: Amazon, Wal-mart, Tigerdirect, Overstock etc.
Low Price Guarantee or Price Match Guarantee: Retailer agrees to match the price of a competitor if the customer finds the item cheaper elsewhere. Subject to restrictions including lowest advertised price, US only, online only, in-stock only, exact model number etc.
110% Price Guarantee: Retailer promises to beat a competitor's price by 10% or X% before or after the sale.
The Pros and Cons of Price Matching
These policies assure the customer you're not trying to price gouge and will honor requests to at least match a competitor's offer which is usually a customer's expectation. And most retailers expect customers to be too lazy to comparison shop anyway.
They can also save returns post-sale, though most policies I've looked at actually restrict price match to pre-sale. When Amazon discontinued its price match policy, this customer simply returned his item.
But there are more cons than pros, including:
1. You interrupt the selling process, and risk the customer never comes back.
2. If you encourage customers to start searching elsewhere, you risk they find a competitor with a better shipping rate, better product selection, better site usability, better prices across the board, and actual unique selling proposition (that's attractive) or find the product available at a physical store.
3. If you simply match prices, why shouldn't the customer just buy from the other guy? Saves the customer contacting you and waiting for your price match approval.
4. Reading price match requests, manually checking competitor prices and responding to them takes up customer service resources.
5. You condition your customer to be price focused rather than value/service when dealing with you.
6. You have to be very clear about your terms and conditions - which customers likely never read through or fully understand.
7. In this economy, many stores are going out of business or will take a huge hit on a loss-leader. Others sell refurbished goods which the customer doesn't understand is not the same as non-refurbished.
8. Your conversion rate / ROI for various marketing channels get messed up. Your Adwords may be driving a lot of traffic that leaves and returns to your site as direct type-in traffic, a browser bookmark or subsequent keyword search. Because most analytics tools credit the last referral, you can't properly attribute success to keywords that referred the customer in the first place (without special software / hacks). Ditto for email / banner / affiliate / insert-marketing-channel-here.
Many retailers will only honor the price match before the sale, but a bigger issue is disgruntled shoppers who find a lower price after they've bought from you and seek a price adjustment. At least the price adjustment keeps the customer happy (and if issued as a credit may encourage a repeat visit or just a pissed off customer). Your attribution isn't muddled and you are guaranteed the sale - it already happened.
What About 110% Price Guarantees?
This one is a bit more interesting from an economics perspective. Theoretically, if retailers really don't want to budge on their pricing, they should all have 110% guarantees. This discourages competitors to lower prices because it only encourages the customer to buy from a retailer who will beat that price. If all retailers adopt the 110% guarantee and keep prices at full MSRP (manufacturer suggested retail price) the playing field is level again - no one wants to risk advertising a sale.
Of course this isn't a perfect theory. It depends on the customer being fully aware of all retailers' prices and policies. And we know most products inevitably go on sale. Unless retailers sit down for a pow-wow and agree on a markdown schedule, there's going to be variation in prices.
There is something psychologically powerful about a 110% Price Guarantee. It's not merely a price match - it's a "we value your business so much we won't be undersold" message. It speaks to the fear "what if I find it cheaper somewhere else" and assures you "we'll take care of you."
But there's a major downside to 110% Price Guarantees. You can get burned by resellers who'll find an uber-low price, buy up all your stock with an additional discount and resell it on eBay at a profit. Combine that with a free shipping offer and you lose big-time. Trust me, it happens.
Price Guarantees - No Substitute for The UVP
There are certainly psychological benefits to offering a price match or offering to beat competitor prices. It's a marketing thing. It's a customer service thing. It's a loyalty thing. It's part of your value proposition, if you offer such a guarantee.
There's also plenty of reasons not to do them.
Whether you decide to use them or not, please understand price matching is no substitute for a unique selling proposition / unique value proposition. And don't confuse Unique Value Proposition with your tagline / slogan either!
Further reading on value propositions:
Powerful Value Propositions (Webinar) by Marketing Experiments
Resources for Optimizing Your Value Propositions by Hunter Boyle, Marketing Experiments Blog
How Strong Is Your Value Proposition? by Linda Bustos, Get Elastic (yep that's me)
All posts tagged "Value Propositions" on Get Elastic