I wrote recently about a couple of trips to Europe that I took that underscored some of the differences that I see between the evolution in omni-channel in the US vs. the evolution in Europe. I identified six: differences in demand forecasting, inventory localization, cross-channel inventory optimization, personalization / relevancy, store labor, and finally, price transparency. Today I want to tackle the last one – price transparency.

Price Transparency

This is a very hot topic right now, as RSR is finding from the overwhelming response that we’re seeing to our latest benchmark on pricing. In that study, we found that retailers are becoming more promotional in response to showrooming and perceived price sensitivity among consumers.

For those of you that have not been keeping up with the barrage of retail news lately, “showrooming ” is the consumer practice of using a retailer’s stores as a show room, to look, touch, and feel (not to mention partake of the retailer’s employee expertise, such that it might be), but to ultimately search online for the best price to actually make the purchase. One of the biggest beneficiaries of showrooming has, naturally, been Amazon, who has also been fairly aggressive about targeting shoppers standing at store shelves with mobile phones out – offering easy barcode scanning to compare prices, and announcing in-store price matching last holiday season.

However, while there are plenty of European retailers that are only now experiencing the “Amazon Effect ” as the online giant moves into their local markets, in many ways, US retailers are much more exposed and vulnerable to showrooming than European retailers. The differences are primarily regulatory, and retailers’ adaptation to those regulations.

For example, while, according to various online sources, there are approximately 500 million people in the European Union, there are only about 360 million in the US. However, the US occupies a land mass nearly twice as large as that of the EU. Regulatorily speaking, the US has a much more uniform legal environment across that land mass than you’ll find in Europe. Retailers have responded to these differences by employing zone pricing – offering different prices depending on the geography of their stores. For example, they might start marking down summer clothing or outdoor furniture and accessories much sooner in the northern part of the US than in the southern part.

When there was no price transparency (thanks primarily to a lack of online shopping), it was easy for retailer to get away with this. People in Texas have no idea that people in Montana might be getting a much better deal on their barbeque grills in September. That kind of geographic-based pricing is still probably okay – you can make a case about shipping costs and competition and that kind of thing. The problem is that retailers started to get even more sophisticated. Within one county in one state, you might find prices set based on whether a store is near a Walmart, or not near another competitor at all, whether it’s located in a dense urban setting or out in the posh suburbs.

The problem with that strategy is if a shopper searches for prices within a 10-mile radius, they might not only find competitive prices, they might find multiple varying prices within the same retailer! As a shopper, how would you feel to find out that you’re paying more at the same retailer simply because you live in a more expensive zip code than the one less than 2 miles away? I’ll hazard a guess that you would not feel very good about that retailer.

In Europe, this progression down zone pricing didn’t go nearly as far as in the United States. First, there’s this country boundary to deal with – the laws governing retail prices in Germany are different than those in say, Italy – at a much stricter level than between, say, Colorado and Massachusetts. I learned just last month that there are specific pricing windows for clearance items in Spain, set by the government. That kind of messes with the opportunity for markdown optimization, just as an example.

There are also significant differences in the ways that consumers respond to prices and promotions in different countries. Some cultures don’t like bargains or promotions at all and some won’t buy anything unless they feel like they bargained their way down to a good deal. Walmart’s everyday low price strategy required some adjustments as they entered Japan, for example.

Adding to the complexity of this issue, there are a lot of regulations out there around how often you can promote items, how much you can discount items in a promotion, how long an item can be on promotion, differences between temporary price reductions and permanent price reductions… One of the opportunities for retailers to counter price transparency is to offer different prices to different types of customers – one uniform price across geographies (that are regulatorily uniform or at least permeable) and across channels, but “your price ” available to consumers based on either behavior or the lifetime value of the customer. Those opportunities are more limited in regions where the regulations around promotions are stricter – and retailers will continue to have to navigate those increasingly complex waters as they expand the regions in which they operate.

So – advantage Europe? Maybe for now. However, the European Union, as a result of the sovereign debt crisis, is becoming more and more financially entangled. Does that mean that someone in one country might yet be able to figure out some kind of retail arbitrage via surrounding countries? Or that retailers find an incentive in pushing for more permeable boundaries across European countries – to help streamline their distribution network, for example? Which, in turn, will lead to pressure to normalize prices across countries as much as possible? I have no idea what odds to put on that kind of political development. But I wouldn’t rule it out.

Part Two of an Occasional Series

Price transparency is one six areas where I’ve seen some differences between US and European retailers. The other five are demand forecasting, inventory localization, inventory optimization for cross-channel, personalization/relevancy, and store labor. I’ll write about each of these in the coming future. And, if you’ve got a strong opinion, I’d love to hear any other differences you’ve found to exist. Let me know what you think!