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Price Matching: Pros & Cons of Strategies

By Priceva
on June 16, 2022
The article describes the advantages and drawbacks of price matching. Recommendations are given for those who are planning to improve the results of retail trade by means of price matching. The most efficient strategies of price matching are analyzed.

What is Price Matching?

If the retailer wants to get profit, he must make the prices lower in order to attract the customers because the customers are eager to buy the products if they are cheap. Thus, some retailers are ready to match the price or to provide a discount if the customers find the same product that is cheaper. Price matching is a strategy when a retail outlet agrees to sell the product for the same price the customer would buy it in another online shop.

It is quite a widespread approach, especially for the giants of eCommerce. There are a lot of price matching offers from Amazon and other big stores. Different stores have different practices of price matching. In some cases the buyer should just tell the owner that in another store the product X is cheaper, the proof may not be provided, but long standing relations with the price matching store are necessary.

For small stores this strategy can be unprofitable because it may cause big losses. If less inventory is ordered, small shops usually must pay a higher price, in comparison with bigger companies ordering more inventory. For small internet stores, it is more profitable to offer price matching according to the owner’s discretion.

Most stores require the proof that the product X is cheaper somewhere, For example, advertisements can be regarded as such proof. In most stores, price matching can not be done according to the buyer’s words only, without any documents.

Price matching in eCommerce is used when the products are identical: the type, make, and model are the same. For example, if the release year is different, price matching is not made. Such rules are applied to all products, including such goods as cars.

For some customers, price matching is really beneficial, but others don’t like it because it is difficult to search for cheaper prices. However, most people are ready to make such efforts in order to save money.

Today, information is money. By comparing their goods with similar products on the market - in price, quality, assortment, and availability - sellers enrich their own knowledge about the product.

This data can and should be monetized: it allows retailers to improve their assortment or service, set an attractive price, or increase the margin by playing on competitors' deficits. Price matching provides actionable insights.

To get information for comparison, sellers run monitoring of competitor products. It can be done manually, but, considering a huge amount of products in their assortment, many retailers resolve to product matching and price monitoring solutions. They can save a lot of time for sales departments.

Types of Price Matching

Price matching is a strategy based on price sensitivity. Customers’ purchase decision highly depends on the product cost. The majority of buyers want to pay less, so they choose stores offering lower prices. Matching allows retailers to win the loyalty of price-sensitive customers’ at the cost of a discount.

Price matching was first used by big distributors from Great Britain, but now it is used all over the world by both physical shops and online retailers. There are two kinds of price matching:
  • Presale. The shop is ready to compromise and even out the price before the sale, in case the client notices a better price somewhere else.
  • Post-sale. This option is used most frequently. The client gets a refund after purchase if they find a cheaper price somewhere else. Usually, the refund takes place within the range from two days to two weeks.


Price Matching and Price Adjustment

Remember that price matching and price adjustment are quite different notions. However, they can be regarded as interchangeable ones.

Price matching is the process where the seller makes the product’s price lower if he notices that a competitor has also decreased the price of the same product.

Let’s observe an example:

Target offers a certain model of bike for $799. You visit Walmart and see the same bike priced at $549. You would take the photo of the price tag or Walmart ad to Target and they will match the Walmart price of $549. You will end up only $549 in Target.

Price adjustment is the process where the price is decreased on condition that the product was bought in a limited period of time, and then a refund is given.

Here’s an example:

You visit Target and buy a certain model of the bike for $799. A week later, you see that the same bike is going to be priced at only $499. You will need to take your receipt at Target (no need to bring the bike), and ask for price adjustment. They will give you $300 back, which is the difference between the cost you originally paid and the new price.


Competitive Match Pricing Methodology

A competitive price match strategy is a pricing policy that relies on using competitors' prices to formulate one’s own prices. This type of strategy is often referred to as competitor-based pricing. In most cases, businesses come to competitive pricing after costly experiments that are not helpful.

Competitive price match analysis is data on customers’ reactions to new prices (conducting a survey or using historical data). Often, however, price analysis evaluates customer reactions, but does not take into account the costs and potential benefits to the retail chain.

According to a Forrester Consulting report, 81% of shoppers compare offers at different stores to find the best price for an item. Retailers who know how to collect and analyze market data understand where they are relative to their competitors. This helps them offer the best prices and become the chains that customers choose in the first place.

Competitive pricing is a strategy that helps a business attract more customers by optimizing prices, shaping them based on product data and competitors' prices. A successful pricing strategy can significantly increase sales and profits and improve interactions with suppliers.

The Pros of Price Matching

Always Competitive Prices

The shopper is fully responsible for monitoring the competition. Retailers should also monitor their competitors, but due to the added protection layer, the buyers can bring price variations directly to the seller. Moreover, this strategy gives the seller the ability to establish prices that are always competitive. Thus, they can concentrate on other business benefits besides the price, and the shoppers’ interest will increase due to such important factors as loyalty, wide assortment, and high-quality services. That’s one of the key benefits of price matching.

Increased Consumer Confidence

The retailer wants his customers to believe that his business is focused on their interests. Nowadays, the customers’ preferences are closely connected with their ethical considerations. If the customer doesn’t accept the retailer’s business model, he won’t make any purchases. Moreover, every customer wants to be convinced that the retailer is trustworthy and honest; that is very important. Price matching can be beneficial in this case. This strategy is beneficial for the shopper, as it can be regarded as a good-faith initiative. The retailer has listed a lower price, but he is ready to bear some losses in order to provide the best for the customers.

Improved Sales Figures

Of course, every seller is eager to increase sales, and price matching will be beneficial in achieving this important aim. Let’s illustrate this idea from the shopper’s point of view. You are ready to buy from a particular retailer but suddenly you see that a competitor has decreased the price. Then you pass this info to the online shop, the retailer carries out price matching, and everybody is satisfied.

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The Cons of Price Matching

Degraded Margins

A price matching strategy can be a reason for price degradation, and most retailers are really anxious about it. Say an online retailer competitively prices his products, but there is a certain price point providing a large margin for profiting and covering his expenses, then a shopper announces that a competitor has lowered the price. The retailer carries out price matching, then the profit margin is decreased and the profit is lost.

Possibilities of Price Wars

Such pricing methodology in some cases can lead to severe price wars. When two or more retailers are trying to set the lowest prices, a price war is initiated. It is a continuous cycle of online matching and dropping the price. Competitive matching causes margin degradation, and also the quality of goods and services can be decreased.

However, it is possible to avoid these unpleasant things. The retailer wants to have competitive prices and also make some profit. Thus, price matching should be reasonable according to the given situation.

Encouraged Competitor Shopping

A price match policy can be an indirect stimulus for the potential customer to buy from the competition. The retailer encourages the customer to check the competitors’ prices, and then the customer can become interested in their goods and services. Thus, a price matching strategy for some retailers can be inefficient. As a rule, match pricing is ineffective for small internet shops with a small market share.

Who Implements Price Matching Strategies?

Price match policies are used effectively by a wide range of online retailers. The buyers are encouraged to find the lower competitors’ price in two days after the purchase. If the buyer manages to do it, they are reimbursed.

Amazon used this pricing policy until 2016, but then canceled it because a wide range of startups appeared with lower prices. However, Amazon is still implementing various low-price matching policies.

Target has been successfully using this practice up to this moment, in their physical and online sales channels. The customer must find a lower competitors’ price within two weeks after the purchase. If he manages to do it, he gets a refund.

Risks of Implementing a Price Matching Strategy

A guarantee to make up the difference in price is a preemptive defense. The dealer's promise to cover any price difference can convince the customer that he should not look for a better product, since that store always offers the lowest price. Lowering prices prevents the business from expanding; customers remain loyal, but for that they demand constant price-matching guarantees. All that price matching leads to is a steady drop in profits, despite the preservation of sales. Sooner or later, market players realize that prices (and margins) are better kept high. The matching result is tacit collusion: maintaining high prices without explicit agreement between the companies.

Priceva helps retailers avoid possible risks and efficiently use pricing strategies and policies.

When an assortment is measured in thousands of items, manual matching becomes difficult. In addition, human error has an effect on such large scales.

The system allows you to download the necessary sections on competitors' resources or even entire sites and automatically find identical products in a huge array of data.

Processing 10,000 SKUs will take about 2 hours and can be automatically repeated according to a set schedule in order to keep the database up to date for price monitorization.

A flexible methodology of settings allows for individual configuration for a variety of purposes. For example, it is possible to compare not identical products, but analogues (similar products) according to any rules.

The Priceva system has three matching scenarios:
  1. If there are no more than 10-20 products to monitor, the user can select links manually - it's not hard to cope with this volume.
  2. If the number of monitored products is several dozen or even hundreds, it is easier (and faster!) to order matching in the service - special editors will perform the selection of links.
  3. If the goods do not have articles or standard markings, Priceva technical support configures automatic parameter matching for this task.
It's up to the selling retailer to decide which scenario to choose; we just recommend paying attention to a very important factor when choosing: regularity of reference points for comparison.

Final Words

Price matching can be quite a beneficial strategy. Customers are encouraged to monitor the competitors’ prices. If the competitors’ prices are lower, the retailer provides a refund to the customer. Such a strategy can increase brand loyalty.

However, for some retailers, especially with a small market share, it can be unprofitable because the buyers can become interested in the competitors’ products and the margin is degraded. Price matching software by Priceva will help to avoid these risks and problems.

FAQ

How do you benefit from price matching?

Price matching increases brand loyalty. Also, price match policies can attract new customers.

Can you price match something on sale?

Yes, it is possible. The price changes are monitored by the customers but not by the ecommerce retailers.

Does price matching keep consumer prices lower or higher?

It keeps consumer pricing lower. Due to this fact, it increases the customers’ interest in the purchase.

Is price matching good for consumers?

Yes, this type of strategiс pricing is beneficial for the customers. Moreover, a low-price proposition is beneficial for the retailer, so the benefit of a matching strategy is mutual.

What is a price match guarantee?

It is a guarantee given to the customer by the retailer. The retailer guarantees a refund to the customer if the customer finds the same product in another internet shop, but the same price for buying and shipping will be lower.


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