I noticed that Rooms To Go sells furniture with a showroom/shipping model. That is, customers visit showrooms scattered around the country to view and select what they wish to purchase. However, the showroom carries no more inventory than is what shown on the floor and the product purchased is shipped to customer location from various warehouse locations.
While this business model provides some strategic benefits to RTG, such as focus cost on showroom appeal to customers versus higher inventories, the way they price is questionable. RTG's market is primary mainstream furniture consumers who are furnishing a home for the first time or investing in entire room(s) for some reason. the furniture is well priced for that furniture purchase occasion, using modest sales discounts to make customers feel they are getting a "deal". This works pretty well as a strategy.
The problem comes in that when a customer finally decides what they wish to buy, they are then "hit" with shipping costs as a add-on to the price. Moreover, the shipping cost is variable depending on what the customer is buying. Generally, customers of RTG are somewhat budget strapped, that's what makes them a RTG customer in the first place. This means that the furniture they decide to purchase is usually on the high end of what they can spend. The add-on shipping charge has a significant cringe influence on the customer, possibly even making them have significant negative emotion. This reaction can put the sale at risk.
This brings up some points about pricing. First, the pricing mechanism is always strategic (an aspect of getting a customer). Second, its not what the price is as much as how the "pricing mechanism" makes the customer feel, and consequently how the mechanism affects the purchase decision.
Too often companies pricing mechanism is not very strategic in that price is more about recouping cost or guaranteeing a predictable Gross Margin than how it works with product to appeal to customers' decision making. For instance, since shipping cost for furniture is dependent on the specific product and the customer has no option, would RTG create a better interaction with customer if shipping were in the displayed price and customer knows what they will pay as they view various product alternatives? Is being more competitive with price by stripping out add-on's, like shipping, while the customer is selecting product, more helpful in getting a customer than the emotional stress caused by applying shipping after customer has somewhat made a purchase decision? Which approach makes RTG more viable in the market?
This is somewhat the same issue as airlines or banks who "fee the customer to death". I am sure it depends on the customer make-up in a market and how add-on costs (fees) are determined. The point is that to be strategic, a business must understand how the pricing mechanism affects customers. How one prices can have as much or more customer impact as what the price actually is.
Effective pricing mechanism is being strategic and being strategic is about "Winning in a Hostile Environment"
available @ amazon.com
No comments:
Post a Comment