By Joe Skorupa

Last week’s blog about Amazon hijacking customers not only struck a chord with readers, but it amazingly dovetailed with news from JCPenney and Target that hit the headlines on the same day. JCPenney launched a bold multi-prong pricing strategy simultaneously with Target launching an initiative to combat “showrooming,” a trend where shoppers visit stores to look at products and use digital tools to purchase them from online retailers. Here’s how it all ties together.

JCPenney CEO Ron Johnson has plans to revamp every element of how the mid-price department store does business, but the first thing he tackled last week in a national media blitz is pricing. As noted in last week’s blog, pricing is a flashpoint for shoppers. They want transparency. They want consistency. They want prices that are competitive when they appear in pricing engines.
 

JCPenney announced it will achieve these goals by offering most products with a consistent, very low regular price. They will layer on top a second pronged approach that focuses on sales events during month-long promotions and one-day sales on the first and third Fridays each month.
 

In my blog last week I called this approach a two-pronged approach. JCPenney calls it a three-pronged approach by splitting up the promotional prong into two parts. Either way, the result is the same – transparency, consistency and competitive pricing across channels without falling into the trap of universal pricing, which can be a destructive race to the bottom.
 

The Target initiative is even more relevant because it is a direct response to Amazon’s focus on hijacking customers, which Target calls showrooming. This refers to the phenomenon where shoppers with smartphones scan barcodes in stores and then use a digital pricing engine (frequently through the mobile app Price Check by Amazon) to allow shoppers to review offers and then purchase the item from an online retailer, typically Amazon.
 

Give Target credit for helping to popularize a new word, showrooming, to a wider audience. While many in retail, including me, have referred to the risk of allowing shoppers to convert stores into showrooms, the term showrooming actually made its first appearance in early December 2011 in the New York Times, according to a Google search and the online website WordSpy.
 

Target used the term in a letter signed by CEO Gregg Steinhafel and Kathee Tesija, Target’s executive vice president of merchandising. The problem, as they see it, was described this way: “What we aren’t willing to do is let online-only retailers use our brick-and-mortar stores as a showroom for their products and undercut our prices without making investments, as we do, to proudly display our brands.”
 

The letter, which received widespread coverage in the media, was sent to suppliers and asked for their help to create special products to shield Target from price comparisons, and where this isn’t possible, help Target match rival’s prices.  
 

But Amazon’s success at hijacking customers requires more than a new pricing strategy and measures to counteract showrooming.
 

A multi-pronged pricing strategy, which was discussed at length in last week’s blog, is the first step in stopping Amazon (and other online retailers) from hijacking your customers. Here are four more steps to create a comprehensive strategy.
 

1.    Cross-Channel Integration: This involves major investment and hard work by the IT department, but it is not strictly about technology. True cross-channel integration is achieved only when silos are eliminated between platforms, databases and applications AND between departments and line-of-business executives. In most cases this will involve organizational transformation that ensures marketing promotions, for example, stimulate growth in ALL channels simultaneously and cannibalize none.

2.    State-of-the-Art Website: With so much at stake it is amazing to see website failures like Target’s Missoni collection debacle, Disney Store’s website crash when it introduced a limited edition Princess doll, H&M’s “Try again later” online episode with a Versace collection in 2011 and again in 2012, and Barney’s long website outage during the final week of Christmas shopping due to its Lady Gaga Workshop promotion. Simple load testing would have solved all of these problems. Most brick-and-mortar chains do not invest sufficiently in their websites and it shows.

3.    Store Traffic and Conversion: Another amazing gap is the inexplicable lack of store traffic counters and, as a result, conversion metrics. Sure, many video analytics tools have been over-hyped and not lived up to retailer expectations, but infrared and thermal imaging systems can be used to make reliable estimates that enable retailers to benchmark success or failure of merchandising and marketing efforts. As cross-channel initiatives, especially in the social retailing channel, increasingly drive traffic to stores measuring conversion will become critical, and it can’t be done without traffic counting technology in place.

4.    Become an Analytics-Driven Organization: Data by itself has zero value. But it is a treasure trove of opportunity when something is done with it. If pressed, most retailers will tell you they do a terrible job of using their enormous and fast-growing databases. The list of obstacles they cite starts with database and application integration, data integrity, and the inability to incorporate new streams of unstructured data from social networks. Amazon is a data aggregator and analyzer par excellence. Its real-time recommendation engine sets the industry standard, and there is no doubt it uses analytical insights to tailor its highly successful product, channel and services launches. New tools to manage big data are becoming available and they offer retailers new opportunities to capitalize on something no one, not even Amazon, has – rich databases of information about their own customers.

 

There is much more to the evolving story about Amazon’s hijacking of retail customers as it inevitably marches toward becoming the second largest retailer in the world. Look for a final part three in this series in an upcoming blog.

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Stop Amazon from Hijacking Your Customers Part 1