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How Could Retail Software Solutions Support a Price Differentiation Strategy?

Woman working on computer

Can a retail software solution nudge a customer to buy instead of browse? Department chain retailer Sears hopes its business strategy can do more than “bring a horse to water,” as the old saying goes, encouraging its customers to “drink up” advertised sales specific to their shopping behavior.

An article on the Bloomberg Businessweek website explains how the Sears strategy could work. By aggregating data from its customer loyalty program, “Shop Your Way,” Sears hopes to strategically nudge online bowsers to buy.

But instead of enticing each customer with the same sale, Sears can implement price differentiation based on customer data or customer segment. For example, a high-income shopper who buys a top-of-the-line dishwasher without regard to price will see fewer sale items compared to another shopper who visits the site for several days before purchasing a marked-down item, the Bloomberg Businessweek article explains.

“Broad-based, everybody-gets-the-same-deal marketing that Sears and Kmart and many others have engaged in for a long time will be changing,” Sears CEO Eddie Lampert said in a recent conference call cited in the article. Lampert notes, however, that retail price differentiation may not be as drastic as the airline industry, where each passenger in the same row likely paid different prices for their seat.

Most systems today are geared toward capturing POS data, meaning there was a sale, but they are not tracking what customers are interested in purchasing. It’s very rare to find a retail software system capable of gauging buyer interest, but that’s just what Sears needs for a strategy such as this.

The emphasis now is on auxiliary systems like traffic counters that track how many people come through the door. But with mobile loyalty programs, retailers could potentially track exactly who walks through the door, and even pinpoint how much time a specific customer spends in a department.

Currently, there’s a radical difference between e-commerce systems and POS systems in brick-and-mortar stores. While they should share some of the same back-end data, they tend to operate as separate systems. Most often you will see the occasional upload of item information and download of orders to be fulfilled, but to have the complete picture of customer buying trends and patterns, they need to be operating with the same set of customer and transaction data.

So for midmarket retailers, you may not be at the stage to be able to capture customer interest, but you should be moving toward associating customer information with each sale and analyzing historical buying trends to understand the different motivators of the various segments of your customers.

Source: Bloomberg Businessweek, May 2013