The basic idea behind price matching is that retailers will match the price of a competitor’s product if a customer finds it for a cheaper price at another store. This helps retailers to maintain their competitiveness and attract price-sensitive customers.
The practice of price matching is often used by big-box retailers such as Walmart and online marketplaces, but it can also be used by smaller independent retailers as well. Retailers can either have a formal price matching policy or informally match prices on a case-by-case basis.
Pros and cons of price matching
One of the main benefits of the approach is that it can help to increase customer loyalty. Customers are more likely to return to a store if they know that they will be able to find the lowest prices on the products that they want. This, in turn, helps to increase repeat business and drive sales for the retailer.
Another advantage of the approach is that it can help retailers to stay competitive in their markets. By matching the prices of their competitors, retailers can ensure that they are offering their customers the best prices possible and remain attractive to price-sensitive customers.
However, there are also some disadvantages of price matching. For one, it can be difficult to monitor prices from all of the competitor’s in a market, making it difficult for retailers to know when they need to match prices. Additionally, it can also lead to price wars, where retailers are constantly lowering their prices to match those of their competitors. This can put pressure on profit margins and make it difficult for retailers to maintain a sustainable business model.
In ecommerce and retail businesses, price matching can impact pricing in the following ways:
Price competitiveness: By matching prices with competitors, businesses can maintain a competitive edge in the market and prevent consumers from switching to other retailers.
Price transparency: Price matching can increase price transparency, making it easier for consumers to compare prices and find the best deals.
Price elasticity: Businesses can use data on price elasticity to inform price matching decisions and ensure that prices are set at a level that maximizes profits.
Cost-based pricing: Businesses can use cost-based pricing, where prices are set based on the costs of production, to determine the appropriate price point for a product or service.
Price wars: Price matching can lead to price wars, where businesses repeatedly lower prices in an attempt to gain market share and drive out competitors.
Price matching is a strategy used by retailers to match the prices of competitors’ products if a customer finds it for a cheaper price elsewhere. The practice helps increase customer loyalty and competitiveness, but can also lead to price wars and put pressure on profit margins. Retailers should carefully consider the potential benefits and drawbacks of price matching before implementing it to ensure informed pricing decisions.