- 30 dicembre 2010

Has the Internet Moved Pricing Power to the Consumer?

A recent article in Fortune got me thinking about the significant changes that have occurred in recent years in how consumers obtain information on prices and deals and the impact this has had on their buying decisions.

As Comscore has reported, 2010 has been a strong holiday shopping and buying season, so I was particularly struck by the fact that ShopLocal reported an overall decline in the use of display ads by retailers to communicate promotions and special prices:

As can be seen above, while the number of advertised offers per store increased substantially in the few days immediately preceding and following Black Friday, for the season overall retailers were generally running about 6% fewer ads touting their special offers. Despite this reduction in paid advertising “pressure,” however, consumers actually reported seeing substantially more discounts, sales and promotions this year than last.

When we asked consumers immediately prior to Thanksgiving about their perception of discounts and promotions in relation to last year, a net 36% of consumers reported seeing more special offers than in the previous year (45% said they had seen more discounts and promotions vs. 9% who said they had seen less). We asked the same question two weeks later in mid-December and while this proportion had declined somewhat, a substantial net 24% still said they were seeing more promotions.

If consumers are seeing more deals, but they’re not getting them from display ads, it’s clear that they must be receiving promotional information via other means. That encompasses a broad variety of online tools, most of which are very efficient for retailers (on the basis of cost) and consumers (on the basis of time spent). Consider e-mail, perhaps the earliest form of online marketing. Acxiom reported a 40% increase this year in the use of e-mail by big brands while Shop.org reported that 63% of retailers used e-mail to communicate special offers on Cyber Monday 2010, up from 50% in 2009.

In addition to e-mail, which can be characterized as “push” marketing, consumers have a plethora of tools at their disposal which they can use to easily “pull” price and product information when and where they need it. This includes visiting retail sites and coupon sites, accessing social media, conducting search queries, using comparison shopping engines, reading product reviews and using mobile devices. Let’s take a look at the trend in the use of these tools:

It’s clear that the number of people using the Internet to obtain information in support of a buying decision is now extraordinarily high and the year-over-year increase in this type of activity is very strong. As examples, 90 million Internet users visited a comparison shopping engine in November, up 9% versus year ago, while 45 million visited a coupon site, up 19% versus last year. We’re also seeing the emergence of group buying promotional sites such as Groupon, which attracted 10 million visitors in November, a six fold increase from the same month in 2009.

This year, it’s also clear that the use of mobile devices to research prices and product features has reached a material level of importance and should only continue to grow as the number of smartphone users increases:

As part of a survey Comscore conducted in the first half of December (Dec. 9-13, 2010), we asked consumers what sources of information they had used to help them in making a holiday purchase decision (either online or in-store). Accessing a retailer’s web site was the most frequently cited source of information that helped drive a consumer’s buying decision (35% of respondents mentioning), followed closely by the use of traditional search engines (33%), visiting coupon sites (25%), e-mails (18%) and comparison shopping engines (17%). Surprisingly, recommendations obtained via social media were cited by only 5% of respondents, marginally ahead of the proportion citing banner ads (4%). The low rating for social media matches what ForeSee Results recently found in an independent survey, with only 5 percent of holiday shoppers saying a social media channel primarily influenced their decision to visit one of the top 40 retailers’ websites. With that in mind, the measurement firm advised retailers: "tried-and-true online marketing tactics should not be abandoned or ignored in favor of newer media."

In summary, it’s clear that retailers have gone far beyond the use of paid online display advertising to cost-effectively communicate deal pricing information to consumers, while at the same time consumers have now become accustomed to using online tools to root out best prices. The more influential tools include retailers’ own web sites, paid and organic search, comparison shopping engines, coupon / deal sites and e-mail, each of which offer retailers a high reach at a very low cost. In many ways, the aggressive acceptance and use of these tools by consumers means that they can easily find the most attractive price for any product and, as such, pricing power has surely moved from retailers to consumers. When retailers release their end of year financial results, we will see if they were able to realize enough cost reductions to allow them to report a profit growth that matches the surge in promotion-driven consumer buying that characterized this year’s holiday shopping season.