Can online and e-commerce companies
compete on anything except price? Yes, they can because not everyone buys on price. Remember the words of Warren Buffet, “Price is what they pay, value is what they get”. So, online retailers need to give their customers more value. Value can be information and insights into what other customers have already bought. That’s how busineses can compete on more than price.
In his 2016 book, Persuasion expert Robert Cialdini
outlined three stages of persuasion: build a relationship, reduce uncertainty and motivate to act. These stages help us diagnose why some can compete on more than price.
To build a relationship, online businesses can show what people similar to you have bought. Go to Amazon and click on Cialdini’s book Pre-suasion
and you see “Customers who bought this item also bought” and “Frequently bought with”. Take note there are no price discounts offered here. So, show customers what people like them buy. But surely every online site does this? No, on Flipkart when you click on a product, you will often find the far less persuasive “Other products”. No persuasion from what other people have bought.
What’s so powerful about this deceptively simple step? Showing what others have bought, also helps with the next stage of building relationships: reducing uncertainty. To decide if they will buy this item, customers look for social proof: what are other customers buying? How can we do that easily?
Pick a different category like cameras that is complex and confusing. Imagine you have two buyers: one buyer looking for a small compact camera and another buyer looking for an SLR camera. How can you help people buy on more than price? Use social proof: tell them our best-selling compact camera is a Sony W830,and our best-selling SLR is a Canon 1300D. Instantly, both buyers have a likely purchase. How can they go wrong when so many others have bought the same models?
The third stage of a relationship is motivating potential buyers to act. The most common technique used is scarcity. Scarcity from showing limited stock “only two left in stock” to making offers with time limits, “until May 23 buy two, get one free”. Or as Snapdeal does with its deal of the day offer. On the screen is a digital clock and watching those seconds and minutes reduce creates an urgency that’s hard to resist.
Another interesting use of scarcity is when a retailer offers a fixed fee of say Rs 50 for transport of up to three books. If I have bought one book, even though I understand persuasion, I am still sorely tempted to buy another two books to save the cost of transport on those two books because I will “save delivery fees”. This feeling comes framing the offer, so people see it as a potential loss. If I don’t buy two more books, then I will lose the opportunity of free freight. People have a strong urge to act to avoid a loss.
So, we can see some ways online retailers are competing on more than price. One key insight is: not all people buy on price. Going back to delivery charges, normally you would give customers two choices, standard delivery and express delivery. Let’s imagine the cost of standard delivery is Rs 35 and the cost of express delivery is Rs 70. Also if you sell standard delivery for Rs50, what should you sell express delivery for? If you use a standard margin, that suggests selling at Rs100. But, throughout business, we see that buyers are willing to trade off price for speed.
For example, how much does it cost to travel one way from Mumbai to Delhi on May 30? Prices range from Rs 3,400 to Rs 39,900 on the 68 available flights. The number of stops, duration of flight and time of the day all influence pricing. But, even if we limit the flights to non-stop, we still can choose from 19 flights priced between Rs 3,400 to Rs 13,300.
Just like with airlines, some customers care more about speed. So, charge them a premium beyond the cost. Instead of Rs100 for express, charge Rs 150. Here you do not have to compete on price.
In summary, how can online retailers compete on anything but price? Simply stop just selling on price. Change your thinking and ask: apart from price, how can I persuade people to buy? Show them what people like them have bought and tell them about best-selling products.
Create scarcity with limited stock or limited time offers. Create at least two offers one for the lowest price and one for customers who want things urgently.