How to Choose the Right Grocery eCommerce Pricing Strategy for Your Business
Developing a grocery eCommerce pricing strategy that works for your business requires a balance between cost and control — with full transparency.
Online grocery providers are engaging in a heated battle for customer loyalty. Their weapon of choice: price. Large players like big box stores are willing to incur channel losses to attract customers by enticing them with free or reduced-fee pickup and delivery services.
But online fulfillment is a more labor-intensive, expensive activity than in-store shopping. Most regional grocers would find it hard to compete with a large mass merchant or national grocery chain based on lower online pricing. They need to strategize carefully to avoid becoming a casualty of this war.
Pricing strategies for supermarkets
There are traditionally two main strategies for online grocery pricing:
- Offset pricing structure — offer no-fee order picking and curbside pickup and recoup the costs elsewhere
- Up-front pricing structure — charge fees for pickup/delivery, with price parity between online and in-store
Offset pricing structure
Reducing or eliminating fees on fulfillment hurts the bottom line and may not be sustainable over the long term. If you choose this strategy to compete with no-fee big box stores, you’ll need to recoup some of these costs for long-term sustainability. Usually this means increasing product prices across your eCommerce site.
Up-front pricing structure
Charging fees for the fulfillment of online orders is a practice many grocers have followed to help recoup the cost. The downside of this model is that price-conscious customers can be lured away by no-fee or low-fee alternatives.
One way to tailor this strategy is by implementing differential fees. For popular, peak hours you might charge a higher pickup fee than during slower hours. This approach has a few benefits:
- It satisfies your budget-conscious consumers, who can choose the lower-price timeslots, while the less price-sensitive shoppers can opt for convenience.
- By tailoring fees based on time of use, you can reshape demand to smooth out the peaks and valleys, which helps you manage resources and minimize capacity issues during busy times.
- By reducing capacity issues, you can focus more on ensuring a seamless order handoff at curbside, improving customer satisfaction
Transparency is a key part of any grocery eCommerce pricing strategy
Whichever pricing option you choose, the key part of your strategy should be full transparency to your customers. It is critical that you make it clear what they are paying for and how they are paying it. If you charge fees for delivery, pickup or other services, customers need to know exactly what they will be — before they reach checkout. If the pickup service is free but online pricing is marked up, customers need to know this too.
By being clear and honest about pricing, you give the shopper control over the decision-making process, and this can be as important as price. It’s important to remember that even though customers want low prices, they don’t necessarily always demand them. The pandemic proved that shoppers are willing to pay more in certain circumstances. Consider the delivery charges, service fees, and tip that are added on to an online restaurant meal ordered through a third-party delivery provider. In this case and in many others, control is more important to the shopper.
Why you should own your supermarket pricing strategy
Owning and having control over both the customer relationship and your pricing strategy are important parts of a successful grocery eCommerce program.
Your pricing strategy should be based on your overall business strategy, not what your competitors are doing. Consider these questions when developing your strategy:
- Are low prices important to your market?
- How will changes to your pricing impact your unique brand experience?
- Are there other ways to improve your eCommerce profitability better suited to your unique business needs, such as optimized fulfillment technology or digital ad revenue?
If you’re using online marketplaces like Instacart or Shipt to gain exposure to a wider customer base, never lose sight of your ultimate goal: to shift marketplace shoppers to your owned eCommerce site. That conversion gives you more control over the consumer experience, household preferences and basket data, and a greater likelihood of maintaining customer relationships.
How marketplaces impact your online grocery pricing strategy
If you’re considering working with a third-party marketplace provider or renewing your contract, check the fineprint for their pricing policies. The last thing you want is to have the third-party dictate your ability to mark up prices, or worse, prevent you from undercutting them on your own .com. If you are forced to inflate your prices on your owned eCommerce site, you could drive customers away from your brand completely.
Ensure that your marketplace contract gives you control over two factors:
- The product assortment offered through the marketplace should be more limited than the product assortment offered on your own site. This ensures that shopping at your eCommerce site is the most attractive option.
- The contract should let you retain control over your pricing structure, particularly on your owned eCommerce site, so you can safeguard the customer experience. Watch out for hidden marketplace fees, which can adversely affect how customers perceive your brand — especially when they appear unexpectedly at checkout.
We know from an in-depth report on marketplace practices that shoppers tend to associate their marketplace experience with the retailer’s brand, not with the marketplace itself. If the customer is annoyed by an unexpected fee or higher prices, they’ll be annoyed with you.
Practice the “3 C’s”
Whether on the marketplace or on your eCommerce site, you need to choose the grocery eCommerce pricing model that’s the best fit for your customers and your business. But at the end of the day, pricing alone isn’t what builds loyalty and retains customers. Creating a great customer experience with high levels of satisfaction around every aspect of their shopping journey is foundational to your success.
Being transparent about pricing, with honest statements presented clearly and visibly, helps you create a strong customer experience and build trust with your customers. And that will help you build customer lifetime value.
Want to learn more about how you can increase eCommerce profitability for your grocery retail business? Watch our recent webinar about the “3 C’s of retail operations” to help you build your eCommerce strategy.