Smartphones and Smart Consumers
There was a time when if you went to a retail store and the prices seemed a bit high, you would have to drive to a competitor to compare rates. If it turns out the initial store was cheaper, you could drive on back and make your purchase. Then the internet came along. If you wanted to compare prices, you could do some online research comparing different retailers' prices, before printing off your MapQuest directions to the store offering the lowest prices. Now, we're in the mobile era. From a retail store you can quickly look up the price of a consumer product offered at every single competitor from your tiny computer that you take everywhere that happens to make a phone call once in a while.
How do retailers satisfy these knowledgeable consumers?
Armed with smartphones, consumers demand lower prices and have the power to seek out less expensive alternatives, including buying from online retailers like Amazon. To compete, many retailers have offered to match the lowest prices from physical and online retail stores alike. This can prevent a retail store from losing the customer, but a cost. Retail stores lose revenue by lowering their prices to match low-cost competitors, but they also must deal with the uncertainty in forecasting associated with selling a product at various prices. Price matching also allows some shrewd bargain hunters room to pull a fast one over retailers. Recently some customers created false Amazon pages to purchase Playstation 4 consoles at less than 25% of the going rate.
Where does this leave retailers?
Retailers use this price-matching to practice price discrimination. They offer lower prices to the bargain-hunters who pull up competitor prices on their iPhones, but offer standard rates to those who are satisfied with the listed price. This strategy allows retailers to stave off the low prices of online retailers a little bit longer, while also extracting the most revenue from most customers. Trends are moving in the direction towards consumers gaining more and more information about consumer products value and quality, so physical retail stores must begin to offer more benefits to the in-store experience if they wish to remain profitable. The Apple Store is the pinnacle of this in-store experience. Customers enjoy trying out the latest products, receiving one on one assistance from "Geniuses", and lounging around in the sleek-looking stores. There is still a reason to go to these physical locations. Price-matching is nice short-term band aid, but retail stores must continue to offer premium experiences if they expect today's consumers to choose in-store purchases over the convenience and experience of online shopping.