In exhibit 1, I agree that loyalty falls last. If your competitors offer more value and a unique experience, it’s possible that your customers will buy from them even if you have a good loyalty program.

Value has many dimensions. A retailer can effectively optimize it using a multichannel strategy by channeling specific products and offers as well as driving traffic.

While the study is interesting, I have observed that most of these studies focus on only one quadrant—that of typical retailer and typical consumer.

The other three quadrants—typical retailer, atypical consumer; atypical retailer, typical consumer; and atypical retailer, atypical consumer—are hardly studied, although they collectively form a considerable part of the trade process. Behavioral economics do give great insights into consumer behavior. The danger, however, is when one generalizes these conclusions, which then, in turn, become references for businesses in devising their strategy.

Consumers don’t always make rational decisions while shopping. So, the correlation of decisions to the factors mentioned (price and experience) is not strictly linear. The study of the gray market would be useful, and the factors of experience or trust don’t matter. Price alone (or at times, price and peer suggestion) matters. And not all the people who buy books, software, movies, books, music, and clothes in the gray market are atypical consumers (i.e., they make most of their shopping at regular retailers, yielding to intangibles like experience and trust). A consumer who puts a premium on the “shopping experience” may, at other times, put it solely on “buying an experience” and doesn’t care however uncomfortable the experience of shopping itself proves to be. If you buy a movie at a retailer in the gray market, the premium shifts from the experience of shopping to one of watching the movie.

A typical consumer’s behavior depends equally strongly on the size of his or her disposable income, which has nothing to do with retailers. As it’s improbable that all consumers’ disposable incomes shrink at the same time, retailers don’t run short of consumers, so even though “consumers” remain constant, we are not talking about the same set of consumers at any two points in time. If we limit the focus to retailer-consumer, we will still end up with a good paper about consumer behavior. A consumer whose disposable income has shrunk would choose other retailers or outlets, and the factors that determine his shopping decisions would be now different. The retailer, however, finds other consumers who behave typically, yielding to the factors that this consumer had also yielded to earlier.

Many times, people walk into a mall just to spend an evening and happen to shop, too. Shopping happens accidentally. When asked to recount, the consumer could attribute his or her purchasing decisions to the suggested factors. The retailer would never admit that a consumer happened to shop by accident rather than volition. And as analysis is done in retrospect, the correlation gets skewed.

The volume of study and depth of analysis are certainly commendable, but I believe it’d yield much more interesting observations or conclusions if the study was extended to include other unconventional markets.

The article looks good. It seems only discrete products are sold online. If you’re talking about values—not only price but also quality—include after-sales services as stated in the article, as well as the brand image; that’s another consideration, too.

The “halo effect” is very visible in India, with retailers positioning themselves as “value retailers” even when their prices are comparable.

Differentiation on merchandise, as well as experience, continue to create loyal customers who value the range and overall shopping ambience based on past experience, which builds trust, an important element for returning customers.

I see this happening in stores every day. Consumers rely a great deal on the shopping experience and trust in deriving perceptions of value. Expected to find more insights in the article, though.

Retail is a significant cog in the marketing cycle, but it is not comprehensive and cannot be independent except with the scale of a chain, or close integration with brand owners. Volume-based discounts prevent small stores from competing even on price with their larger kin. Stock outs, price points, shelf appeal, and extravagant advertising on national media are all beyond the decision-making powers of stand-alone retailers.

Macy’s and JCPenney are mentioned in this article: are they more retailers or integrated marketers with roots of outsourcing? Consider why street vendors in countries with socialist leanings use their clout as vote banks to keep professional retailing at bay. I agree that people of both sexes may allow their hearts to rule their disposable incomes, but price is the sole criterion when a family on a strained budget strains to keep essential supplies in homes. Perhaps everything stems from the level of the pyramid that you choose to target, and your insights into their needs.

You wrote: “Finally, prices should be the same no matter which retail channels a consumer uses: stores, the Web, or catalogs.”

I’m afraid that it’s not possible to follow this practice in some branches, especially in the case of large stores selling consumer electronics. In Poland, the average price margin is 2 to 4 percent above online sales. The highest costs for large stores are rent, service charges, and salaries, so you would have to generate unbelievably huge turnover to cover such costs. To survive, “brick” stores have to differentiate prices between the online (with the option of in-store pickup) and offline sales. By the way, have you conducted any surveys on the situation of the large-store business and its financial condition in the face of increasing share of online channels, especially in consumer electronics?

A surprising fact that Exhibit 2 shows is that respondents perceive the store channel to be providing better prices than the online channel for a retailer, and that it’s actually the case!

Thank you for the insight. It will also be interesting to consider the impact of targeted coupons and reward schemes. While these might be surrogate variables for loyalty, it is doubtful if the customers can perceive it as such while answering a survey.

Increasingly, peer influence through social media might also gain relevance in targeted segments.

Some years ago, I was working for a large regional home-improvement chain faced with heavy price competition from Home Depot and Lowe’s. Our operating costs were too high to compete on price item-by-item, so we tried the key value pricing strategy you described above. Unfortunately, it did not work. Customers are smarter than we sometimes give them credit for. They figure it out, especially in retail categories with high shopping frequency. We tried a few other pricing strategies, too. The company no longer exists.

In the current hyper-competitive environment, you have to be generally competitive on price with the other retailers in your category. If you can’t be, you need to redefine your category, offer some kind of added value, go heavily into private labeling (thus obfuscating price comparisons), or face the consequences. These are lessons every small, surviving retailer has learned.