deal seeking: online vs in-store

Anthem Marketing Solutions ● 549 W. Randolph, Suite 700, Chicago IL, 60661 ● 312.441.0382 ● www.anthemedge.com

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Executive Summary

Anthem Marketing Solutions has completed its seventh semi-

annual market basket analysis of in-store and online pricing trends

for a commonly purchased bundle of consumer products.

Consistent with previous studies, 70% of items observed have the

same price online and offline. When there is a price difference,

online dominates with 65% of observations favoring the online

channel and 35% favoring offline.

Price parity or online advantage has been observed at all price levels. Overall, the convenience category

(<$20) has shifted to an online preference. Previously 58% of observations favored the in-store channel.

In this study, 66% of observations favor the online channel. A key contributor to this change is a distinct

shift in channel preference in the lowest price tier of $0-$5. Previously 61% of observations favored the

in-store channel. In this study, 66% of observations favor the online channel. Online advantage for

considered purchases (>$20) has decreased from 85% of observations in our previous study to 64%.

Considering the same product categories as in our previous study, three exhibited notable high-level

results. Men’s and women’s personal care saw significant shifts in preference favoring the online

channel. Previously, men’s personal care showed parity in both total observations and savings

opportunity. We now see a 94% probability of finding a product cheaper online with a 14% savings

opportunity. Electronics saw a decline in online advantage, from 86% to 66% probability of finding a

given product at a lower price online. The entertainment category saw a notable increase in online favor

in terms of overall observations, from 50% in our previous study to 86% presently. The electronics and

entertainment categories, however, show the greatest savings opportunities when a product is found

cheaper in-store, at 45% and 76% respectively.

Highlights

• 70% of items observed have

the same price online and

offline. This is consistent

with the previous six

studies.

• Online dominates where a

price difference is observed

with 65% of observations

favoring this channel.

• The convenience category

has shifted to online

preference, driven primarily

by a shift in the lowest price

tier of $0-$5 from offline to

online advantage.

• In-store savings can be

exceptional when an item is

found at a lower price in-

store


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Methodology

The objective of this study was to compare listed online and offline prices for the same items purchased

on the same day, excluding available coupons and discount codes. Researchers selected a variety of

commonly purchased consumables, including health and beauty items and specialty items such as small

electronics, intending to be representative of a typical family’s periodic household needs1 (We

continued to exclude general grocery items, as they do not have broad online availability at the current

time). When possible, the items selected were consistent with those included in previous iterations of

this study to allow for comparisons across time. The selected items were standardized by brand and unit

size, and were only included if available for purchase in three or more physical stores and at three or

more online retailers2. Sales tax and shipping costs were excluded for purposes of comparison and

analysis, as were coupons and discount codes. Comparisons were made across product categories,

purchase type, outlet categories, channel and timing3.

In line with previous studies, we looked at channel performance in the $0-$5, $5-$20, and >$100 price

ranges. Additionally, items were classified as ‘convenience items’ if they were in lower price tiers and

were generally purchased for immediate or near-term consumption, and as ‘considered purchases’ if

they were in one of the higher price tiers and generally involve pre-purchase research.

In-Store vs. Online Pricing

Consistent with previous studies, approximately

70% of items reviewed were found at the same

price both online and offline. When there was a

price difference for a specific item, 65% of

observations favored the online channel and 35%

favored the offline channel. This percentage

favoring the online channel has been increasing

over time. However, while the online channel leads

in total observations, offline provided greater

average savings when there was a price difference;

the online channel averages 26% savings and the

offline channel averages 32%.

When an item is found at a lower price in-store, savings can be exceptional, but it’s getting harder to

find those opportunities. One example is the entertainment category: when a price difference was

observed there was just a 15% chance of finding the better deal in-store. However, in those situations,

average savings was a substantial 76%, suggesting it continues to pay to do price comparisons for

certain categories.

Examining the results by dimensions such as price tier, category and store, uncovers further insights, as

detailed below.


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Category Observations

In the beauty category, 91% of products were found at a lower price online,

with an average savings opportunity of 27%. This finding is consistent with

the previous study. However, offline savings opportunity has increased from

13% previously to 17% currently.

In the books category, 80% of observations had an online price advantage

with an average savings opportunity of 21%. This is directly in line with the

previous study showing 76% of observations at a lower price online and 25%

average online savings.

Beauty and books were the two categories where it was most likely to observe different prices online

and offline. In the beauty category, 51% of products were observed with different prices online and

offline. In the books category, 63% of items had different prices by channel.

In the electronics category, observations were split: 1/3 of the items were

less expensive offline, and 2/3 were less expensive online. This is a notable

shift; in our last study, 86% of items were observed with a lower price

online. Online savings averaged 13%, vs. 45% for offline savings.

86% of items in the entertainment category were less expensive online, and

14% were less expensive offline. This also represents a significant shift from

our last study, where we observed 50% of items in this category with a

lower price online, and 50% with a lower price offline. The online savings

opportunity was a moderate 26%, while the offline savings opportunity was

a substantial 76%.

In the hardware and home improvement category observations split the

opposite way, with 2/3 of items found at a lower price offline, and 1/3 at a

lower price online. This result is consistent with the previous study. When

pricing favored the in-store channel, the savings opportunity averaged 32%.

The online savings opportunity averages 24%.


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The household items category showed no advantage for either channel in

terms of total observations. This is a change from our previous study, in

which 65% of observations favored the offline channel. When a product in

this category was found at a lower price online, the average savings was

25%. When the product was less expensive in-store, the savings opportunity

was 58%. This is significantly higher than the savings observed in our

previous study, which averaged 10% in the offline channel.

The hardware and household items categories showed the greatest consistency in pricing across

channels with 80+% of observations found at the same price in both channels (vs. an average of 70%).

The office and school supplies category offered higher savings

opportunities in both the online and offline channels as compared to our

previous study. Online average savings rose from 18% to 41% and offline

average savings rose from 14% to 24%. Total observations, however, have

remained consistent with 56% favoring online pricing (compared to 55% in

our previous study).

As noted in our previous study the personal care category has been further broken down into four sub-

categories: general, kids/infants/toddlers, men, and women:

In the general personal care category, findings are consistent with previous

results: 69% of items were found cheaper in-store. Savings opportunity in

either channel with pricing preference was 23%. This is higher than in our

previous version when both channels showed an average savings

opportunity of 16%.

The kids/infants/toddlers personal care results are also in line with

previous findings with online results having a price advantage for 80% of

the items with an average savings opportunity of 17%. Offline savings

opportunity was only 5%.


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The men’s personal care category showed a big shift from our previous

study in which no preference was found for either channel – either in terms

of total observations or savings opportunity. We now observe a 94%

probability of finding a product cheaper online with a 14% savings

opportunity. Only 6% of observations favored the in-store channel with an

average savings opportunity of 9%.

The women’s personal care category also indicated a big shift, now showing

overall favor in the online channel, with 67% of products showing

preferential online pricing. In our previous version we saw 67% in-store

favor. In-store savings opportunity is fairly consistent with our previous

version at 12% (vs. 14% previously) and online savings opportunity has

increased from 6% in our last study to 19%.

Price Tiers

We considered differences by price tier in a manner consistent with our previous studies.

The lowest price tier of $0-$5, which accounts for 47% of total observations, observed a dramatic tilt

from offline to online favor. In previous studies we found a distinct advantage for the offline channel in

this price tier. In the current study, 66% of observations favor the online channel, suggesting a dramatic

change in pricing strategy among online retailers for lower-priced items. When an item was cheaper

online, savings averaged 25%. When favorable pricing was found in-store, savings averaged 34%.

In the price tier of $6-$20, we observed a shift from a slight in-store advantage (53%) to a solid online

advantage, with 65% of observations favoring the online channel. This price tier accounted for

approximately 40% of total observations.

For products with an average price of $100 or more, 42% showed in-store advantage, with an average

savings opportunity of 54%. 58% showed online advantage with an average savings opportunity of 15%.

In our previous study this price tier showed offline favor in 83% of observations.


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Convenience versus Considered Purchases

Considered purchases, defined as an item priced greater than $20, to be

consistent with previous reports, represent 13% of total observations. The

previous study found 82% of items in this category favored the in-store

channel. In this current iteration, 64% of considered purchases now have an

online preference. When an item in this price tier was found cheaper offline,

savings averaged 37%. When the item was found cheaper online, savings

averaged 16%.

In the convenience category, defined as a product priced lower than $20,

66% of items showed an online price advantage with 27% average savings.

34% of items favored in-store pricing with 31% average savings. This is a shift

from previous studies in which the convenience category had offered an in-

store advantage. In our most recent prior study, 58% of items in this price

tier offered more favorable in-store pricing.

Same Store Comparisons

8 of the 12 stores included in the study offered more favorable online pricing. Of the stores considered,

Walgreens showed the greatest tilt toward online preference in overall observations (81%), similar to

their results in our previous study (91%). Best Buy, Target, Kmart and CVS also showed significant

overall preference to the online channel with each having greater than 70% of items favoring this

channel (in order: 80%, 77%, 72%, 71%). These stores also recorded notable savings opportunities via

the online channel:


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In the discount department store category, Walmart offered a nearly even split in total observations:

47% favoring offline and 53% favoring online. When a cheaper price was found online, savings averaged

30%. Offline, when a price was lower, savings were a substantial 62%.

Target and Kmart both showed preference to the online channel in overall observations (+70%). Target

offered an 18% average savings opportunity online and 32% offline. Kmart returned a 16% average

savings opportunity online and 13% offline.

In the retail pharmacy category, both CVS and Walgreens showed a strong online preference in terms of

overall observations (CVS 71%, Walgreens 81%). Both offered average online savings of ~20%.

Walgreens offered offline savings of 27% when a product was lower priced in-store and CVS offered

offline savings of 15% when a product was less expensive in-store.

CVS and Walgreens had the greatest proportion of products having a different price online and offline.

In excess of 55% of items at these stores were offered at a different price by channel. This is significantly

higher than the overall average of 30% of items having a different price in each channel.

The big box office supply stores seemed to take different approaches to pricing parity. Office Depot

generally offers lower prices off-line, while Staples offers more items at a lower price online, and no

preference was observed for Office Max. Interestingly, all three did show notable online savings

opportunity when price advantage was found online.

Office Max in particular showed a great disparity between online and offline pricing: when an item can

be found cheaper online, often times it is offered at nearly ½ the price of in-store.


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In the big box hardware category, there was about a 50/50 chance of finding an item cheaper in either

channel when a price difference exists. This store category showed the greatest pricing consistency with

83% of observations being the same in both channels, significantly higher than the average of 70%.

Home Depot recorded the greatest average savings opportunity of 67% when an item could be found at

a lower price online. Lowe’s offered the greatest average offline savings opportunity, with 40%.

Impact of Coupons on Channel Preference

Through the course of this study, coupons were acquired for in-store and

online discounts where available. Coupons were recorded for individual

products and store or category wide discounts. Individual product

coupons were found to be more prevalent for in-store shopping, while

broad coupon deals (EG: 20% off your entire order when you spend $20)

were more prevalent online. The application of coupons to any of the

above reported results may change the outcome.

For example, in the general personal care category, we found 69% of products at a lower price in-store.

Applying a CVS coupon, received via email for “20% off your purchase”, the outcome is reversed. Prior

to applying the coupon, the general personal care category at CVS found 4 in 5 items to be cheaper in-

store with an average savings of 20%. With the coupon, 4 in 5 items are cheaper online with an average

savings of 17%.

Of the coupons collected during the study, CVS appears to be the most

frequent user of site-wide discounts, often at up to a 30% discount.

More recently, their direct competitor, Walgreen’s, has started to

provide blanket discounts for as well. Interestingly, Walgreen’s is

offering the discounts for use in-store as well as online.

CVS Email Coupon CVS Email Coupon

Walgreen’s Email Coupon


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Implications

Online is winning the price wars – they have forced brick-and-mortar retailers to move to price parity in

many categories, and are gaining price advantage at all price tiers. Even so, it is still worth doing price

comparisons for consumers because if they can find a better price, it is often substantial. But in general,

in-store price comparisons (“showrooming”) as a phenomenon will fade over time as consumers

become used to the idea that better pricing can be found online no matter the category or price tier.

Retail stores will have to focus on immediacy and customer service to justify higher pricing, especially

for commodity products with low touch and low levels of complexity. We’re already seeing changes in

how some stores merchandise in response to these changes, with smaller showcases for products,

introduction of kiosks for ordering, and ship-to-home delivery options.

In our next study we’ll consider the impact of shipping charges and also factor in “best price,” meaning

we will aggressively seek out available coupons and discounts and factor that into our analysis.

Marketplace Fairness

Little progress has been reported in the Marketplace Fairness Act since our last study. There remain 24

states that have adopted measures to simplify sales tax in order to compel retailers to collect

appropriate taxes. Enactment continues to face compliance and implementation issues for which

proposals continue to be mulled and re-written. Alternative solutions to the existing measures are being

considered in Congress4. Any reported updates and their implications will be reviewed in our next study.

1 Categories included: personal care for infants, toddlers, men and women, beauty, electronics, hardware and

home improvement products, books, entertainment, household products, and school supplies 2 Online and in-store prices were compared for: Wal-Mart, Target, Kmart, Office Max, Office Depot, Staples, Sears,

Ace Hardware, Lowes, Home Depot, Best Buy, CVS, and Walgreens; only online prices were taken for Amazon.com 3 All prices and analysis in this study exclude taxes, shipping and other applicable fees unless otherwise noted.

Prices also reflect the lowest available price listed in February 2014, including clearance and card member prices 4House considers alternatives to Internet sales tax bill. Grant Gross, March 12, 2014.

http://www.computerworld.com/s/article/9246915/House_considers_alternatives_to_Internet_sales_tax_bill?pageNumber=1

About Anthem Marketing Solutions

Anthem Marketing Solutions helps clients turn big data into smart growth. We are a data-driven

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according to Inc. Magazine's Annual Inc. 500|5000 rankings in 2012 and 2013.