How product differentiation counters the web’s pricing pressure

When identical branded products can be compared online, point by point, on a comparison shopping engine, retailers of identical products may face downward pricing pressure on those products. But it’s not as easy to compare products exclusive to different retailers, one reason some manufacturers now make different versions of products for different retailers, according to Scot Wingo, CEO of online channel management services provider ChannelAdvisor Corp.

For example, consumers can’t buy precisely the same model of some products at Lowe’s that they can at Home Depot because the manufacturers produce slightly different products for the two retailers. “By doing that, manufacturers, in concert with retailers, start to make it harder to do price comparisons online,” says Wingo, who adds that he expects to see more of the same in categories such as consumer electronics.

Private-label merchandise is another approach to differentiation taken by retailers in response to the same downward pricing pressure. Web-based competition has commoditized the auto parts and accessories category, and private-label merchandise is one way J.C. Whitney & Co. works to counteract that pressure on margin.

“Our Internet margins are lower than our catalog margins, in part because of competitive pricing on the Internet. We need to have techniques to try to equalize it and private label is one of the components we utilize,” says Geoffrey Robertson, vice president of e-commerce. “We have had tremendous success with our private label brand. We can offer superior products at dramatically reduced prices while maintaining good margins.”