One of Microsoft’s senior executive has comfirmed that Microsoft one day is planning to release a Xbox mobile device. Making the long time rumor true.  However, no time plan has been laid out.

He said it was the matter of when and how. He doesn’t know if Microsoft will go about device using the current Windows Mobile. He said, that the company will need to make a decision on if they will use Windows Mobile or not.

He also said that when the device does indeed come out, it will be obvious that they had this device in the works for a long time.  And that it is not a response to the iPhone or any other hand held device like it.

Will you buy it once it does come out?

One trend I am seeing on the increase though, is the policy of price matching.  Propagated by big chains and retailers, they promise to match or even beat (by a set percentage) a rival’s price for the same product.  While on the surface, this sounds like a good deal to consumers as they are able to get the lowest price with the convenience and peace of mind of purchasing for a large retailer, and they are able to take advantage store policies such as returns, warranties and so forth.  However, I think this practice is hurtful to small businesses and will be downright detrimental to consumers in the long run.

Price Matching

The basic premise of price matching is that a retailer who offers this policy, will attempt to match or beat a price advertised by a competitor for the same product.  Note that I say “advertised” – they usually require some sort of proof of the price offered, be it a catalogue, even in some cases print outs from a competitor’s website.  Some even offer a price guarantee policy, where if a customer purchases a product from a retailer and subsequently find a competitor offering a lower price, the retailer will refund the difference in price.

For the price-matching retailer, it is a win-win situation, in that (1) they get the customer’s business, and (2) they deprive their competitor of the potential earnings.

Below the Belt

The realities of business today gives a overwhelming advantage to those with economies of scale – just look at how the Walmarts or Costcos of the world are able to squeeze margins of their suppliers down due to their purchasing power.  When a smaller competitor comes up against these giants they face either one of two choices – compete on intangibles such as customer service, advice or a positive customer experience; or compete on price.

The latter is where the price matching policy is most hurtful.  Small retailers face a dilemma – if they price their products too high, customers will simply walk away and buy from the big boys.  After all, why take a risk with the smaller stores when the big stores are doing it for less anyway?  The alternative is for the small retailer to outprice the retail giants – just lower your profit margins, and perhaps attract enough volume to make it profitable.

A price matching policy however, eliminates the incentive for a consumer to patronise the smaller retailers – as soon as one offers a low price hoping to attract customers, those same customers are able to take that offer to grab an even better bargain from a large retailer instead.

With the proliferation of online bargain sites, I’ve seen this behaviour on many occasions.  In fact, a common approach is to use a price comparison search engine, find the lowest price, and then hit the big retailer for a price match and cash back of the price difference.

Above: A typical comment on a bargain website

Impact on the Industry

The net-effect of this price matching behaviour is that the smaller retailers lose out in the long run.  Traditionally, these smaller businesses are able to stay competitive because they have less policies, programs, administrative and cost overheads in general.  Increasingly however, those seeking to make an honest buck by offering low prices are finding themselves undercut by the big retailers.

At the end of the day, these giants are probably making a loss on each price matched sale.  They may write it off as a strategic investment, or loss leader or what have you, but they are able to shrug it off because they have much larger cash reserves and resources.  Unable to compete, these mom and pop store owners, entrepreneurs, family businesses and the like are soon be pushed out of the scene, the same way gas stations, hardware and grocery stores have gone.

Once there are no smaller businesses to compete against them, my fear is that the large chains will have have free reign of the market.  They will then have the power to dictate price and terms to customers, artifically inflate prices or reduce supply.  It is easy to gain an insight into how such a market will operate – just look at the monopolistic niches that the Amazon Kindle or Apple iPhone operate in.

Call to Action

Here’s what I think needs to happen to ensure a free and competitive marketplace, one where businesses large and small are able to thrive:

1.  No store-wide price matching policies

A store-wide price matching policy, when employed by large corporations, is subversive and borders on anti-competitive behaviour, and will have a detrimental effect on the retail industry in the long run.

2.  Price comparison, not price matching

I am a staunch advocate of consumers doing research through price comparison sites and finding the best deals in that manner.  Stores should go ahead and advertise their best price, and may the best price win.  No lazy pricing and winning by default through the price-match-out-of-jail-free card.

3.  Competition on factors other than price

Price isn’t the only factor when making a purchase – retailers can compete by providing superior service, expertise advice, an exchange or returns policy for peace of mind.  You’d be surprised how many customers would be willing to pay a little more in return for these.

In summary, price matching policies are putting smaller retailers at risk.  In the long run, it will be detrimental to the free market and consumers will ultimately suffer for it.