Is John Lewis’s online pledge a game changer?

For the best part of a century - 85 years to be precise - department store chain John Lewis has promised its customers that it would be ‘Never Knowingly Undersold’. But in almost 10 years of trading online the retailer was reluctant to make the same pledge. Now that has changed.

Last week Retail Week revealed that the commitment, arguably the most famous in retail, was finally being adopted at its internet arm.

The shift in stance is indicative of both a transformed retail landscape and John Lewis’s success in adapting to the new environment.

All change online

In the early days of etail, one of the typical USPs of the emergent generation of online specialists was their ability to offer lower prices than their high street counterparts. Trailblazers such as Amazon were able to revolutionise pricing as a result of their lower cost bases and shoppers were wowed.

Today price remains central to the etail proposition just as it has always been in physical stores, but the development of bricks-and-clicks business models has both enhanced the ranges and services available to consumers and enabled established groups to carve out market share in new channels.

John Lewis has been at the forefront of the trend. Its online operations have burgeoned. In the first six months of this year Johnlewis.com scored a 36% increase in sales and grew at twice the rate of the market, managing director Andy Street reported as part of its interims results last month. The intention is to double web sales to £1bn by 2014.

Its success and changing market dynamics made it the right time to extend the Never Knowingly Undersold promise to the web operations - so far as bricks-and-clicks rivals are concerned; pure-play etailers are not covered by the pledge. So what does the decision mean, for John Lewis and the retail sector generally?

From John Lewis’s point of view, the decision brings cohesion across channels. John Lewis development manager David Suddock explains: “Never Knowingly Undersold has been really important to our brand for 85 years. This is applying it to new ways of shopping.

“Customers are changing their habits. We’re seeing many more types of customer journey and touch points. It’s really important to be consistent.”

Consistency is key for bricks-and-clicks retailers as services such as click and collect become more prevalent. Web traffic to retailers with on- and offline presences has overtaken that of pure-plays, according to market monitor Experian Hitwise.

So John Lewis’s decision makes sense, thinks Bigmouth media senior strategist Finlay Clark. “Never Knowingly Undersold is almost a cultural value,” he says. “This is about saying to the customer: ‘This is one business.’”

Diamond Management & Technology Consultants partner David Oliver observes: “Consumers across most of John Lewis’s categories are shopping more and more online. The price promise, excluding online, was coming to mean less. For most of John Lewis’s categories the preferred customer journey is to buy online and pick up in-store. In positioning their price promise against bricks-and-clicks retailers they’re positioning themselves in that arena.”

The launch of John Lewis’s price pledge online is, in the opinion of some experts, more likely to stimulate the growth of services such as click and collect than to precipitate price wars.

That is because aspects such as convenience, service, trust and quality have become progressively more important in etail, which has moved away from an overtly price-led appeal to shoppers.

While consumers certainly still demand value, other factors loom large in their multichannel shopping. Price on its own, says Oliver, is becoming a less important differentiator.

It applies primarily when identical product is being sold by a variety of retailers. That is by no means all product - fashion purchases, for instance, may be dictated by brand preference, such as Next or Oasis, rather than simply price, and sale channels are limited.

Experian Hitwise research director Robin Goad says many shopping journeys, such as for a washing machine, may start with a general internet search, then be limited to a particular brand and then drilled down to a select group of sellers. The decision about which retailer to buy from will then be made depending on a range of considerations.

“It’s increasingly about levels of service and convenience - the idea of a shop being a collection point, or if it’s a big product the question might be how reliable is delivery,” says Goad. “Convenience and the quality of guarantee will have a bigger impact than £5 off.”

Suddock concurs. “People understand that you get a different experience with bricks and clicks - helpful partners, great delivery options, click and collect,” he says. “Our customers tell us they love the reassurance of being able to shop with us.”

Partly for such reasons, and because of the need for consistency and the fact that running shops costs more than an online-only offer, the gap between prices charged by bricks-and-clicks retailers in shops and online has been narrowing in line with customer behaviour.

“Generally the retailers I talk to are finding price differentials [between stores and online] difficult to sustain,” says Oliver. Customers find the disparity difficult to understand, he adds, although they do recognise the validity of restricted offers, such as products available online only but not in shops. “The long-term future is consistent multichannel pricing,” says Oliver.

Price check

Because such dynamics affect all bricks-and-clicks retailers, John Lewis’s extension of Never Knowingly Undersold may not change prices much across the sector. Street last week said that it might be most felt in the electricals market. The decision puts John Lewis “straight up against” Comet-owner Kesa, Currys and PC World parent Dixons Retail, he argued.

He expects to offset any margin hits in electricals to hold total margin across the business despite the move, because of better bought-in margins.

In fact, specialist electricals groups already have strong price guarantees. Currys’ online Price Promise assures price matching on better deals and an extra 10% off, although it is restricted to three specified sites: Comet, Tesco and John Lewis.

And Richer Sounds tells consumers: “Our managers’ Price Challenge guarantees you the best price, even in the unlikely event you’ve seen the price cheaper at an online retailer. No other high street store dares to offer such a comprehensive promise. And, unlike other retailers, we honour all our web prices in store.”

Comet is different. While it says its checks the prices of more than 6,000 products against its competitors every week it restricts an offer to refund any price difference to the stores of Argos, Currys, John Lewis, PC World and Tesco.

So while high street price competition is increasingly replicated online, managers are fighting a familiar battle but in a new environment. They will fight it just as hard in cyberspace as on the high street and the issue will be, as always, to ensure ‘first price, right price’ backed up by high service standards.

That is not to say John Lewis will not deploy its new stance aggressively. Asked the extent to which customers ask for the price pledge to be enacted, Suddock replies: “We’re very proactive in price checking so very few customers have to ask.”

Many shoppers, of course, buy from pure-plays. What effect might John Lewis’s initiative have on them? Etailers such as Amazon have built up enviable reputations and their scale, prominence in internet searches and shopper analysis skills are likely to mean continued growth.

But the rising popularity among consumers of click-and-collect business models and increased importance of service and similar factors are likely to have longer-term repercussions.

The absence of click and collect constrains non-food pure-plays, Oliver believes. He argues they will be weaker in categories “that can’t be put through the letter box”.

James Roper, chief executive of industry body IMRG, suspects that John Lewis’s online price pledge will make the retailer stronger and reverberate around the sector. “What you generally see is that where John Lewis goes, others follow,” he says. The deployment of the pledge online will reinforce the reputation it enjoys on the high street and which has enabled it already to become a powerful force on the net.

Oliver says: “It’s got John Lewis good publicity about being competitive on price. It doesn’t need to be seen as having the best price on everything but it does need to be seen to be credible.”

In future, he thinks, attention is likely to shift to closer analysis of the shopper journey and the play-off between what happens online and the store.

He says retailers remain relatively “blind” about the impact of the web on store traffic but “that’s where a lot of the action will be”. At present, he points out, many fashion retailers put their best-sellers on the landing page of their websites, whereas to encourage people to come into the shops - where there is also the opportunity to cross-sell - the focus should be perhaps on new product.

While John Lewis’s extension of its price pledge online is an important occasion for etail, there are likely to be many more red-letter days to come as shopping patterns continue to change.