One of the four pillars of the marketing mix, pricing, can make or break your e-commerce business.
Want to stay ahead of your competition? …you need a pricing strategy.
No matter how great your products are, without a smart pricing strategy to support your marketing efforts, you won’t be able to win the battle for e-commerce supremacy.
Unless you’re Apple, pricing a product too high and neglecting your ecommerce competitors could mean losing potential leads and failing to generate consistent profits for your business.
That’s because 61% of online shoppers visit retailer or manufacturer websites to compare prices before making a purchase decision.
Reports from global e-commerce markets show that pricing matters even more in emerging areas and developing countries, where the online retail landscape is extremely competitive.
A wisely priced product should reflect the supply/demand relationship, while being profitable for your company.
So how do you go about setting prices for your online store? Do you base them on target groups and willingness to pay, on competition, on your fixed and variable costs?
The pricing decision really important. 90% of online shoppers worldwide spend more than 10 minutes per purchase, comparing prices and hunting the best deal. And, around 20% of e-commerce website visits come from price comparison shopping engines.
Does this mean you should set the lowest prices for your online store to drive sales and generate profits? No, it just means you need to adopt a coherent and goal-oriented pricing strategy that can help you escape the competitive pricing trap and outsmart your competitors.
Below are three killer strategies you can implement right away to increase the conversion rates of your e-commerce website.
Ecommerce Competitor Pricing Strategies
STRATEGY #1: Focus on long-term costs when setting margins
This strategy is widely known as cost-based pricing, but is often misunderstood by e-commerce website owners, who often calculate only the short-term costs when setting their margins.
For a profitable business, you need the revenues to exceed the total, long-term cost of a product.
That long-term cost includes not only the unit purchase price you get from your supplier, but also the operational costs involved, such as the salaries of your staff, customer acquisition costs, e-commerce platform costs, hosting costs and so on. All these should be taken into consideration and understood when making a pricing decision.
Only after you calculate all these expenses can you add the remaining piece of the pricing puzzle, which is the target profit margin.
Throughout this process, your sales and marketing departments should collaborate, and you should make sure you know your e-commerce vertical very well.
Not all verticals are equally profitable or competitive, and there isn’t an universally accepted profit margin.
Making sense of the overall market conditions in your vertical, and understanding customer expectations, will help you make better pricing decisions to generate long-term profits and keep your e-commerce business growing.
Like any other business strategy, cost-based pricing should be managed with the potential risks in mind.
These risks include pricing your products in a noncompetitive manner, or ending up with undervalued merchandise. The key is to continuously evaluate the performance of your products and the profits they drive, instead of seeing this as a one-time implementation.
This strategy should be fine-tuned hand in hand with the next 2 pricing techniques you can use for sustainable growth.
STRATEGY #2: Outsmart ecommerce competitors by closely monitoring their prices
The global e-commerce market is extremely crowded, with thousands of retailers already present online and new web shops popping up every day. To get a better idea of how competitive the online shopping landscape looks at the moment, I’ll just tell you that more than 100.000 e-commerce companies from all around the world enjoy an annual revenue of a $1 million or more.
Isolation from the market is a one-way ticket to failure in e-commerce. No matter how good your products are, you have to watch what your competitors are doing and adjust your prices based on their offers. Neglecting this aspect and setting prices without analyzing the competition can be a fatal mistake that can break your e-commerce business.
Unlike other areas of business where it’s harder to get information on your rivals and watch what they’re doing, or reverse engineer their strategies, in the online shopping market this information is highly accessible thanks to the purely digital nature of e-commerce.
With a smart ecommerce competitor price tracking solution, you’re just one click away from boosting your competitiveness even further.
As mentioned in the beginning, a vast majority of online shoppers are professional deal-hunters, browsing several online stores to see what they offer for the product they plan to purchase. And for you as a retailer, the fact that online shoppers get more and more educated and start their product discovery journey with price comparison engines, is something that shouldn’t be neglected.
Price comparison engines rank different offers from various e-commerce websites based on multiple criteria, and shoppers can easily see all offers from the cheapest to the most expensive with just a click or tap on their screen.
Gaining the required market intelligence and analytics power can be overwhelming and challenging if you try to do it the old-fashioned way. But you can win this challenge by using an automated ecommerce competitor price tracking and analytics tool, which makes it easy to monitor the fresh online market data automatically, and enables you to act upon it dynamically.
A price tracking tool that allows you to spy on your competitors can save you a lot of time and prevent you from doing the mistake of pricing your products too high or too low.
Moreover, through the statistical data it offers, such a tool helps you more easily identify trends and predict moves in prices before they even take place. In other words, an ecommerce competitor price tracking and analytics tool places you ahead of competition and highlights opportunities, facilitating the growth of your online business.
Here’s a practical example: if you’re an online retailer and notice that for a particular group of products, the overall pricing is well below competition, an increase in your prices would not actually affect the min price position. This means you can still attract price-sensitive customers by slightly increasing your prices and margins.
Such a decision is hard to make when you don’t have data to back it up, but with a tracking and analysis tool, you can lift up your sales revenues and profit margins without losing clients.
STRATEGY #3: Let customer-centricity drive your pricing decisions
More than a buzzword, customer centricity should drive your pricing decisions, as it’s a proven approach for keeping e-commerce prices competitive.
Unlike the previously mentioned strategies, this one is less about the numbers and more about perceptions, or rather, psychology.
Based on 2 simple yet thoughtful questions, this strategy is excellent for deciding how much a product should cost, because it actually sets the price based on how much your target clients are willing to pay. So start by asking yourself:
- Who are my customers?
- What exactly do I deliver them?
As part of customer-centric pricing, both of these questions should be answered with customers kept at the very core of the thinking process. Ideally, you should address these questions when creating your customer personas, as they help you identify what customers or group of customers you’re actually targeting. Are they mainly deal hunters, or less price-sensitive shoppers?
Based on these answers, e-commerce companies can really see what their profit-margin opportunities are, can set the tone of their pricing communication, and can make many other similar pricing-related decisions.
To sum it up, pricing decision-making requires an in-depth analysis of several different aspects of an e-commerce company’s dynamics, market conditions and customers. But without the right technology that enables you to track ecommerce competitor prices and objectively analyse your e-commerce vertical, pricing may be that factor that holds your online business back from growing.
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