Selling products in e-commerce is both a great opportunity and a great challenge. From the opportunity perspective, the number of potential customers is much higher than it would ever be in a traditional market. There are also more available distribution channels and one can present a product differently than before. On the other hand, the competition is much higher, so sellers have to gather more information about their offers, their promotions and adjust their prices accordingly. Sometimes the pricing strategies they had in traditional commerce are no longer valid online or they have to be adjusted to e-commerce reality. Let’s go through the most popular pricing strategies and how they changed online.
Initial price positioning of a product
The initial price positioning is done by a manufacturer, who decides how the product should be perceived. Such a pricing strategy should be also reflected in the marketing strategy, product quality and distribution strategy. Both brands and retailers selling the product should stick to the chosen strategy.
According to the theory, the price positioning strategies can be divided into the following groups:
- luxury price position
- premium price position
- medium-price position
- low-price position
- ultra-low-price position
Availability of products on the market
Depending on the chosen pricing strategy, the distribution should differ. In the case of luxury price positioning, the distribution shouldn’t be too wide. The pricing information is usually not easily accessible, and distribution channels are carefully selected.
An example of a distribution adjusted to luxury positioning can be Gaggenau household appliances. As the price is relatively high, they can’t be bought in electronics markets in every city, but only in selected distribution points. Before buying, a customer should go to their showroom and experience the quality of appliances, feel the luxury of the product and understand what comes with the brand. With such a pricing strategy, retailers usually cannot change prices freely.
With the increased popularity of e-commerce, more and more brands make exceptions and start to sell their products online, however, some of the brands are still hard to buy online.
The products that are easily available in e-commerce, are usually from medium, low and ultra-low price positioning. As in their design, they don’t bring additional value except for their functionality, there is no need to present them specially. Selling such products, detailers more often compete with their prices, which in the case of luxury goods could lead to price erosion.
How to manage prices to maximize profits?
If your products are not a luxury or premium ones, most probably your competitors will try to fight you with prices. It is especially true for selling on marketplaces (like Amazon) or comparison websites (like Idealo) where products of your competitors are visible next to your offers. If a customer doesn’t care about the particular brand or other aspects like return policy, they will mostly concentrate on a price. Therefore, to maximize the number of sales, one should adjust prices in such a way, to get to the top of the listings (or for example to Buy Box in the case of Amazon). How to do this?
In many cases, the price of your product may be just slightly higher than the cheapest offer on the listing. It is because other sellers try to set their prices as high as possible to maximize their margins. Having data about other prices on the market, you can decrease the price sometimes by a few cents, and thanks to this get to the top of the listing.
In this example, BUYTV.COM needed only a small decrease in price to get to the top of the listing. If such a change follows your pricing strategy, you can increase the number of sales of this product.
On the other hand, if your offer is on the top of the listing, it is worth checking if the next offer is not much more expensive. If it is, you can increase the price freely, to increase the margin and still keep the leader position.
Sounds easy for one product, but what to do when you offer thousands of products?
How to automate your pricing process?
First, the most important thing is data. To make decisions you have to have a clear view of what your competitors offer and at what price. To check it manually, depending on the scale, it can take even days. To gather data in a fast way, you can use a price monitoring system for example Dealavo, which will automatically check the prices of products of your choice on the platforms you need. Thanks to this you will have all the offers of the chosen product in one place.
Having the data gathered, you can check where ‘low hanging fruits’ are, where you can slightly decrease the price to get to the top of the listing, or where you can safely increase the price, still keeping the leader position.
This, however, is not everything you can do to automate the pricing process. The next step you can make is to use a dynamic pricing tool. In such a tool, you have to enter your pricing strategy (e.g. do you want to be the cheapest one, or in the top 3 on Idealo? Do you want to have prices rounded to full euro, or with 0.99 endings? What is the minimum margin you can have?). Then, based on the current market situation and your pricing rules, the suggestions of new prices are generated and if you approve them, they can be instantly implemented. Thanks to this solution, you can always be one step ahead of your competitors, increase your earnings and save time you would spend on manual analysis.
As you can see, the price management process can be quite complex and many factors have to be considered. The initial part of the process is done by the brand and afterwards, retailers should follow the agreed strategy.
If the pricing strategy allows you to fight with prices, you can adjust them in such a way as to maximize their profits. Knowing your competitors’ prices you can either slightly decrease your prices to get to the top of the listing or increase them to maximize your profits.
The process can be easily automated by special Price Monitoring tools and by Dynamic Pricing modules, which follow your pricing strategy, allowing you to always be one step ahead of your competitors.
The article was created in cooperation with Dealavo. Dealavo is a data-driven company specializing in delivering actionable e-commerce insights to brands and e-shops. They help their clients with pricing optimization, strengthening distribution chains and overall DPSM (Distribution, Pricing, Shelving, Merchandising) strategies. They serve their clients in 32 countries all over the world, cooperating with both multinational enterprises and local businesses.