Online retailers have no option but to compete on price. Consumers become increasingly price-sensitive due to the rising costs of living and transparent online prices. How to appeal to such a price-conscious audience? By optimizing your pricing strategy.
No pricing strategy fits all businesses. And of course, your pricing strategy must be coherent with your business objectives and long term goals. But some practices are necessary for every e-commerce business, regardless of the size. In this post, we’ll learn what these practices are and how to implement them.
Gather price intelligence
There is only one way to make sure your prices are competitive - tracking competitor prices.
Let's see what happens when an online store completely neglects competitor prices.
Why would shoppers pay an extra $30 for what they could find cheaper elsewhere?
Losing sales is a concern, but perhaps, how consumers perceive your prices is even more crucial to your business. If they consistently see uncompetitive prices on your website, they are inclined to assume you won't be offering competitive prices in the future.
So, no question that you must track competitor prices. The question is, how?
There are three methods to pursue:
Manual Tracking
Manual tracking is a time-suck. If you have 100 products to track from 10 competitors, say goodbye to 12,5 hours. What's worse, the data will be irrelevant by the time you finish!
Assuming you have more important tasks than collecting competitor price data, it is also an inefficiency.
In-house engine
Building an in-house pricing engine has its advantages and disadvantages.
If you have customized needs, an in-house engine will answer to them. However, building and maintaining it is too costly for a small business. And of course, it requires technical expertise.
Price tracking software
Using price tracking SaaS is efficient and considerably cheaper than building one, and it doesn’t require maintenance or technical knowledge.
Define your priorities. Consider your business objectives to decide which method would work for your company.
Offer personal discounts
Successfully advertised discount campaigns drive traffic to your store. But there is no point in boosting website traffic if you can't convert visitors.
How can you entice visitors to buy from you?
Give them exactly what they want.
91% of shoppers are more likely to shop from stores that recognize them and provide them with relevant offers and recommendations.
Amazon is the master of personalized recommendations. The retail giant even sells the Amazon Personalize service, which was initially built for Amazon.com. Of course, it's not the only option you have, there are numerous e-commerce personalization software you can use.
What if I say you can take personalization to the next level with discounts?
Personalized discounts based on historical buying behavior, browsing history, previously used discounts, and real-time on-site data significantly increase the likelihood of purchase. Why?
Put yourself in customers' shoes.
Suppose you added an item to your shopping cart, but can't decide whether to buy or not, simply because it's too expensive. Lucky for you, the store is offering you a 10% discount you can use on that particular product.
That's a great strategy for several reasons:
- The shopper is highly likely to buy the item.
- The shopper feels like the seller knows her and cares about her. It's an incentive to come back when she needs something else.
- The discounts are well-targeted and much more effective than general offers.
Make use of personalized discounts to let customers know you care about their preferences and do your best to encourage your loyal customers to come back.
Keep testing price points
There are countless possible prices for a product called price points.
You'll never find the optimal price without testing different price points, especially since it changes over time.
But what is the optimal price?
Think of a headphone sold at $150. At this price, 50 people buy it, and it generates $7500 in revenue. At $130, however, 65 people buy it, generating $8450 sales revenue.
Now, what if there is another price point at which you can generate more revenue? Of course, in such a fast-paced environment like e-commerce, the optimal price can change hourly or even minutely.
The only way to know is by continuously testing price points.
Pricing software allows you to set pricing rules like:
- Set my price 10% cheaper than the market average
- Set my price $10 cheaper than the cheapest competitor
- Set my price equal to market average
These rules not only make sure you have the most competitive prices in the market but also allow you to test price points and improve profit margins.
Takeaways
The competitive e-commerce environment and the growingly price-sensitive modern shoppers force online retailers to compete on price. But competitive pricing is broadly different from racing to the bottom.
Truly optimized pricing is only possible through automation and data analysis. Make use of the technology available and continue testing for further improvements.