Pricing Strategy: How to Apply to an Effective One

Pricing Strategy: How to Apply to an Effective One

March 5, 2018

Is the e-commerce pricing strategy the key business topic to focus on all marketing, advertising and profitability plans? The answer is yes and no. But for sake of simplicity, we will examine first the option of yes. What is really an effective e-commerce pricing strategy? A brief but vital mention of required statistics of global e-commerce trends follows.

Global Retail and E-Commerce Sales Forecast

There are positive news as the recent uptrend of global retail sales is promising and optimistic about its sustainability over time. The projections are for an increase of global retail sales at least for the year 2018. Beyond the year 2018, there is no information provided.

Top 10 Ecommerce Markets

In global e-commerce markets, the focus should be on the major countries being the largest markets and not any random countries. The reasons are if any business can get a small percentage of the market share in the top 10 countries on a global scale, then (1) it is doing something quite well (2) the large market share leaves a lot of data analytics for marketing and advertising campaigns and (3) the competition may be fierce but the profitability options are numerous. We also refer to businesses with an international presence. Asia, Europe, and North America are three continents to focus on, except one major problem. Currency risk. We will refer to currency risk shortly.


Online Retail Global Market Size

Another statistic which is promising for global retail spending. As consumers are eager to spend more money, the e-commerce platform choice should be a major factor in any business plan. A business plan is required to set the forecasting model and growth rate of a business and measure the goals versus results within a reasonable time period.

Currency Risk

Earlier we mentioned the currency risk as a key driver of the e-commerce pricing strategy. Other factors to consider as the regulatory issues, and especially ways of payment. With the blockchain technology being recently a technology to stay in the future, it is hard to accept alternative ways of payment such as cryptocurrencies due to their large price volatility. Suppose that the base of an e-commerce company is in Europe, using the Euro as the currency of reference and making the majority of sales in China and in the USA. If the company does not take into consideration the currency risk and ideally hedge the risk, then any pricing strategy can produce different results than the expectations.

What are the top criteria to choose the best e-commerce pricing strategies?

There are numerous pricing models, from cost-plus pricing and performance-based pricing to value-based pricing and competitive pricing. What is the ideal pricing strategy? The answer is not simple as not all strategies are suitable for all online businesses or e-commerce businesses. But the following 5 ideas provide tips to narrow the focus of any successful e-commerce pricing strategy.

5 ideas for building an effective e-commerce pricing strategy:

1- Develop from the start your own USP (Unique Selling Point). It can be based on cost, on quality, on a niche market, on branding. If a company wants to create a branding associated with luxury, then low-cost pricing is not an effective choice. Luxury is associated with high costs and a target group of customers willing to pay more in order to get goods and services based on quality. This pricing strategy may have high-profit margins, and can significantly increase the profitability of any e-commerce business, but a lot of marketing and niche market analytics must be constantly done, and additionally monitoring global financial and business trends and projections. A company which sells luxury goods does not want to find its main customer base in a recession stage of the global economy.

2- Discounts and offers are always a hot topic for the majority of consumers. Discounts and offers should be offered regularly and can be either a separate pricing strategy or a supplemental one to the main pricing strategy. But when we refer to discounts, the main thing to consider is whether there will a selective group of products or the total group of products to offer these discounts. The latter choice is attractive enough to new customers, while the former to existing customers. Building a brand name could be based on discounts and offers, but monitoring the competition is a tough daily business activity. If the e-commerce company has a high figure of sales turnover and a low level of inventories then discounts and offers can increase significantly the profitability but at the same time investments in capital expenditures will probably be required and technology solutions will be needed to support the increasing volume of sales. The key point is can the e-commerce company really support in the future this expansion in economic and business activity without lowering its profit margins? The pricing strategy based on discounts and offers needs a lot of thorough examination to turn to a successful business decision over time.

3- Free goods are another classic way to boost sales and gain the most valuable virtue for any type of business, the loyalty, and trust of the customers. Providing incentives to loyal customers combined with a competitive pricing strategy to receive free goods based on the volume of their orders is both effective and challenging for the e-commerce company. It is effective as it helps to build a strong brand name. But at the same time, it is challenging, as the free goods have a cost for the business, they are not free to buy them or resell them. The balance should be between giving goods that have no strong demand for free to customers as a reward for their loyalty, but these goods should offer some value at the same time to the customers. In essence free goods lower your profit margins overall, but they are necessary due to strong competition and being part of the marketing and advertising budget.

4- Let the customers pay what they want to make an offer and bargain on the price. This mainly applies to large e-commerce companies and retailers, and not small scale companies. It can be a trial and error pricing strategy as it may not be suitable to be offered for all group of products. In most cases, the customers will be happy to know that they have significant bargaining power. To make things not complex enough, criteria on maximum percentages can be set from the beginning and technology support should be of utmost importance. A variable pricing strategy based on time periods, days of the week, holidays, and the new range of products which will automatically reduce the prices of old products should be considered, therefore a lot of planning is required in numerous business levels. The companies should hear the opinion of the customers, gather analytics and change their range of goods if some of them are not selling well.

5- Technology solutions such as chat-bots, artificial intelligence, and investment in marketing, advertising expenses are not only essential but should be integrated into the pricing strategy. A large investment of monitoring tools offering solutions such as email notifications and reports, fully automated competitor price tracking tool, 24/7 technical support and customer assistance and monitoring daily business operations so as to provide actions needed to be taken have a cost. This cost is an investment. But a very large cost may take plenty of time to have depreciation and tax benefits. In a global e-commerce environment, the investment in technology is a key driver of long-term success. A budget on a monthly basis should be integrated into the final price of goods, and act as an important monitoring tool for sales. A chat-bot that will suggest a very expensive product to a new customer at once is not probably a good idea. But a chat-bot that will inform a customer of a hidden offer only available to online shopping may be a great idea. Digital marketing is essential, and SEO too. A focus on digital marketing to find targeted customers may be a significant expense at first, but flexibility is important. A company flexible enough to change the pricing strategy based on new update information will have a competitive advantage to use it to increase its business goals now and in the future.


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