Price Optimization: Why Companies Should Focus on This

Price Optimization: Why Companies Should Focus on This

March 23, 2017

Pricing strategies have to be considered as one of the most crucial growth efforts for e-commerce businesses in order to maintain a healthy and sustainable business life. Depending on industry or scalability of your business, you should apply various effective pricing strategies and focus on continuous price optimization.

Pricing your products on a monthly basis or leaving them fixed will definitely have an impact on diminishing in conversion rates and customer numbers. Having different pricing strategies towards different scenarios in your pocket helps you to improve your financial health and performance in an ultra dynamic industry- e-commerce.

So, let’s dig most obvious reasons explaining why e-commerce businesses should continuously focus on price optimization.

1- Not Just Focus on Cutting Prices

If your offerings don’t satisfy online shoppers’ expectations, they won’t hesitate to leave your store for a competitor in seconds and your competitors are eagerly waiting to welcome them.

On the other hand, setting low prices doesn’t always mean a winning move. It is acceptable to lose some of your online customers if you decide to keep product prices on a certain level. The good news here, that move will likely lead you to win loyal customers who will purchase more than once. Try to focus on loyal online shoppers who are willing to continue purchasing from you even you keep product prices high compared to your competitors.

Most of e-commerce companies try to keep the product prices as low as possible to win the best deal game. So, increasing prices at small percentages such as %5 won’t change their lowest-price position. In these cases, you can consider increasing the prices in order to test online shoppers’ reaction.

Competitive intelligence software is useful to monitor the market and your competitors. Using these softwares, you can effectively gather the data of competitors’ prices. So that, you can identify the promising categories and increase the prices while keeping your competitive position.

2- High Profitability Is Mostly About Low Costs

In e-commerce, you never guess your costs. There are many fluid reasons that affect the unit costs. Let’s give a brief summary of these factors; the major slice of your costs comes from the supplier – the price that you pay for products of supplier. Besides of that, we can count marketing, staff, inventory costs as overhead costs.

As supplier costs are the big portion of your overall costs, it will be a wise approach to try decreasing the supplier costs as much as possible. Supplier costs depend on two different factors; purchase quantity and negotiation with supplier. The explanation of the correlation between quantity and costs is simple. If you buy a high amount of product, the unit cost of each product will decrease. But, the negotiation with supplier is much more unpredictable and depend on various circumstances such as the power of online store in the market, supplier – retailer relationship, etc. E-commerce companies should prioritize decreasing the costs by finding a solution to balance these two factors.

In order to minimize the overhead costs, you should continuously try to optimize and automatize them.

3- Time to Adapt Dynamic Market by Applying Competitive Pricing Strategy

Pricing is one of the most prominent decisive factor in e-commerce. Thanks to the vast of product variety and price comparison engines, consumers can find any product with best prices. Moreover, %60 of online shoppers name pricing as their main shopping decision criteria.

So, competitive pricing strategy gains importance while competing in dynamic landscape. Monitor your competitors’ pricing actions, convert them into actionable insights and test how your pricing decisions will be perceived by online customers.

As mentioned at the beginning of the post, having constant product prices will be the most harmful decision for your e-commerce store. Not only you’ll have difficulties in acquiring new customers, the profitability will also be stuck down. By adapting competitive pricing, you’ll have great flexibility towards various scenarios happening in dynamic market. To conduct this strategy, you’ll need some competitive price intelligence. Competitor price tracking software is seamlessly efficient to generate actionable insights and helps you to take accurate pricing decisions. By acquiring competitor price tracking software, you’ll expand the opportunities of boosting sales and profit margins.

The price competition in e-commerce is fierce. E-commerce companies who try to gain benefit from this competition will have a great advantage over the competitors. In order to get this competitive advantage, e-commerce companies should separate a significant time to price optimization.


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