If you’re relying on outdated methods or your intuitions, you’re certainly leaving money on the table. And worse, you’re missing out on sales!
In the fast-paced world of e-commerce, data is your only friend when pricing your products. It tells you how to price a product, and when to drop or increase prices. And with the help of some automation, it helps you position wherever you want in the market.
Do you want to beat or match competitors? A data-driven pricing strategy will help you do that. Do you want to build a powerful brand that sells itself? It’ll help you nail that too.
In this part, we’ll talk about how to build a data-driven pricing strategy to sell more, and increase profits when there’s a chance to.
Online prices are transparent. Meaning, shoppers can compare prices easily, and competitors can spy on you.
If you don’t spy on them too, you’re left behind.
Two reasons why:
But that also means there’s so much room for improvement.
It’s crucial that you’re able to see competitors’ price data in front of you.
First because most shoppers compare prices. Price comparison sites—you’ve definitely heard of the one in your region—like Dealabs in France are the top referrers of e-commerce sites of all sizes, from Amazon to local stores.
Their referrals are the most targeted traffic a store can get— shoppers on a price hunt. Not ones that Googled the product, which can get really experimental and/or confusing sometimes. Or not coming from an ad, which could likely be accidental or inconclusive. They’re people that looked for a good price and liked yours!
Now, considering you’re not Amazon, you have another benefit coming out of this.
Even shoppers who don’t buy from you or go to your site are increasingly more exposed to your brand. And continuous exposure to your store certainly increases their chance of trying it.
The second reason you should monitor competitors’ prices is that they already monitor you.
Alberto Cavallo, Harvard Business School associate professor, looked at online retail prices from 2008 to 2017, and saw an upward trend in the frequency of price changes.
He argued that was because of Amazon’s dynamic pricing experiments, forcing retailers to change prices more frequently to match or beat the giant’s dynamically adjusted prices. Cavallo called this domino effect—initiated by retail behemoths like Walmart—the “Amazon effect”.
Today, having a dynamic pricing strategy is more affordable and a lot of online sellers, big and small, experiment with it. That’s why we see stores monitor each other and set similar prices:
So even in the case where you don’t want to be cheaper than others, you still need pricing intelligence. It’s the only way to know where you stand in the market, and how your positioning affects your sales and profitability.
Ideally, your prices must serve your marketing objectives and branding strategy. In the dynamic e-commerce environment, your business must be agile in all three:
Now, monitoring competitors is the first step in building such a data-driven, agile strategy. It helps you see where the hot competition is, where you need to cut or raise prices, or if you get better supplier deals or not.
That’s a great start. But the market is dynamic and you need to know when conditions change.
For instance, many households experienced financial constraints in 2020, and it had a significant impact on their purchase behavior. Newly constrained consumer groups started comparing prices, turned to smaller packs at lower price points and large/economy packs at advantageous prices.
And of course, stores that had adapted to these changes kept those financially constrained customers, and added new ones to their customer base. The others, who were not agile enough, lost sales.
So this was a teaching moment for retailers—how consumers perceive value can change drastically and with no warning.
That’s why you need agility in your pricing decisions. It’s linked to shoppers’ perception of value. Make sure you build solid data-collection and dynamic pricing systems. Know what’s going around and set dynamic prices that change according to your preferences.
Say, for instance, you noticed a change in purchase data. Your premium products’ sales dropped significantly. It can result from a variety of factors.
Perhaps the product is not so popular anymore, thanks to a brand new close substitute. Or people’s finances are not so good anymore and they no longer see value in premium products. Or, your target audience is savvy coupon shoppers now and they’re waiting for a discount
Perhaps, a combination of these things caused the drop in sales. You can’t even be 100% sure that one of these was the cause. But you can make an educated guess and test your hypothesis.
Testing is the most convenient way to address your problems and open up room for improvement. And thanks to affordable tools and countless resources on how to test stuff, even the smallest teams on the tightest budgets can test now.
Suppose you found out that there really is a new substitute for your product via a visit to your competitor’s site.
If that’s the reason why your sales dropped, the argument is that people see more value in that new substitute. To test this hypothesis, you can do several things:
Test different prices and see if shoppers return to your store—find out if they think your price is not fair anymore
Find out how their product differs and try to offer what they offer (free stuff, a premium feature, size options, lower quality but cheaper products, etc.)
Look at customer data to see if there’s a general change in their behavior—did they cut spending, do they come from price comparison sites more often than before?
With the help of a dynamic pricing tool, test different price points and look at sales data. Is there a meaningful difference? And more importantly, did a price point perform better than the others?
All those different price points will generate different outcomes, because a $10 cut may mean a lot to me, but not to you. Meaning, a part of your audience might see that price drop as an opportunity, and another might simply not.
Your task is to find out which one is more profitable. Set up rules that count in competitors, your desired profit margins, and costs.
With the help of these dynamic pricing rules, you’ll also leave less money on the table. When competitors raise their prices, yours will be automatically adjusted.
A good e-commerce pricing strategy is data-driven and its built upon pricing intelligence and a solid price testing/repricing mechanism.
Test different prices and discount strategies continuously so that you can always feel the pulse of the market, offer relevant prices, compete better and yet make more profit.