Competitive pricing is the top priority of the modern consumer. In the fast-paced world of e-commerce where the shopper is price-conscious and new competitors pop up each day, pricing is a powerful tool in the hands of retailers.
As an online retailer, you must equip yourself with pricing skills that’ll give you a competitive edge. That’s why we’ve gathered three effective pricing strategies and tactics to help you increase sales, improve profitability, and build brand loyalty. If you’re ready, let’s dive in!
Loss leader pricing
While 70% of participants in a global shopper survey say that competitive pricing is the most important factor when they’re making a purchasing decision, an Amazon shopper survey found that price is the top priority for the 41% of Amazon shoppers. Does the retail behemoth always have the most competitive prices? Not really. Then why do these shoppers believe that Amazon has the lowest prices on the web?
According to a former Amazon Business Leader, Guru Hariharan, Amazon creates this perception in shoppers’ minds by offering below-average—often below-cost—deals on the most popular products. Since these are the most searched or best seller products, people encounter the cheap Amazon prices frequently enough to believe the company offers the biggest discounts on every product.
This strategy has two benefits:
- More people visit your store thanks to the perception you built
- They buy additional items once they get through the door
Once these popular products—or loss leaders—lure shoppers into your store, the new customers will make additional purchases. For example, if you sell printers at a loss, you’ll attract bargain hunters. Most likely, they’ll add some ink to their shopping cart too.
Selling below-cost may seem risky, but the idea behind this strategy is that you’ll cover the loss with the sales of these additional items. Keep in mind that big retailers can afford these losses, but as an SMB owner, you might want to be cautious.
Start with a few products and observe the results for a short period of time—a week, perhaps. If loss leaders actually increase your store’s visibility and you’re making profit, then you’re on the right track.
E-commerce is all about pricing optimization. As we’ve mentioned before, modern shoppers are price sensitive. 79% of participants in a survey say they consider themselves as bargain shoppers. Meaning, competitive pricing is a top priority for them.
If you’re new in e-commerce, you might desire fat profit margins, yet an experienced online retailer would depict a more realistic picture. Even the retail giants like Walmart—who are the experts of cost-cutting—operate on thin profit margins. These retailers acknowledge that competitive pricing is the key to acquiring customers and keeping them because it is what they’re looking for.
So how can you optimize profitability in an environment with many players—and more popping up each day—while offering competitive pricing?
By using the power of dynamic pricing. What does that mean?
Dynamic pricing is a strategy where prices are automatically adjusted based on pre-defined conditions, market prices, costs, and target profit margins. In other words, this strategy adapts your prices to changing conditions.
For instance, when competitors increase their prices, your dynamic pricing structure allows you to automatically adjust yours, making sure you’re not missing the opportunity to improve profit margins.
Perhaps more importantly, it allows you to get and stay competitive. So, whenever a competitor makes a price change, you’ll be able to react on time without spending a minute. They won’t catch you off guard, and you won’t compromise your positioning. Having the cheapest price will increase your store’s visibility via the comparison shopping engines like Google, increasing brand awareness, and luring shoppers into your store.
As an industry leader, Amazon has built a dynamic pricing engine that has granted the company an incredible competitive advantage in the early 2010s, and brought the company where it is today, dominating the US e-commerce market.
Of course, most businesses, especially SMBs, can’t fund building an engine like that and they lack the technical expertise to build and maintain a complex engine. But they can use dynamic pricing software, which is much more affordable and convenient.
One brilliant strategy that helps retailers boost revenue is basket-based discounting. Using data collated from purchase history, browsing history, and onsite behavioral tracking, marketers can generate personalized discounts that are much more effective than generic ones.
When you have information about the products a customer has shown interest in and the discounts and coupons they previously used, you can offer personalized discounts that’ll likely catch their attention.
As a retailer, your very first goal is to convert more customers. But keeping these new customers are even more crucial. In this manner, this strategy helps both in customer acquisition and retention. Why?
Letting customers know that you care for their needs and interests, from their preferences on brands, products, purchasing frequency, to their willingness to pay for these products, helps you build a strong relationship with them in the long run.
One option is to use a promotion management system. Alternatively, you can segment your audience yourself based on the data gathered from the resources mentioned above. As the size of the data set increases, the segmentation will be deeper and more shoppers will use the discounts.
E-commerce is a fast-growing, fast-paced industry that compels its players to compete on price. Implement these strategies to expand your customer base, boost sales and improve profitability.
Name: Basak Saricayir
E-mail address: [email protected]
Author Bio: Basak Saricayir is the content marketer at Prisync which helps E-commerce companies increase sales by tracking prices automatically from any marketplace around the world.