78% of the correspondents of an Ask Your Target Market survey say they compare the price of a product from different online stores before making a purchasing decision.
As an e-commerce retailer, you know by heart what differentiates you from your competitors is your prices. Depending on the decisions you make, it can be your biggest weapon or greatest weakness. But don’t worry. By using the correct pricing method, you can position your business right where you want in the market.
Pricing is both an art and science
What do you consider when you’re setting prices for a product? Do you go ahead and set whatever you want? Hopefully not. Because if you do so, your prices might be way under or above the market average leaving you out from profits. Try selling an iPhone XS Max for $500 higher than anyone in the market.
Which one would you buy?
Or let’s say that you own an online store that sells maternity clothes. On mother’s day, 8 of 15 hypothetical competitors have discounts, and you don’t. It happens to be your products are slightly cheaper than their products even when they’re on sale. Naturally, you expect to sell more than they do, right?
Well, you didn’t take the psychological effect of promotions/discounts into account. Promotions/discounts count as the third reason why a consumer makes a purchasing decision. Therefore, you need to be aware of your competitors’ sales tactics. Of course, this is just one technique within their sales strategy.
There are many factors when setting your prices, that’s why Amazon makes 2.5 million price changes in a single day. Naturally, nobody has the same technological capacity nor the sales data but most of us make price changes one way or another.
So, with the right guidance, you too can compete with the giants.
But first, you need to identify your pricing strategy.
A pricing strategy is a must
Conventional or unique, all of your competitors build a sales strategy to stay ahead of the game. Your job is to puzzle out their tactics. Once you figure out their style, it’s time to formulate your own strategy to compete with them.
You can adopt several commonly-used pricing strategies such as cost-plus pricing, value-based pricing, penetration pricing, price skimming, and competitive pricing.
Simply picking one of the strategies above is an option, or you can combine some of them into a unique sales strategy. We won’t be able to go into the details of all the pricing techniques in this post, however, you can check out ultimate pricing strategies to learn more.
Now let’s proceed with the competitive pricing strategy by learning how to track our competitors.
Price tracking 101
Suppose you compete with 20 online shopping websites and sell 150 products. To track their prices, you assigned an employee. On average, she would be spending 45 seconds to collect and record price information of a single product from a single competitor website.
For the 150 products, the overall process will take more than 37 hours. Wait a minute. 37 hours? For data that’s going to change in a day! Not only frustrating for your teammate but also open to a lot of human error. And it’s not even the worst part.
In the United States, the average office worker earns $13/hour. This means that you pay an employee $488 for just one task.
Although it’s very costly, we’ll move on and see how we can apply what we’ve learned to improve our price position.
Applying price changes
Let’s learn from the best and have a look at how Amazon attracts many customers with a simple trick.
Shopping on Amazon usually feels like you’re getting a good deal, right? Well, we can’t say that it’s the cheapest destination for all the products sold online. However, the human brain tends to assign attributes, and consumers unknowingly assume Amazon is the cheapest place to buy any product.
Following our example from before, let’s say that you set 20 of 45 product prices to be the cheapest in the market. At first, this tactic will convert consumers with high price-sensitivity and once they get used to shopping from your store, you will increase the number of frequent shoppers.
After this point, making small changes in the prices to have better profit margins won’t bother your loyal customers and you’ll be increasing your market share.
But this is a one-time thing. The market requires you to make daily or even hourly changes and this won’t work for the long run.
We’ve discussed how manually tracking competitor prices and changing your own is both costly and time-consuming. How about using software? Does it really help you have better prices and positioning?
Let’s find out.
Does software really help?
FMCG products are sold on numerous online stores, that’s why consumers go for the cheapest price and retailers compete heavily on this industry. On the contrary, when a business seeks to position as a luxury brand, they aim to have higher prices than their competitors.
That’s where software comes in for the rescue. It helps you adjust your prices for hundreds or thousands of products, compares them against an unlimited number of competitors, and reprices them for much accurate positioning.
These are the instant changes that you can achieve with software. However, pricing is a marathon. You have to develop a long-term strategy to have a healthy price image.
You see, a competitive pricing intelligence software stores historical information about your rivals so you can detect price changes and recognize patterns in each. Whether intermittent or within specific intervals, these patterns are key for seasonal sales campaigns. Where some of them will be obvious, like Black Friday, some of them will uncover how your competitors behave in offseason times.
Understanding market trends and observing competitor behavior will be a groundbreaking improvement in your pursuit of constructing a long-term growth plan.
As a shameless plug, we as Prisync provide a complete solution for e-commerce retailers that does all of the provided above. Try it out with our 14-day free trial without any commitments.
Now it’s your turn
It’s natural for SMBs to run the risk of being dominated by big retailers, but there are ways to avoid such consequences. By focusing on your pricing strategy and positioning of your products you can pierce right through the giants’ shadow without them even noticing.
- Pricing is a task that any type or size of e-commerce business should take seriously.
- To compete with big companies and increase profit margins a pricing strategy is necessary.
- Manually tracking market prices consumes too much time and costs a lot of money.
- Pricing isn’t a one-time thing and should be dynamically adjusted to meet certain expectations at a given time.
- Pricing software helps businesses speed up the process of tracking prices and adjusting them no matter the size of inventory or number of competitors they have.
. . .
This post was contributed by Basak Sarıçayır, the content marketer at Prisync, that helps e-commerce companies increase sales by tracking prices automatically from any marketplace around the world. You can find her on Linkedin.