Best Pricing Strategies for Online Retail - Blog

Pricing strategies for online retail · Geographical Locations: in areas or regions where the customers are less price sensitive, the prices of ... Product Tracker Challenger Commander Customers Pricing Resources Media Blog Podcast PeopleinRetail Guides Community BookaChat HowItWorks Customers Pricing Resources Blog Media Guides Community BookaChat BestPricingStrategiesforOnlineRetail Postedby MoiraMcCormickonJune29,2017 Findmeon: Twitter Tweet Onlineretailhasgrownsignificantlywhilsttraditionalshoppingonourhighstreetshasseenamarkeddecline-onceproudsmallretailershavenowbeendeposedbycoffeeshopsandcharitystores. So,onthefaceofit,allislookingpromisingforyouonlineretailers-attheveryleastyoudon'thavetomaintaincostlyshopsintowncentresnorpayridiculousbusinessratesforthepleasureofahighstreetpresence. However,despitetheobviousadvantagesofprovidinganonlineshoppingexperienceyouprobablyoftenfeelunderpressuretogetyourpricingstrategyright. Itcanbebothexcitingandscarydecidingatwhatpricetosellyourproductorservicebuthowdoyouwishtobeperceived?  Isitastheretailerwhosellsbelowthecompetitiontogetloadsofsalesortheonewhosellsatahigherpricebutgainsaddedrespectbecauseofthevalueandserviceyouoffer?     Ultimatelyit'suptoyouwhetheryouwanthigherpricesforyourproductsandalowervolumesoldorlowerpricedproductsandhighervolumessold,andwhichdirectionwillenableyoutoachieveprofitability.Readontobetterunderstandtheavailablepricingstrategiesforonlineretail.   Pricingstrategiesforonlineretail Thelowestpricedoesn'talwayswin Knowyourmargins. Therealityofonlineretailpricingisthatthelowestpricedoesn’talwaysgetthesale.Infact,pricingbattlesusuallyendwithyoupricingyourproductstoolow.Evenwithplentyofcustomers,youstillmaynotenjoyaprofit. Ifyouareloweringyourpricestoapointwhereyouarelosingmoney,youshouldconsiderfindingabettersource,oradjustyourproductofferingstoincludemoreprofitableitems. Gettingyouronlinestoreintoapricingbattlecouldhurtyouinthelongtermaswell.Whenyouconsistentlypricetoolow,yourcustomerswillalwaysexpectthelowerprice,evenwhenitisunsustainabletoyourbusiness.Overtimeyoucouldloseevenyourmostloyalcustomers.  Canyoureallyaffordtoletthishappen?   RealiseyourUSP(UniqueSellingPoint) Whatmakesyoudifferent?Everycompanyhastotacklethisquestiontodeterminetheirvaluepointandtargetmarket.Foronlineretailers,auniquefactorcouldbeexcellentcustomerservice,freeandspeedydelivery,(e.g.AmazonPrime's"getittomorrow"),orauniqueproductyoucan'tfindelsewhere. NotOnTheHighStreetisanaward-winningwebsitewhereyoucanfindhighlyoriginalgifts.Thecompany,launchedin2006,supportsover1500Britishsmallbusinesses,providingthemwithanattractiveplatformonwhichtomarkettheirwares. Withpricingcompetitionatanall-timehigh,retailershavetothinkoutsidetheboxwhencraftingamarketingorpromotionalstrategyfortheironlinestore.   OfferIncentives Onceyouknowyourmarginsandhavepricedaccordingly,thenyoucanofferincentivestomotivateyourcustomers.Evenifyoucan’tsustainanultra-lowpriceinthelongterm,youcanalwaysofferlimitedtimepricingtoreachthesecustomers,e.g.“purchasetodayandreceive20%off!” Thisalsogivesasenseofurgencytothepurchase,i.e.tomorrowwillbetoolate. Ifyouhavesurplusproducts,youcanaffordablyoffer2for1.Additionally,buyoneproduct,get50%offthesecond.Inreality,thecustomerisonlygettinga25%discount.  Beingshrewdwithyourincentivesallowsyoutheabilitytoharvestattentionforyourproducts,andbuildareputationforofferinggooddeals.   Diversify Understandthemarketdemand/fashion.Makesurethatyouareuptodatewithcurrenttrendsbyreadingecommercenews.Useproductslike“GoogleTrends”or“GoogleInsight”tocheckthepopularityofastockkeepingunit(SKU). DanAriely,aprofessorofpsychologyandbehaviouraleconomics,foundthatgivingacustomermoreoptionsinfluencestheirchoiceandtheirperceptionofa‘gooddeal.’Specifically,oneunattractiveoptioncanemphasisethevalueofotheroptions,helpingtheconsumerdecideonanoptionthatbettersuitsthemandoffersgreatervalue. Onlineretailerscanofferlessattractiveoptionstoemphasisethegood,drivingcustomerstooptforthemoreexpensiveoption.  Buzzmonitoringisthemonitoringofconsumerresponsestocommercialservicesandproductsinordertoestablishthemarketingbuzzsurroundinganeworexistingoffer. Similartomediamonitoringitisbecomingincreasinglypopularasabaseforstrategicinsightdevelopmentalongsideotherformsofmarketresearch.[1]Buzzmonitoroffers"Pickaplanthat'srightforyou"-thethreeoptionsare"FreeForever","Squirrel"at$500amonthor"Bear"at$1500amonth,obviouslywithincreasingservices.   TestyourOnlinePricingStrategy Aswithmanythingsinecommerce,onesizedoesnotfitall,soitisimportanttomeasureandtestthesuccessofchangesyoumaketoyouronlinestore'spricingstrategy.Ideally,everychangeshouldbetestedandvalidatedwithananalyticstool. PricingAnalyticstools(alsoknownasPriceOptimisationTools)cananalyseyourhistoricaldataandsupportyoubymakingrecommendationstoincreaseordecreasespecificpricesinordertoeitherincreaseprofitabilityordriverevenues. Forexample,PricingAnalyticswillrevealifyour‘SummerSale’increasedyourconversionrate,orifthenewerproductsinyouronlinestorearegeneratingmoreprofitthanolderproducts.     "Keystone"PricingStrategy Hereanonlineretailersimplydoublesthewholesalecosttheypaidfortheproducttodeterminetheprice.Therearehoweveranumberofscenariosinwhichkeystonepricingmaybetoolowortoohighforyourbusiness. Forinstance,ifyouhaveproductsthathaveaslowturnover,havesubstantialdeliveryandhandlingcosts,orareuniqueandscarceinsomewaythenyoumightbesellingyourselfshort-andcouldpossiblygetawaywithanevenhighermarkup.Ifyourproductsareeasilyavailableelsewherekeystonepricingmaynotberightforyou. Keystonepricingworksasaquick-and-easyruleofthumbthatensuresanampleprofitabilitymargin. However,dependingontheavailabilityandhowcompetitiveaproductis,it’susuallyunreasonableforanonlineretailertomarkupaproductthathigh.   ManufacturerSuggestedRetailPrice(MSRP) Thisisthepricethemanufacturerrecommendsthatyouasanonlineretailerusetoselltheirproducts.Thereasonmanufacturersfirststarteddoingthiswastohelpstandardisepricesofproductsacrossmultiplelocationsandretailers. Asanonlineretailer,youcansaveyourselfsomestressbytakingyourselfoutofthedecision-makingprocessandjust"gowiththeflow".   However,you’reunabletocarveoutorsustainanadvantageoveryourcompetitorsifyou'restuckwiththeMSRP.   Bundling Acommontacticwheremerchantssellmorethanoneproductforasingleprice.AstudylookingattheeffectofbundlingproductsintheearlydaysofNintendo'sGameBoyhand-heldconsolefoundthatthemostproductsweresoldwhenthedeviceswere"bundled"withagame. Traditionally,onlineretailersusethisstrategytocreateahigherperceivedvalueforalowercostwhichcanultimatelyleadtodrivinglargervolumepurchasesbutwhenyoubundleproductsupforalow-cost,you'llhavetroubletryingtosellthemindividuallyatafuturehighercost.   DiscountPricing Consumerslovesales,coupons,rebates,seasonalpricingandotherpromotion-relatedmarkdowns,i.e.grabbingabargain. Discountsaregreatforattractingalargeramountoftraffictoyouronlinestoreandgettingridofout-of-seasonoroldstock,whilstattractingamoreprice-sensitivegroupofcustomers.  However, ifutilisedtoooften,youmightgainareputationasabargainretailer,whichcoulddeterconsumersfrompurchasingyourproductsfortheusualprice. Grouponoffersdiscountedvoucherdealsanddrawstradebyadvertisingsuchas"upto73%off","limitedtimeoffer","choosebetweentwooptions"andindicatinghowmanycustomershavetakenadvantageofthe"fantastic"deal.   Loss-leadingPricing Thisstrategyassumesthatanitemsoldbelowmarketvaluewillencouragecustomerstobuymoreoverall.Usingthisstrategy,onlineretailershavetheopportunitytoupsell,cross-sellandincreasethetotalshoppingbasketvalue.Eveniftheprofitisnotimpressive,thisstrategystimulatesclientinterest,openingthedoorforfurthertransactions.  Maybethevalueofacustomerpurchaseoutweighsthevalueofthetransaction.ChooseproductsthathavealowCPA(costperacquisition),tominimiseloss.Theendgoalistosacrificelosingmoneyononeiteminordertomakeaprofitontherestoftheproductssold,i.e.cheapshampoos,expensiveconditioners. Thistacticcanworkwonders,especially,whenyouconsideranycomplementaryoradditionalpurchasesaconsumermightmake,resultinginaboostinoverallsales.However,whenyouoverdoloss-leadingpricestheeffectcanbesimilartodiscounting–consumerswillalwaysexpectbargainsfromyou.   PsychologicalPricing Ifyouhelpminimiseany"pain"experiencedwhenmakingapurchase,it'spossibletoincreasethelikelihoodofyourcustomerbuyingyourproduct–andreturninginthefuture. Anexamplewouldbeusing£8.99insteadof£9.00asyourpurchaseprice. Byusingpsychologicalpricingyoutapintotheirrationalpartofaconsumer’sbrainandtriggerimpulsepurchasingthroughtheperceptionofabargaindeal.  However,itdoesn'tworkwhenyouaresellingprestigiousgoods- loweringyourpricefromawholenumberlike£1,000to£999.99willactuallyhurttheluxurybrandperceptionofwhatyou'reselling. Alongwiththepowerof9intheprices,atiny$or£signhelpstakeawaythestingoftheprice-youmightevenwanttodoawaywiththemonetarysignaltogether. Amazoncreatesasenseofurgencytoencouragesaleswiththefollowing-"only2leftinstock-ordersoon",whichisapsychologicaltactic.   SegmentedPricing Thisiswhenanonlineretailerfixesorsetsmorethanonepriceforaproduct,irrespectiveofitsproductionanddistributioncostsbeingthesame. GeographicalLocations:inareasorregionswherethecustomersarelesspricesensitive,thepricesofproductsarehigherandviceversa. Basedonperceivedvalueandcustomersegments Discountsaregivenforlarge/bulkorders.Offeringaproductpackageorabundlecouldreducethecostandisaformofsegmentedpricing. Segmentationmustbedonekeepinginmindthecostparameters.Further,theperceivedvalueoftheproductmustbeconstantlyassessedanditmustbeensuredthattheimageofthebranddoesn’tgetdegradedatanystageduetothisactivity.     BelowCompetition Thisreferstousingcompetitorpricingdataasabenchmarkandconsciouslypricingproductsbelowthemtolureconsumersontoyourwebsite. Thisstrategycanbeawinnerifyoumanagetonegotiatealowercostperunitwithyoursuppliers,whileatthesametimefocusingoncuttingcostselsewhereandactivelypromotingyourspecialpricing. However, ifyouareasmallerretailer,thiscanbedifficulttosustaingiventhelowermarginsyou’llbemaking.   PremiumPricing Doyouhaveaprestigiousproducttosell? Usingpremiumpricingyoubenchmarkyourcompetitionbutconsciouslypriceyourproductsabovetheirsandbrandyourselfasbeingmoreluxuriousorexclusive. Thispricingstrategycanworkitsmagiconyourbusinessandproductsbygivingconsumerstheperceptionthatyourproductsareofbetterqualityandmoreexclusiveduetothehigheramountthey’llbepayingforthem. Ontheotherhand,it'sdifficulttopulloffifyourusualdemographicareprice-sensitiveandhaveseveralothersimilarandcheaperoptions.   AnchorPricing Thisisanotherpsychologicaltacticwhereyoulistbothasalepriceandtheoriginalpricetoestablishtheamountofsavingsaconsumerperceivestobegainingfrommakingthepurchase. Theoriginalpriceestablishesitselfasareferencepointinthemindsofconsumerswhichtheythenanchorontotoformafavourableopinionofthemarkeddownprice. Anotherwayyoucantakeadvantageofthisprincipleistointentionallyplaceahigherpriceditemnexttoacheaperoneonyourwebsitetodrawthecustomer'sattentiontoit. Anchorpricingwillautomaticallytriggeraresponseintheconsumerofhavingfoundagooddeal,pushingthemtoactontheirimpulsivebuyinghabits. However,thesedaysconsumerscanreadilyresearchtheoriginalpricesanywhereontheinternetandifyouranchorpriceisperceivablyunrealisticitcouldleadtodistrust.   ImplementGreatPricingStrategies Buildinganonlinebusinessinvolvesalotofexperimentationtounderstandwhichpricingstrategyworksmostadvantageouslyforyourparticularbusiness. Thewisestapproachistochooseagoalforeverycampaign,startsmallandmeasuretheresults. Understandwhoyouaretargeting–andwhy. Thebestpricingstrategyforonlineretailersmaybeoneormoreofthoseoutlinedhere. Asconsumerstakeadvantageofallthelatesttechnologiesandtrends,theonlineretailermusthavethelateststrategies,tools,tactics,andpricesforsuccess. Youwillneedtoformulateandimplementgreatpricingstrategies –andmonitoryourcompetition’spricingandproducts24/7.     RelatedPosts WhyisaPricingStrategytheKeytoSellinginOnlineRetail? Top5PricingStrategiesforEcommerceSites BlackCurveEcommercePricingGuide   Sources https://en.wikipedia.org/wiki/Buzz_monitoring(1) http://wisepricer.com/blog/is-your-pricing-strategy-costing-you https://www.shopify.co.uk/blog/14122681-9-strategies-for-profitably-pricing-your-retail-products https://www.shopify.co.uk/blog/6532021-6-tips-to-develop-an-ecommerce-pricing-strategy https://www.quora.com/What-are-some-of-the-best-pricing-strategies-for-online-retail http://www.netmba.com/marketing/pricing/ http://www.wiseruk.co.uk/infographic-upandaway http://www.neurosciencemarketing.com/blog/articles/anchor-prices.htm http://www.marketingdonut.co.uk/marketing/marketing-strategy/pricing/choose-a-pricing-strategy TheStrategyandTacticsofPricing,TomNagleandJohnHogan2016. 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