Price it Right and Prepare for Profit
There is no doubt that today’s consumers are spending more money on the Web than any other time in history, but the online retail landscape continues to be a challenging one for merchants. More so than ever before, Internet shoppers have come to expect daily deals, deep discounts and big promotions that make it increasingly more difficult for retailers to build their profits.
A sound but competitive pricing strategy is essential for a retailer’s success on the Web today, but it is surprising how many merchants suffer as a result of their lack of preparation and follow-up. Below are some basic guidelines for establishing pricing that will keep your customers coming back and your competitors at bay, as well as a handful of solutions devoted to helping retailers do exactly that.
Know your own situation first
Many online retailers become so caught up with the competition that they actually lose sight of what is most important to their own bottom lines. To prevent this requires an intimate knowledge of your own product lines and profit margins. For instance, what – if anything – makes a product unique? What are the potential shipping costs? What additional costs such as taxes, website hosting, e-commerce software, payment processing fees and customer-support services will come into play? What product warranties and policies on damaged goods are in place, and how might they affect potential profits on each specific product? Going forward without a deep analysis of these and many other areas makes pricing your products a virtually fruitless exercise.
Know your competitors better than they know themselves
If you are thorough in following the first step – extremely thorough – then the chances are already good that you have a leg up on at least some of your direct competitors. Many online retailers are reluctant or somehow unable to perform this type of due diligence, and they wind up leaving profits on the table or, much worse, suffering financial losses. By benchmarking the competition on the most granular level – which means not only by niche or category, but on a product-by-product basis across the entire Web – you will then be able to ultimately narrow the field and have a much clearer picture of where to price your products, when to put items on sale and how to attain the highest possible profits.
Analyze your strengths and weaknesses
Now that you have a deep understanding of your own inventory as well as that of the competitive environment, you can make an honest assessment of where you stand comparatively. Surely, there will be some of your own products that stand out to you, and not only should they be considered for premium pricing but their strengths should also be expressed to your community of followers. Take advantage of social media to share the news that you have a high-quality product or service for sale, and ask your customers to do the same in the form of reviews and testimonials. How you price these items may have a significant impact on your bottom line, so carefully choose the appropriate times (i.e. based on seasonal supply and demand) to alter their prices one way or the other. The same principle holds true for those products that your analysis may have deemed inferior in the competitive landscape – follow the supply and demand of the competition and price those items accordingly.
Be flexible, dynamic . . . even generous
As just stated above, remaining fluid in your pricing based on the needs of your customers and the proficiency of your competitors will reap the highest profits in today’s online retail market. Gauging the level of competition has already been addressed, but how will you most effectively understand the specific needs of your customers? Through social media and analytics, for one, and also through customer service if that is a viable option for your enterprise. Seek feedback from customers through social media and email campaigns, not only about the quality of your products and services but also about pricing, availability, service, delivery, etc. Make it an important point in the overall process to consider this feedback when pricing your products and let your customers know that their voice has been heard, and that your pricing strategies are dynamic rather than static. Also, for certain products, consider the increasingly popular freemium model: no charge for a limited time/trial basis, and/or no charge until some premium features are added to the basic package.
Become a student of psychology
If you are operating a Web retail business, the chances are decent that you have logged a fair amount of hours in business classes and been educated in some form of website development, sales and marketing. To gain higher profits through pricing strategies, however, requires at least some basic knowledge of human psychology. Some tactics are as old as the hills and others sound downright counterintuitive, but only by educating yourself will you know how much money you stand to gain – or lose – by pricing something at $4.99 rather than $5. The Web is filled with opinions on the subject, many of them from renowned experts who have studied the psychology of pricing for decades.
Research the market
There are also numerous companies that provide dedicated solutions to the science of pricing intelligence, including BlackLocus, JDA Software, Upstream Commerce, Competitor Monitor, Gazaro and others. If you are serious about taking your e-commerce business to the next level, research and education is always a wise course to follow.