Pricing is one of the most important and difficult aspects of eCommerce.
Getting the optimal price right away for a new product or service is almost impossible, and it is even trickier to keep up with the evolutions of a dynamic marketplace. Customers using shopping comparison engines won’t even visit your site if your prices are too high. And you’re leaving money on the table if you set your price points too low.
So how do you find out the optimal price to drive the highest profits right now?
The answer is real-time market analysis. Shoppers love to compare prices, so it’s essential to know your competitors’ prices to set the right price at any given time.
Online retailers are up for pricing optimization
Online retailers are becoming aware that their prices are relative to their competitors’ all over the world, not only when they set prices initially, but also as their competition evolves, day after day.
The majority of online retailers (61%) are planning to use a form of pricing optimization in 2015. This is a huge increase compared to the 36% who have already optimized their prices in 2014.
Since the big players are using dynamic pricing to adjust the price of their products in real-time, all online retailers are feeling an increasing pressure to use a form of pricing optimization in order to keep up with them without ruining their margins.
How to optimize your prices scientifically
Know your customers
Gathering data about your customers’ purchasing behavior is the key to pricing optimization. How do they perceive your brand? How much are they willing to pay? Where do they live, and how do your prices compare with the offers of local retailers?
Keep an eye on your margins
Before you start moving price points, make sure that you understand your cost structure and find out the maximal discount you could permanently offer without making losses. Selling items below costs can make sense if you want to enter new strategic market segments, but you cannot do that in the long run.
Run pricing A/B split tests
Lots of factors influence the optimal price of your products and services, in particular, the quality of your website traffic. So which price point will perform best in terms of overall profit? Don’t guess, optimize! By showing different prices to random panels of visitors on your site, you can actually measure the generated profit and see how it depends on the price level. Be sure to do the maths right and to gather a statistically significant amount of data before you change your prices!
Automate your pricing optimization strategy
Big players like Amazon are repricing their products every 10 minutes. If you don’t cope up with this rapid pace, you’re relying on chance to sell your products and services, and your eCommerce is bound to fail.
There is no way around automating your pricing strategy to stay competitive around the clock. Fortunately, companies like Darwin Pricing are already offering dynamic pricing services for online retailers. This is the most effective way of staying competitive in a marketplace that is evolving permanently.