Best Pricing Strategy for E-commerce? Up Your Pricing Game
Highlights
- Overview about the 4P's of Marketing
- What is a Best Pricing Strategy for E-commerce? Up Your Pricing Game
- Types of Pricing
- Steps to Set the Price Right
The 4P’s in marketing have been fundamental to any business from developing a product to selling. Product, Plac, Price, and Promotion are the 4 P’s that come in handy for any business. As we witness a technological transformation in the product from just being a tangible product to digital product, services, etc. there need distinct changes in price, place, and promotion as well.
A place usually describes the location at which the product is going to be sold. In a globalised world with advancing technology, there is hardly any restriction on the movement of products/ services. In fact, the global supply chain is set to grow at the rate of 17.9% by 2027. As the cost of transferring the products is in control, the world is the market.
Product and Place of Marketing
As of 2022, China remains to be the most penetrated e-commerce market with 46.3 % of the country’s retail sales taking place online. The UK and South Korea follow China with penetration of 36.3 % and 32.3 %. According to the latest report of Insider Intelligence, the resale market is forecasted to surpass $30 billion by 2025.
It is quite intuitive that the product and place in the 4P’s are technology driven. Ironically, many businesses limit the application of technology to just product and place despite the price being the king of sales. Getting the right pricing strategy in a data-driven world with severe competition can be challenging.
What is a Pricing Strategy?
Pricing strategy offers a blueprint for the business to quote the value of their product based on various factors like target customers, size of the company, and scalability of the business. This strategy is crucial to be formulated even before entering the market.
There are multiple pricing strategies that one could study in detail. The popular ones are
- Value-based pricing- Identifying what the customer is willing to pay or the value perceived from the product is value-based pricing. This type is appropriate for high-margin products that can possibly have different values for potential customers.
- Competitive pricing- It is also known as going rate. The goal is to set the price slightly lower than the competitors to grab a better market share. This is suitable when the products are identical and customers are ready to substitute each other's products.
- Price skimming- This strategy is used when the product has varying life lengths. Initially, the price is set high when the value is perceived to be high and eventually the price reduces.
- Cost Plus pricing- The cost of producing the goods is added with the markup price. This is suitable when the competition is also using the same model. Attracting new customers and growing profits is difficult under this method. This was popular among retailers selling physical products where the focus was on cost-cutting.
- Penetration pricing- Under this strategy, a business tries to penetrate the market by setting the price lower than the competitors and then slowly increasing it in the later stage.
- Dynamic pricing- Real-time data is used to decide the pricing. This can be altered based on the changes in the market. These are the best strategy if the product has price variations with many competitors.
Now, how does a retailer choose the appropriate pricing for their products? Most retail brands focus on acquisition and marketing to grow their business and drive revenue. However, studies have shown that 65% of price variation is common to stores within a retail chain. Since the consumer products on e-commerce platforms have many substitutes their demand is extremely sensitive to price changes. What does this mean for the sellers? The price sensitivity (elasticity) is a piece of vital information to decide if the price has to be fixed or made dynamic. A retailer can use a combination of these strategies based on the business requirements.
For instance, a successful retail brand selling consumable products with a longer shelf life can use dynamic pricing and price skimming. In the case of selling perishable products like groceries online, competitive and dynamic pricing can be used together. At times single-brand retail might have multiple segments of products that will fall under two different categories. In that case, it is more reasonable to categorise products based on their price sensitivity and optimise your revenue under each segment.
Steps to Set the Price Right
After solving the problem in price, we move to a promotion that essentially indicates the marketing & selling strategy. Irrespective of the marketing strategy employed in your retail business the following steps are integral in mastering your pricing game.
Step 1 : Identify target customers and competitors
Step 2 : Categorise your products based on prevailing market competition
Step 3: Choose the suitable pricing strategy/ strategies
Step 4: Find the best tool to implement your pricing plan
Step 5: Review and have a recourse plan
In essence, having the right pricing strategy is crucial in any business. Identifying your business strengths and weaknesses based on the competition can help you devise the right pricing plan. With respect to retail e-commerce, pricing as a strategy can also help the brand drive profit. Tracking competitors' prices and products can indeed help the business to fix a more dynamic pricing. This will help the brand pull more online customers. pricechecker is an exclusive tool to help your business with setting the right prices. As a retail brand, your products might have to constantly revise the prices based on your competitors' prices. This tool solves the problem by tracking and monitoring your prices.
