In today's economy, demand and supply are the main factors determining the prices of various products available in the market. Sticky prices are the ones that refuse to change as per the changes in the demand and supply in the market.
When it comes to the e-commerce market, it is zestful and a vigorous market where sticky prices cannot prevail and can be a danger for your business. We will learn about price stickiness and how it affects the pricing strategy of the e-commerce industry in this article.
What are sticky prices?
When the prices of your products or services refuse to change with the prevailing changes in demand, supply, cost, and various other factors affecting prices, such a situation is called price stickiness.
Economists believe that price stickiness is due to the inefficient working of the economy, which makes it an element hindering the growth of the economy.
So, think of a situation where there is an employee working at a supermarket store. He handles the store all by himself. Now, the owner employed one more person. Even though the pressure of work is reduced at the first employee, his wage or say, the salary would not be decreased as per the demand of his work. So, we can say that his wage is a sticky price.
It is quite a famous example. Suppose we talk about recent iPhone sales before the release of the iPhone11. The demand for these phones was dropping gradually, but due to the companies' prestige pricing, the prices never dropped and remained the same even when the demand dropped. So, this situation implies the price's stickiness of iPhones.
This price stickiness can be upward or downward according to the prevailing situation.
Downward sticky pricing:
Downward Sticky Pricing is a situation where the prices of your product refuse to drop even when the demand is dropped. This happens as follows if we see from the perspective of economics graph:
When the demand curve shifts leftward or inwards or the supply curve shifts rightwards or outward, the demand for your product falls short as compared to the supply. Now, if the price still remains the same and does not change, it will result in an excess supply of your product.
Upward sticky pricing:
Upward Sticky Pricing is a situation where the prices of your product refuse to rise even when the demand is increased. This happens as follows if we see from the perspective of economics graph:
When the demand curve shifts rightward or outwards or the supply curve shifts leftwards or inwards, the supply of your product falls short as compared to the demand. Now, if the price still remains the same and does not change, it will result in excess demand for your product.
Well, let’s come to the point. How are all these concepts related to your ecommerce store?
Role of sticky prices in the ecommerce industry:
It is quite important to understand how sticky prices affect your ecommerce store.
According to various researches, e-commerce stores with wavering prices are able to cover more of their costs as compared to those who follow the sticky pricing strategy.
At a market place like nowadays, where everything is dynamic and unpredictable, sticky prices won't work well.
As sticky prices won’t allow your store to adapt according to the changes happening around and compensate for previous losses due to circumstances.
Let’s make it clear with an example:
Let's suppose a competitor enters your industry with comparatively lower prices. Now, if you don't change your prices, you may face the loss of customers due to sticky prices. If you also lower your prices, the customers may not be attracted to her and would remain with you. Thus, you compensated for the loss that was going to happen.
Is dynamic pricing suitable for your store?
It's not that your customers won't understand slight ups and downs. They realise that price changes are due to seasonal factors as well. As you have an e-commerce store, you will have leverage over brick and mortar stores in the dynamic pricing strategy.
You don't have to go through a long and complicated process in order to change the prices of products. All you have to do is change the prices on your e-commerce store.
So, dynamic prices are the need of the hour; therefore, pricechecker is a software which not only compares the price of the competitors but also changes the prices of your products as per the requirements.
In conclusion,We can say that sticky prices may harm your business to a great extent, so you should instead go for dynamic pricing to prevent such losses. If you keep the same prices for long, you might end up alienating your customers.