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Price management in online trading

Is “downwards” the only direction?

The competitive pressure is very tough in ecommerce. Lots of multichannel distributors and online-pure-players woo for the customers’ favor. Here, the mostly chosen tool is the price. According to a study by Ernst & Young the price is the most important criterion to the customer to make a purchase decision while shopping in an online store. Therefore, many store operators complain about the price fight that becomes more and more aggressive.

The fact that the price is one of the most important marketing tools is undisputed. Contrary to the other Ps in the marketing mix, the price is fast and uncomplicatedly adjustable and immediately yields a result. There is just one problem. Once the store owner gets involved with the price fight with the competitors the prices usually only know one direction: downwards. Consequently, lots of merchants are afraid of applying that tool. There are too many horror stories going around within the branch – the fear of collapsing margins and losses in sale is too great.

But there is another way. If store owners mind some basics they can increase their profits even with prices that are higher than those of the competitor are. That is about uniqueness, reliance and keeping track of the market. If potential customers detect an online store’s surplus value compared to other vendors they are more likely willing to accept higher prices.

Uniqueness – individuality pays off

Many online merchants would be surprised if they knew how individual their store is. Those who consider their websites to be unspectacular leave a lot of potential unexploited. Unique selling propositions can be found and extended everywhere. Notably clear websites, very good product descriptions and lots of high quality informative photos are easy tricks a store can score with.

Technological innovations such as service and advice performances are another tool to stand out from competitors. A nice example is BUTLER’s video customer advice that simplifies the allegedly difficult furniture purchase on the Internet. A cleverly thought out but still easy to use (!) filter system like the notebook purchase advice of notebooksbilliger.de can help customers with picking the right product from the mass of information. Thus, it really provides an added value.

Content Marketing and Social-Media-Engagement also appeal to the customer. Here, it becomes apparent that emotions – our time’s most important advertisement topic – also work pretty good in the ecommerce. With personal blog posts telling about the store operator routine, funny viral videos and interesting customer opinions merchants possibly make customers become regular customers because they enjoy visiting the store.

Reliance – the most important currency in the ecommerce

In order to create trust to the online store it is a required to provide a reliable service and a reputable general appearance. The higher the reliance – the higher is the willingness to spend more money. Confidence-building measures are independent seals, different attractive payment options and authentic assessments. Further, a personal touch that shows the customers the “real people” behind the homepage influences the confidence positively.

Market overview – the key to effective price management

Competitors should be observed narrowly in order to find out which scope store operator can set their prices in. It should be aimed to get an overview of the pricing of all relevant competitors. If one wants to investigate the scope of pricing for all products in a store quickly software solutions for automated price monitoring are a proven remedy. Here, daily updated prices and the supplier’s market position can be ascertained for every product that is in the store.

The absolute price is not implicitly important, but rather the own products’ position compared to the competitors. A sample calculation: There is merchant A with the price € 599,90 for a certain notebook on position 3 in the competitor comparison. Since competitor B who is located on position 4 offers the same notebook for € 649,90 merchant A can (theoretically) increase his price to € 649,89 without changing his market position. Consequently, this 8% price hike directly increases the profit margin.

However, only those who know the competitors’ price policies can adjust their prices accordingly. Cheaper still does not mean better. If store operators regard the essential elements of uniqueness, reliance and market overview they can build an individual store quality that justifies higher pricing. Those who supply their customers a real added value can expand the own profit margin with the aid of fitting prices.

Learn more about cross market price monitoring for online retailers in our whitepaper “Price monitoring on the internet”.