webdata_pricing_segmentation

The Ultimate Online Pricing Guide – #2: How to Intelligently Segment Your Focus Products into 4 Groups

In the last article, we showed you how to create a key article list in just 60 minutes. This forms the basis for an active price management, which among numerous online retailers leads to a significant increase in turnover and gross yield.

You could now theoretically take this list and like many other retailers define a pricing strategy, so that you become the cheapest provider of this item on the market (“Top 1”). This non-selective approach does provide for jumps in sales, but also gives away valuable margins. Let us now proceed more intelligently. The aim should be that you segment the articles in such a way that those in customer focus (“key products”) are priced aggressively, while those less competitive items garner profit for you.

Ground Rules

Segment your focus articles according to the most important items and the “hidden champions” in both your company and on the market.

Procedure

  1. Analyse the market significance of your articles: Measure over a defined time period – for one month, as an example – the number of price changes on the market for each focus article. For this purpose, you should continuously monitor the articles with a tool, such as blackbee, among five to eight competitors and count every price change for every article by every competitor. Based upon this volatility, you can recognise the significance of the articles to the market. There is a tendency for items whose price changes frequently amongst many competitors to also be your most important articles.
  2. Analyse for the focus items their significance to your company: Determine over the same time period the total sales and deduce the share in this sales volume for each individual focus article.
  3. With these two figures you can then segment the articles into four groups:
    1. Top Articles: A high volatility in the form of daily or weekly price changes and a higher share of total sales suggest a major significance to these articles. A very good market position is indispensable to you.
    2. Middle: Volatility and total sales are lesser compared to the top articles. A very good market position for you is to be strived for.
    3. Sleepers: These items exhibit a high volatility and thus a high significance on the market, but currently have a low share in their individual total sales. This indicates that you have not yet fully harnessed the potential of these articles. Apart from that, your price margin will be lastingly endangered by articles significant to the market carrying prices non-conformant to competition. The aim here is to test whether an aggressive pricing can meaningfully increase the share in individual total sales.
    4. Potential articles: The significance of these articles to the market appears low due to a lesser volatility. These items offer a good opportunity to offset any margin losses amongst articles in the other three segments through intelligent price increases.

Segmentation of the focus articles

Result

Assisted by our blackbee software, one customer of ours identified during a project 65% sleepers, 21% top articles, 9% middle-segment items and 5% in potential articles.
In the next step we will show you how to define the target positions competitively for these segments.