webdata_pricing_rules

The Ultimate Online Pricing Guide – #3: How to tap into the secret of effective pricing rules

In the previous two articles, you have discovered how to create a focus-product list in just 60 minutes and how you can then intelligently segment these into four groups. In the process, you have established the ideal foundation for a market-conformist online pricing and are on the best path towards generating more turnover and profit in just a
few weeks – like many of our other clients.

To now set new optimal prices for your focus-products, which will harness both turnover and profit potentials, we must first define individual pricing rules for these groups. These pricing rules indicate how and under which parameters your prices are calculated.
You can of course – probably like many of your competitors – strive for all of your prices reaching Position 1 by price comparison. Using pricing software like blackbee, this is achieved with just one click. Using this undifferentiated pricing strategy, however, you will be harnessing only turnover potential, albeit at the expense of valuable margin.

The secret to effective pricing rules lies in optimising some segments of your focus-products for sales and other segments for profit. Helpful towards this selection process is an analysis of product importance.

Ground Rules

Price your most important products both often and aggressively. Harness your profits among just a few of these important items.

Procedure

1. Market

Firstly, you should define the market to be monitored. This means: From which websites do you establish the prices? With which competitors are you comparing yourself? Examples include price comparison sites, marketplaces and the online shops of your direct competitors. Bear in mind here that when monitoring price comparison sites and marketplaces, new (temporary) competitors can also appear. We have observed that multiple competitors emerge for several days, or even weeks, selling a few products from the grey market at cut-rate prices, before subsequently disappearing again. To ensure that your prices are not needlessly lowered as a result, establish in advance that you will compare yourself only with your comparable competition.

Solutions such as blackbee enable you, for example, to limit this screening to competitors having attractive and sufficient customer ratings for available products.

2. Rules

In the second step, you will define what positions in the market you are striving for. During our work over the years with leading online retailers, the following strategies have emerged regarding the individual segments of your focus-products:

  1. Your top products should be optimised aggressively towards sales. Among these products, your customer either knows already or has a feel for the market price. We recommend that you aim for the lowest market price among these items. Pricing rule: Undercut Position 1 by just one cent.
  2. For those products occupying the “mid-category“ segment, a less aggressive sales optimisation is recommended. Strive, for this reason, to being second cheapest on the market. Pricing Rule: Undercut Position 2 by just one cent.
  3. Your products occupying the “sleeper” segment have a high market importance, but are currently of lesser significance to your company. To raise up these “hidden potentials” for your company, there is also the possibility of optimising these products for sales and selecting the same price as the cheapest on the market. Pricing Rule: Same price as Position 1.
  4. Potential articles are seemingly less significant to the market. There are few or little aggressive competitors here and the customers, as a general rule, do not know the market price. For these products, you can balance the possible margin losses in the other segments with a price-setting optimised for profit, by orientating yourself on third position by price comparison. Pricing Rule: Same price as Position 3.

blackbee_price-difference

Result

Using these individual pricing rules, one of our clients with annual turnover in the two-digit millions generated 39% more sales and 33.7% more turnover among their focus-products. The price increase amongst the potential articles lead to the average margin being ensured despite employing an aggressive pricing.