Dynamic price setting: How to escape the pricing spiral

Because of price transparency on the web, retailers find themselves under massive competitive pressure. In search of the lowest prices, those online shops at the top of price comparison rankings attract the majority of bargain hunters. Intelligent tools and solutions for dynamic price setting, which observe prices on the market and then optimise your own prices, are of decisive significance. After all, some 62 percent of all companies deploy this instrument to adapt their shop to the pricing behaviour of their competitors.

For online retailers the optimal price is a fine balance. They have to regularly price their products so they are still attractive enough to their customers and at the same time provide sufficient margin. But dynamic pricing does not automatically protect from the erosion of margins. Irrespective whether operators of webshops adapt their prices manually or with the help of automated pricing solutions – these similarly drive the pricing spiral downwards. We want to introduce to you today examples of three strategies with which you can free yourself from the pricing spiral.

Dynamic price setting: Division into key, main and ancillary products

One tactic in ensuring long-term margins is the allocation of your products into
–    Key products,
–    Main products and
–    Ancillary products.

Key products, also known as ‘crowd pullers’ and ‘top sellers’, are particularly popular among customers. They carry a high relevance for consumers and are mostly season-dependent – for a fashion retailer, for example, this could be beachwear in the summer, whereas electronic retailers might treat game consoles as particularly hot items at Christmas. You should position these products especially attractively in relation to the competition. This specifically means pricing these so that you are among the cheapest of suppliers. It is often sufficient here when only a small part of your product range competes as key products in the highly contested segment.

In addition, sustained sales will be achieved through the main products. Included here, above all, are cosmetic products or foodstuffs. Because these are purchased as standard, the customers for these product groups often don’t know at all what the articles actually cost on the market. A moderate pricing policy now arises in this instance.

Optimally exploiting your sales can be done especially with the ancillary products. Such articles here are generally deemed suitable complements to the actual purchase in the shopping cart. Examples would include, for example, the matching case to a new notebook or the scarf suited to a new pullover. Since customers mostly no longer perform a price comparison in the last stage before purchase, the price here can also be above the average price of the competition.

Ancillary products represent a real profit earner in price setting.

Ancillary products like belts or other accessories appear more frequently as fitting supplements in customer shopping carts – these represent a real profit earner in price setting.

Avoid over-frequent price adaptations

Customers have a good memory for prices and react sensitively to price alterations. Over-frequent and near-term revisions of prices will be judged negatively by customers. Price adaptations occurring over a longer time period, on the other hand, will be perceived as less unjust. Dynamic pricing also meets its limitations in customised price offers Amazon-style. A price discrimination between particular target groups can be detected on the consumer side when social connections exist between the persons. And consumer protection will also be waiting in the wings here.

The importance of a positive shop image

The image of the online shop also plays an important role in the optimisation of prices. The better the image of the online shop, the higher the potential price it can ask. But how do you achieve a positive shop image? Client perception, for one thing, is important. This can be purposefully influenced by design, usability and the wording used. Additionally, a coordination of product range and images plays its role. When the retailer addresses the customer with an exclusive product, then a premium image must also be conveyed. Pricing pressure in eCommerce can also be bypassed through own brands. With a distinction from other competitors, customers will have more difficulty in comparing articles.

Price Setting: Online shops like Home24 seek to bypass price comparisons on the Internet with own brands

Online shops like Home24 seek to bypass price comparisons on the Internet with own brands (Source: Screenshot Home24.de).

Competitive price setting

In dynamic price setting, by observing the factors with which you can at least partly bypass pricing spirals, you will be ensuring longstanding sales and margins. For the price optimisation of highly contested products, however, intelligent solutions in price observation are the correct method. A late or inadequate adjustment of your own prices gives away important turnover and profit potentials.

In blackbee, we offer online retailers an intelligent solution to price optimisation. Contact us now. We look forward to hearing from you!