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Tips for developing an eCommerce pricing strategy – Part 1

Are you an online retailer wanting to maximise your profit through an effective eCommerce pricing strategy, but find yourself lacking the right approach? Are you looking for the ideal pricing strategy to remain one step ahead of your competitors? Then read our article today offering some tips on developing a successful eCommerce strategy.

The strategic development of price setting often represents a mammoth task for online retailers. Many online retailers orientate themselves in their price setting towards large and successful providers such as Amazon. Clearly, with their competitive prices, large online retailers have a distinct advantage, since they can hold their prices as low as possible. As a result, smaller online retailers lose out and at worst are even forced out of the market. But does it make sense for online retailers to match the online giants? In our blog article “Altered buying behavior: What you can learn from Amazon” you will learn that a price war with Amazon is by no means worthwhile, but adopting some other strategies can still prove useful.

Consider exactly which eCommerce pricing strategy is suited to your online shop

Depending on the product type and the goal of a company, different pricing strategies can be considered by online retailers. In this way, a high pricing level can be defined for high-quality products, by which companies can often strive for quality leadership. High product prices, however, often prevent a rapid market penetration, whereas companies offering low prices quickly build a strong market position and a high market share. However, some customers also associate low prices with a lesser product quality.
Each of these strategies thus has its pitfalls and can potentially lead to a loss of essential purchasing power. If, for example, you consistently offer your customers the lowest price, then they will forever more be expecting the lowest price. But there will also be times when you cannot guarantee this in order to remain profitable. This will then lead to a migration of your customers towards your competition.

The fact is that the price of a product, for the customer, is a major factor in their purchasing decision. In just a single click, customers can switch to the online shops of your competitors. The development of a well thought-out eCommerce pricing strategy is thus the key to success amidst your competition.

Below are our first four tips to help you develop your successful eCommerce pricing strategy.

#Tip 1: Know your margins!

As an online retailer, you should ask yourself first and foremost what costs are incurred when you buy your products and what revenues accompany these costs: You really do have to know your margin. This should cover all those expenses incurred and then also deliver a profit.

The margin of online retailers is also influenced by shipping costs, among other things. Following each purchase transaction, transport has to be performed to the customer – and this costs money. According to a Statista survey, some 44 percent of online retailers interviewed pass on the postage fees fully to their customers. This saves costs, but can also lead longer-term to a migration of customers: Almost half of the customers surveyed prefer online shops that offer postage-free delivery. So be aware that an important criterion for customers when shopping online is the sum total for shipping costs.

It is often not possible, especially for smaller online retailers, to offer the customer free shipping. In this case, you should think about extending your delivery cost threshold. By setting a minimum purchase value, which allows for free delivery, you can encourage customers to pack even more into their shopping carts. And as an online retailer, you will secure two major advantages. On the one hand, you will increase your average cart value and, on the other, generate a higher turnover, which in turn allows you to compensate for the resulting delivery costs.

#Tip 2: Know your customer groups and always maintain your market overview!

As an online retailer, you should be aware of how your customers are reacting to prices and what type of customers you wish to address. The definition of the target group is therefore also an important criterion in price setting, because different customer groups often react differently to prices. Higher shipping costs are thus justified if, for example, high-quality, expensive products – such as electrical appliances or event tickets – are involved.

Furthermore, the orientation of online retailers towards their competitors is unavoidable. Knowing their product range and pricing, you as a retailer can adjust your prices accordingly and thus keep pace with the competition. A manual monitoring of the assortments and prices of your competition can, however, prove to be extremely cumbersome and time-consuming, if not outright impossible. Product prices, after all, can change daily, and sometimes even hourly. The online giant Amazon alone estimates an approximate 2.5 to 3 million price alterations per day. So how do you maintain an overview here?

Stay in the know with software solutions – such as blackbee. This solution collects countless data daily from the Internet, which is then used for competitor monitoring in eCommerce. Build up an extensive market knowledge and react instantly to the changes.

Knowing your customer groups is essential to price setting. Different customer groups react differently to product prices and the associated shipping costs. Take a look at your competitors and keep an eye on their pricing. You will then have the chance of winning over customers with better prices as well as offers.

Knowing your customer groups is essential to price setting. Different customer groups react differently to product prices and the associated shipping costs. Take a look at your competitors and keep an eye on their pricing. You will then have the chance of winning over customers with better prices as well as offers.

#Tip 3: Know and communicate your USP

What differentiates you as an online retailer from your competitors? What makes you, your products or your services unique? Can you identify something right away? Then that is good! The mere existence of a Unique Selling Proposition, is not sufficient, however. Instead you have to know your USP and communicate it actively to the outside in order to secure for yourself competitive advantages.

The customer should be kept in mind of the distinct advantages of your online shop. When formulating your USPs, set your focus on customer needs and your target groups to convince them of then shopping in your store. In addition, you should study the USPs of your competitors, thereby filtering out unique features for your own shop, which your competitors have not yet even thought about. For an effective perception of your USP, position it most strikingly and attractively in your online shop. Individual features for you, the online retailer, might include:

  • New customer discounts
  • Excellent customer service and a free customer hotline
  • Free deliveries and returns
  • Right of return of 100 days
  • Sustainable or handmade products
  • Niche products not found elsewhere

But caution is advised here, since failure to stick these promises will lead to dissatisfaction among customers and should be avoided at all costs.

Some online retailers successfully rely on social engagement and actively communicate this to the outside world. The online wine shop vinoakvo speaks to its shop visitors with the slogan, “You buy wine – You donate water”: For every bottle of wine sold, a bottle of drinking water is donated to an aid organisation. The website then remains constantly informed of the number of water bottles donated to date. Soulbottles, an online shop for glass drinking bottles, is also actively involved in clean drinking water and donates one euro for every drinking bottle sold to an aid organisation which, together with “Welthungerhilfe”, implements drinking water projects in over 16 countries.

Online giants like Amazon can usually do without USPs because of their huge customer base. Smaller providers, on the other hand, find it harder because they have to fight for every single customer. With the use of persuasive USPs, interested shop visitors can become customers and lead to the long-term success of your company.

#Tip 4: Offer buying incentives

Once you know your margins and target groups, it is time to offer incentives to your customers. Make offers that your customers can not refuse!
Even if you cannot keep your prices low over the longer term, you can still provide limited time offers. Especially in periods of weak sales, you can encourage customers to buy products that are rather unusual for that season. Many shops therefore make seasonal offers such as summer prices for winter articles or product sales in the wintertime.

Buyers perceive large percentages as enormous savings. The Bonn neuroscientist, Bernd Weber, has proved that the sight alone of large percent signs before the product price activates the reward system in the brain.

Use this knowledge for your own shop and entice your customers to purchase with phrases like, “Buy today and get 10% discount” or “Take 2, pay for 1″. With appealing buying incentives you will draw attention to your shop and to your products.

#Tipp 4: Kaufanreize bietenYou should offer your customers various buying incentives under the motto, “A saving customer is a happy customer”. Customers will appreciate price reductions and percentages and, in the best case scenario, buy from your shop.

You should offer your customers various buying incentives under the motto, “A saving customer is a happy customer”. Customers will appreciate price reductions and percentages and, in the best case scenario, buy from your shop.

eCommerce pricing strategy: Do you know your competitors’ price setting?

To set the price for your products correctly, competitor pricing knowledge is of the utmost importance. By using our highly-automated blackbee software solution, you gain an insight into the product range and pricing of your competitors. Achieve individual and precise insights that allow you to react quickly to changes in prices, thus exploiting valuable potential.

Do not miss our second part offering further relevant tips in developing a successful eCommerce pricing strategy.

With blackbee, we offer online retailers an intelligent solution to product range and price monitoring in eCommerce. This competitive knowledge is of fundamental importance to the development of an effective eCommerce pricing strategy. Do you need further information? Then contact us now – we look forward to your message!