Many retailers consider the optimal price setting of their products a major challenge. In doing so, they often give away valuable margin potential while striving for additional profits. In our previous article “Three common mistakes in price optimisation where you will throw away profits” we have shown which mistakes retailers should avoid in price setting. In today’s article you will learn which factors affect the price and how you can create a positive pricing image using this knowledge.
What is the right price for your products?
Of course, this question can not be answered so generally, since finding exactly the “right” price may be an impossible undertaking for companies. Ultimately, price setting must take into account many factors, such as sales volume, profit, competitors and customers. Because of the numerous factors influencing the price, many companies often have difficulties in developing a suitable pricing strategy for their products. Charles Toftoy, Professor of Management Science at George Washington University, agrees with this and comments on the pricing of a product as follows:
“It’s probably the toughest thing there is to do“, says the professor.
When setting the price, various aspects should be considered. Essentially, a distinction is made here between internal and external influencing factors that affect the price. The internal factors include, among others, the marketing goals of a company, which in principle determine in which price segment a retailer moves and what market position they would like to achieve. This then raises the question of whether the online retailer is more likely to position itself as a supplier of premium products or instead serve a mass market with very cheap products. This decision forms the basis for the impending price setting. Especially important is the alignment of the price to other marketing instruments – the so-called ‘4 Ps’ in the marketing mix. Building blocks, such as the design and quality of a product, must be taken into account when setting the price, since the price will ultimately be higher when developing more complex products. The same applies to cost-intensive promotions and expensive, multi-tiered distribution channels. But it is imperative that you should always keep an eye on the costs when considering all of these factors. In this way, no margin will be thrown away when setting the price.
Besides company-internal factors of price-setting, a consideration of the business environment is most important for retailers: Which market position will you adopt? Which target group is addressed by your products? Who are the current competitors and which products do they offer at what prices?
All of these aspects form the basis for creating a positive pricing image as a retailer and manufacturer, and also to prevail against the tough competition in eCommerce through an effective pricing strategy.
How to develop your positive pricing image in eCommerce
The cornerstone of a profitable business is the development of an effective pricing strategy. Below you will read what online retailers should be considering for a positive pricing image.
# Match together your product line and image
Your entire product range plays a decisive role in good pricing. If a retailer offers high-quality products or branded goods, they will want to be perceived as a premium supplier and not as a discounter. Similarly, brand manufacturers of luxury goods will be striving for an elevated pricing image. A high product price here signals good quality to the customer. These products should generally always be set higher than the average price. Retailers and manufacturers should thus fine-tune their product line and image well with one another in order to appear reliable and trustworthy to consumers.
# Keep the pricing perception of your customers in mind
The pricing perception of customers is also an important factor in creating a positive pricing image. This perception can be massively influenced by the webshop design alone. Special value should be placed in shop design on the choice of colour and font, as well as fitting content. Only a visually appealing online shop with comprehensive and informative content will enjoy long-term success.
# Consider whether a multi-branding strategy is suitable for your shop
In certain circumstances, it might make sense to develop a so-called multi-brand strategy to cover a wide variety of price segments. This can also be performed using own brands, among other things. In-house brands have proven their worth especially in the food retail sector, as evidenced by the annual increase in market share. Such in-house brands are not uncommon in eCommerce. The online giant Amazon also sells many price-sensitive consumer goods with lower brand loyalty under its amazonbasics brand. What began as a niche offering of just 20 products now encompasses more than 2,000 items. How exactly you can strengthen your online retail through own brands, you can read in our last blog article.
# Set your prices correctly and avoid making adjustments too often
For a positive pricing image, one significant factor is the correct pricing of select items within your product range. Here, the items are divided into the three groups of key, main and ancillary products.
- Key products are items that are highly relevant to your customers. Most of these articles land firstly in the shopping cart. These can be, for example, at the beginning of spring, T-shirts or sunglasses. Here it is important to actively price the products and thus present them as a bargain in your online shop.
- Constant sellers – the main products – are bought by consumers as standard, meaning that their prices can be classed as moderate. Usually, the customers are not fully aware of the price of such items.
- The profitable ancillary products are those items that complement the actual purchase. They often end up as additional products in the shopping cart, like protective cases for a smartphone. Since price comparisons are usually not carried out for these products, the price here can be higher than the average price of competitors.
On the one hand, you should always make price adjustments in tune to the competition. And on the other hand, prices changes must be attractive to your customers. You should therefore find a middle ground to stay competitive, but without unsettling your customers. The basis for a decisive competitive advantage in eCommerce is the precise analysis of existing customer and competitor data. Using the data acquired, you can tailor your business strategy accordingly and thus remain one step ahead of the competition. We employ the appropriate technologies and show you how to use the data obtained from big data analyses correctly for your own company strategy. This, in turn, leads to a bigger turnover for your webshop.
The most important thing for last: Never lose sight of your competitors’ pricing
The pricing image and perception of price by the customer ultimately remains subjective and thus difficult to estimate for online retailers and manufacturers. When is the price too high for the consumer? When is the product a bargain to them? Only those who are aware of consumers’ price perception can actively influence them. This, however, requires an optimised pricing strategy, which is highly targeted towards the competition. The right price management software offers significant support in this goal. It allows retailers and manufacturers to reprice even the broadest of product ranges each day. With our intelligent price monitoring, you will achieve an overview and see on a daily basis which competitors are calling for what prices on items and how competitive your prices are on the Internet. On the basis of highly valid and reliable statements, you can perform price adaptation to your competitors and thus stay one step ahead of your competition.
Do you need further information on optimal price setting? Then contact us now and talk with our pricing experts! We look forward to your message.