Pricing always was, and still remains, a hot topic in eCommerce. And quite rightly so. Hermann Simon describes in his book “Preisheiten” how important even small price differences actually can be. He describes price as the most effective profit driver. A price increase of five percent, for example, will drive profit up by 50 percent, while a five percent increase in sales will generate only 20 percent more profit. Especially in eCommerce, sophisticated pricing makes the difference. We introduce you to the most important aspects of developing pricing strategies.
In the first of our two-part series “Developing Pricing Strategies in eCommerce” you will witness how to optimise the pricing of your online shop.
#1: Keep an eye on your own pricing margins
The cheapest price does not always win – and this fact is a reality in eCommerce. Besides price, online retailers can also score points with consumers with good delivery terms or low shipping costs. It is therefore advisable for your pricing strategy that you always keep an eye on your margins. To optimally increase margins and at the same time counteract falling profits, you should think about an altered product range or other shipping terms.
It is possible, for example, to allocate transport costs to your customers. Delivery costs, however, are a decisive purchase criterion for online shopping. Almost half of all customers prefer online retailers who offer cost-free delivery. Setting a minimum purchase value will minimise your risks here. When you offer free delivery only beyond a certain invoice value, you then encourage your customers to buy even more from you. You also increase your average shopping cart value here and achieve a higher turnover, which in the best case will even compensate your delivery costs.
#2: Create incentives to buy with your pricing strategy
Customers love discounts. This makes it all the more important to maintain the appeal of your pricing strategy whilst developing it. Nothing, after all, is worse than your buyers getting accustomed to certain offers. Using temporary discount campaigns, you can actually create a shortage of a certain product. In doing so, you will be suggesting that your customer will be paying a higher price if they do not immediately decide to buy. However, you should only use these campaigns rationally. If the same product remains permanently discounted, then these price offers quickly become untrustworthy. A well-known negative example of continuous discounts is the former DIY chain Praktiker, whose discount policy of (“20 percent off everything – except pet food”) resulted in the insolvency of the company. Instead of permanent price offers, it is a good idea, for example, to adjust time-limited discount campaigns to the seasons, such as winter sales on summer articles. No matter which pricing campaign you opt for, always keep in mind that discounts will temporarily reduce your margins.
#3: When pricing, set psychologically attractive fugures
Fractional prices have an attractive effect
It is no secret that some prices are more attractive to your customers than others. These perceptions can be exploited in your own pricing. In the field of pricing psychology, the effects of attractive prices are attributed among other things to the processing of sequential digits by the human brain. When comparing two prices, customers read from left to right and stop the comparison as soon as a digit differs. The difference between a product priced at EUR 3.00 and a comparable product for EUR 2.99 therefore tends to be overestimated. As in the above example, so-called fractional prices arise, which are set below a certain price threshold. Pay particular attention not to offer your customers “unclean” prices. Instead of 2.54 euros, you should choose a more attractive fractional price that increases your profit.
Reference prices offer your customers a frame of reference
It also happens that customers often unconsciously avoid extreme options. If you offer different product options at your online shop, many customers will buy neither the cheapest nor the most expensive option, but opt instead for the compromise. This is referred to as an external reference price, since you offer your customer the yardstick here for comparable products. An internal reference price, on the other hand, describes your customer’s own price experiences from the past, such as the last price paid for a product. It also affects price expectations for future purchases, for example, if your customer expects a price reduction in the future. You should therefore pay attention to the frame of reference within which you display your products in your sales channels and at what prices.
An unbeatable pricing strategy using pricing tools
In eCommerce, it is essential to establish comprehensive price monitoring. How do your competitors set their prices? How does your own offering compare? With price management software such as blackbee, you can keep an eye on your competitors’ current prices and then see how competitively your own products are priced. Our AI solution provides you with information on where pricing campaigns, such as discounting, are taking place. To adjust your pricing strategy apropos your own delivery charges, blackbee even provides you with valid data on the shipping costs of your competitors.
Using blackbee, you can monitor current price developments on the market. Convince yourself now with our free test access!