How important is pricing to your e-commerce business? Considering that 80% of people say that the most important aspect of shopping at a store is competitive pricing, the answer to the question is “very important.”
Price optimization is the process of setting a price on an item that strikes the perfect balance—it gives customers a sense of value while giving you a good profit. How your business optimizes prices may be different than how another business does it—there are many factors to take into consideration, including prices at other sites, demand for an item and your company’s sales goals, and the parameters you’ve chosen by which to segment your customer base. Nonetheless, there are some core tenets that all e-retailers should keep in mind when developing a successful price optimization strategy.
First, you’ll need to establish a price range for each item that you sell. How low can it be priced to attract customers without a loss of profit on the sale? Conversely, how high can an item’s price go that isn’t considered too high by shoppers? Having this kind of flexibility helps because price optimization is a fluid, never-ending process, so knowing your parameters allows you to be responsive to demand and change prices quickly when needed. This kind of pricing is often referred to as dynamic pricing.
There will also be certain times when you will want to change your prices. Perhaps a competitor has lowered its prices, and you want to remain a viable option for potential shoppers, so you may also drop your prices. You also can adjust prices for sales, to make way for new stock, or to draw in new customers. Dynamic pricing can take various factors into account and use specific algorithms to determine the best prices to use on items at certain times.
Another important aspect of price optimization is the model used in price setting. Some retailers use the traditional method of adding a markup to their wholesale costs to come up with an item’s price. Another pricing model looks at the profit that can be made from selling products in quantity so you can get the desired return on your investment. Well-established brands may turn to value-based pricing, which bases the decision to set higher prices on consumers’ trust and relationship with a company—basically, shoppers will be willing to pay more for the brand they are loyal to than for a similar and cheaper alternative from another brand. And speaking of competitors, it’s always smart to keep an eye on the marketplace and see what other e-commerce sites like yours are selling, and how much they are selling it for.
Your customers’ online shopping habits can also be used in price optimization. Has a particular shirt earned a lot of likes on your social media channels? If the demand is increasing because of this exposure, perhaps the price can be adjusted upwards accordingly. Conversely, if you see shoppers are putting a particular item in their cart but not following through on a purchase, you may be able to close the sale with a lower price tag. Some businesses even set prices that are slightly less than a round number, so customers think they are getting a deal.
The layout of your e-commerce site can also play a role in enhancing price optimization. Product description content should have action-oriented copy encouraging a purchase, and the product itself can be showcased in a “Customer Favorite” or “Buy Now” display. You can also group like items such as purses together to do a mini-price comparison, highlighting the most popular product. Everything should be directed towards the ultimate goal of a sale that improves your conversion rate and your profitability.
Price optimization is ongoing and the process will be individualized to each e-commerce retailer. Setting the right prices for your products calls for studying many kinds of data that can be gleaned from your site. This is where it’s critical to collaborate with a partner like Branded Online that has expertise in e-commerce price optimization. With our leading-edge scalable platforms and data analysis tools, we can help you determine how your site data and business goals can be incorporated into a smart price optimization strategy that will keep you competitive in the e-commerce retail market. With this invaluable assistance, you will have the assurance that, at your online store, the price is always right.