Profitable pricing starts with determining your target customers, the value you deliver to your customers, and matching the right price to this value every time you sell. A powerful pricing strategy is the most valuable and effective way to increase your profitability.
According to Shopify’s Future of Commerce Report 2022, price is a key factor influencing 74% of consumers. That is the main reason why you need a pricing strategy. But what is the best way to create a powerful pricing strategy? Are there any tips you can apply to your business so that you can increase your customer base and drive sales?
Let’s answer all these questions for you. Today, we will help you to accomplish this by explaining the six pillars of a powerful pricing strategy that can stay ahead of the curve.
1. Define Market Positioning
Before adjusting your prices, you must verify that your products align with your target market. Positioning explains why your product is unique compared to your competitors in e-commerce.
To understand whether your online business defined market positioning, answer these following questions:
- Are you meeting customers’ needs?
- Have you determined customers’ willingness to pay?
- Do your customers view your products regularly?
- Do your products provide quality aligned with your positioning?
Market positioning is integral to your business’ branding and how your target market perceives you. Leading online stores emphasize their market position as a number one priority. That’s why you should embody your core values as a brand and deliver that message to your customers.
Well-executed market positioning can help your other teams, such as sales, marketing, and customer success, increase customer loyalty and retention.
2. Establish the Value
You establish the value by pricing your products based on customers’ willingness to pay. You can create your products’ worth just as much as your customers are ready to buy at the maximum level.
Imagine that you are selling soccer shoes. Suddenly the Premier League’s last match game is on. The League ends, and players win the award. At that moment, fans are immediately willing to pay for his soccer shoes. Even though its quality features are the same for all soccer shoes, you can apply a value-based pricing strategy aligned with competitive pricing.
Why?
Because in this example, just like you, all other online retailers selling soccer shoes will increase their prices. One way to determine the price is to track your competitors’ prices in those periods. You can attract customers to your store by offering competitive prices while establishing brand value and creating a powerful pricing strategy.
3. Determine Demand
Demand is one of the most essential functions of a price. In simple terms, if you increase prices, demand will decline. If the price is lower, the demand will increase. With all the e-commerce market conditions, competitive dynamics, and increased customer expectations, pricing your products gets complex according to this formula.
The good thing is that when you establish the value of your products and strengthen the brand image around your customers, you can increase your prices without worrying about losing demand.
But before that, you have to make data-backed decisions so that you define the demand. Ask yourself these questions:
- What is the market demand for our most-selling products?
- What are the drivers behind demand?
- Did our conversion rate and traffic are affected by the latest price change?
- What is the market demand to be achieved at each price point we are offering?
Market demand is a crucial metric when it comes to pricing your products. It’s essential to analyze your target market and understand the demand so that you can price accordingly.
4. Track Competitors’ Price
Pricing your products in e-commerce has become one of the most challenging tasks for online retailers. The main reason is that online prices change very frequently. Tracking your competitors’ prices can take hours until you realize they have changed their prices again. Therefore, automatic price tracking software is the ultimate solution for creating a powerful pricing strategy. The software will help you to manage your products, brands, categories, and competitors’ price tracking with one panel.
You can track your competitors’ price changes without wasting time and effort. It can be a game changer in the competitive e-commerce landscape. Competitor data can give you a great idea of how to proceed with your powerful pricing strategy. Decide to offer competitive prices and compete with your rivals. In the end, you will win new customers and drive profitability. But you should ensure you don’t hurt your brand while offering new prices.
5. Calculate the Price Sensitivity
The degree to which price affects customers’ purchasing behavior is called “price sensitivity.” Low price sensitivity means a price change has a relatively small effect on your pricing. On the other hand, high sensitivity means that a price change significantly affects your pricing. This is one of the most critical aspects you should consider while changing your prices.
Analytics can help you calculate price elasticity for your products. Applying analytics into you powerful pricing strategy can be a great strategy. You can take a look at your sales number before and after the moment you change your prices. Then you can observe the change in the number of sales. These figures can help you determine the price elasticity of your products and minimum and maximum pricing levels.
6. Test Your Pricing Strategy
The last pillar you should consider is to test your strategy. Because e-commerce is a dynamic market where you see many new changes every minute, more research can be required. Your teams’ market research, competitor monitoring, and observations on customer behavior can be a great way to identify market trends.
After taking the most critical factors that affect your business, you can start to test your pricing strategy. It can help you find the powerful pricing strategy you have established. Test your prices until you get to the sweet-spot point where your customers are happy to buy, and you are so glad to sell.
Takeaways
A powerful pricing strategy asks for some of your time and effort. As an online retailer, you must pay utmost attention to your brand’s market positioning and determine whether you offer value to your customers. Then, finding the demand for your products is one of the most essential price factors. That’s why you need to analyze the market demand continuously.
Another way to create a powerful pricing strategy is to track your competitors’ offerings. You can automatically track your competitors’ prices and increase your competitive edge if it’s aligned with your business strategy. The ultimate step is to calculate price sensitivity. You need to know how sensitive your customers are to your offering to understand better the minimum and maximum points you can offer without hurting your sales.
Since e-commerce is a dynamic marketplace, the last pillar you should do is test your pricing. You have to decide whether your pricing is better than tomorrow. That way, you can consistently offer the best price for your customers. Follow all the pillars detailed in the article above and drive profitability.
pricing strategies