The 4 Biggest Pricing Mistakes Online Retailers Make and How to Avoid Them

pricing-mistake

*Originally published on the Quad Analytix Blog

While retailers are increasingly investing in solutions to solve their pricing challenges, even the most experienced online retailers can fall victim to common mistakes. Here are 4 of the most surprisingly common mistakes that retailers make and how to avoid them:

  1. Working with inaccurate or incomplete data
  • Cause
    • Retailers are repricing more frequently than ever, with Amazon repricing as often as every 10 minutes. If you’re collecting data at a low frequency, you could be missing out on opportunities to capitalize on these fluctuations in the market. When you rely on manual monitoring of competitors’ pricing, it’s highly likely that you are missing some competitor data due to human error. Additionally, it’s possible that by the time all of the data is collected and acted upon, pricing has once again changed and you are late to the party. Manual monitoring can be quite resource intensive, inefficient, and tedious process for your manual workers.
  • Solution
    • In the fast-paced world of retail, the ability to capture real-time pricing data is essential to keep your pricing strategies up to date. Automating competitive price monitoring allows for immediate capture of data without the manual work. By setting up tracking by product identifiers such as Brand, MPN, ASIN, etc., an automated system can accurately match your products to your competitors without having to worry about human error, and can even identify competitors you may have been unaware of previously. Real-time data brings with it the ability to reprice in a much more timely manner. You can even set up pricing rules that automatically adjust your pricing based on criteria that you pre-determine. You’ll never miss another pricing opportunity.
  1. Changing prices on the wrong items
  • Cause
    • While following competitor price changes makes sense at times, it isn’t always smart to do so, and may be depleting your margins unnecessarily. If demand for your product isn’t negatively impacted by competitor price changes, then by repricing to match their pricing, you’re leaving money on the table.
  • Solution
    • Price more intelligently by running price tests to determine product price elasticities. By tracking the impact on your sales after competitor price changes, you can analyze the impact on your demand, map price elasticities, and determine your pricing power. Demand will shift more or less dramatically with price changes for different products – no two are alike. By identifying where you have pricing power and where you need to compete on price, you can effectively maximize your margins in the former case, and price more competitively in the latter. If a competitor is constantly undercutting you on price for a certain product and your sales drop, you know you need to aggressively compete on price. However, you can make up the margin on products where sales trends appear unaffected by competitor price changes – here, you can charge a premium or even test higher prices because you have the pricing power.
  1. Prioritizing the wrong competitors
  • Cause
    • There might be hundreds of other retailers selling the same or similar product as you, and with online price transparency and growth of price monitoring tools available, it can be easy to find them. But not all competitors are created equal – they are not all threats. Monitoring and repricing against a competitor who may not be relevant can harm your brand value and unnecessarily deplete your profit margins.
  • Solution
    • Identify your most relevant top competitors. First, look at competitors who are targeting the same customer base as you, with similar positioning. Next, monitor competitor price changes over time – trends are more important than one-off changes. This allows you to to infer competitor pricing strategies to get an idea of how they price their products and can help improve your own pricing strategy. Finally, test the impact of your price changes against your competitors. This helps identify who you have pricing power against and which competitors you need to compete on price with (keep in mind this may vary across product categories). If you notice a competitor cutting their prices when you do and you are seeing a negative impact on your sales, they are a viable threat due to their “heatseeking” behavior.
  1. Using an oversimplified repricing model
  • Cause
    • Incorporating competitive pricing data is important, but determining your pricing based solely off of your competitors fails to take other pricing variables into account. Retailers can use a rule-based repricing model that uses competitor prices as benchmarks for their own pricing. This can be useful in some cases, but can create a margin-depleting effect and is too one dimensional.
  • Solution
    • Combine competitor pricing together with other metrics to determine the optimal revenue or profit maximizing price, depending on your business goals. By incorporating variables such as historical sales data, price elasticity, factors for seasonality, inventory data and more, you can build a comprehensive model upon which you can execute a successful dynamic pricing strategy.

Do any of the above mistakes sound familiar? We help retailers solve these pricing challenges and more. Sign up below for a free no-obligation demo to learn more.

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Min-Jee Hwang

Min-Jee is the Marketing Director at Wiser, a dynamic pricing and merchandising engine for online retailers. She has extensive experience working with SaaS companies and holds a BA from Carnegie Mellon University and an MBA from NYU Stern.

  • Great post Min-Jee,
    I stumbled upon this topic a couple of times today and start to think that pricing is becoming another important cornerstone in marketing that many businesses overlook. For some of them the process goes like this: we have thing thing, how should be price it? ‘checks Amazon’, ‘sets the price identical to Amazon’s price’.

    While in fact, pricing is an art that requires thorough research and implementation. I’d also add that discounting products too often might lead to a general devaluation of product in customers’ perception. That’s why moderate discount promotions should also become an important part of a pricing strategy.