Everything You Need to Know About Winning a Price War

While they may not be as chaotic as our favorite war-time films, price wars in ecommerce can still get pretty relentless. Some retailers change their prices multiple times a day to stay competitive, and a trend is starting to grow in the industry. According to the custom research study “New World of Pricing Optimization”, more retailers are looking to price optimization software to stay competitive

The study found that 21.1% of retailers today say they currently use digital commerce pricing optimization software. Over the next year, 18.4% more are looking to deploy it. But why? Two words: price wars. More and more retailers are being undercut every day by retail giants like Amazon or Best Buy, who are known to change their prices as frequently as every 15 minutes.

Frequent price cuts are leading to an increase in price warfare for retailers. Of the 21.1% of retailers who do use price optimization software, 28.2% say they would change prices in real time without limitation. This includes matching prices and undercutting competitors. While this might seem like the easiest way to win over customers, it’s really just a bad idea.

If you are a retailer looking to get involved in a price war, the one piece of advice we can provide is this: do not get involved. Like witnessing a fight in elementary school, it’s just for the best to walk away and let the others deal with the mess they got themselves into. Edwin Starr put it best: “War, what is it good for? Absolutely nothing.”

While this piece of advice is useful in theory, is it really applicable to the real world of online retail? The answer is simply yes, and price optimization software can actually help. That’s right, the same device many retailers use to price match their competitors can prevent vicious undercuts from occurring in the first place.

A good piece of software will have a couple of requirements before you begin using it, including price guards and minimum prices. This can make sure your prices hit a floor or a ceiling before hurting your margins or brand image. Price guards will make sure your pricing isn’t out of your usual field of brand value. Since price is a major influencer of your brand, it’s important to stay in your price field. If you’re known as a value brand, price guards can keep you from pricing too high. If you’re known for luxury, they can keep you from pricing too low.

But the real companion is the minimum price function. By entering a minimum price, you can prevent destruction to your margins. They are the most common casualty of price warfare, and price optimization software can keep this from happening. A minimum price is exactly what it sounds like. The software will prevent you from pricing below it, allowing you to walk away from a vicious price war.

Many retailers hold the preconceived notion that if they have the lowest price, they’re going to increase their revenue. In many cases, this actually isn’t true. The best way to boost revenue (and protect your margins) is to test different prices over time against your competitors. This can help determine your products’ demand elasticities, giving you hard data to make informed pricing decisions. When it comes to simple price cutting, you’re not going to win. But testing your prices, with the help of price optimization software, can improve sales and strengthen brand value.

Price wars are natural occurrences in the world of retail, but that doesn’t mean you should get involved. Investing in price optimization software not only allows you to have competitive prices, but it also allows you to have smart prices. By avoiding price wars altogether, you can save your margins and come out on top. War is never the answer, especially in online retail.

Brian Smyth

Brian Smyth is a former content writer at Wiser, a dynamic pricing and merchandising engine for online retailers. He holds a BS in business with a concentration in marketing from San Francisco State University.

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