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How to Manage Profitable Growth with Data

Balancing growth and profitability can be difficult. On one hand, you want to draw customers into your store with low prices, but on the other hand, you want to make money. Getting the best of both worlds may seem impossible, but it’s actually quite simple, and the answer lies in your product assortment.

You can divide your entire assortment into two buckets: elastic products, and inelastic products. Elastic products can be defined as items whose demand changes drastically in accordance with a change in price. Commoditized products, such as electronics or groceries, can be placed into this category. Inelastic products are not as sensitive. Price changes don’t impact their demand as much and tend to be categorized as accessories or add-ons. Modest price changes won’t affect the demand for these products.

Modifying the price of an elastic product and facing the consequences can result in a solid chunk of missing sales. Don’t worry, though. We’re here to make sure you use the right discretion and only implement price changes to the right products.

To start off the process, you have to not only differentiate, but put together your sales and competitive data streams to get an understanding of how they correlate to one another. Marrying this data can help you establish the elasticity levels of your products. For example, if you priced above your competitors and sales stayed the same, you know those products aren’t super elastic.

This is how you begin differentiating your assortment into two different halves. With these halves, you can fill two metaphorical buckets. When it comes to your elastic products, the best course of action to take is to accept the market price. Don’t stray too far from the path with these items, as they may not sell if you price above your competitors.

The other bucket will be filled with your inelastic products. These products tend to have little influence from price changes, even in accordance with competitive prices. With these products, you can absolutely have a major influence over the market price. When you set the price, others will follow.

Getting a good read on these products can help you not only grow your business but also increase your margins. You just have to make sure you do your research on them, and the research lies in the data. But what should you do with your elastic products? Simple. Keep them within your competitive range, that way you can continue driving traffic to your site.

Promoting these elastic products and suggesting inelastic products to the shopper on your site is the easiest way to deliver a one-two punch to not only win the sale, but put some extra margin in your bottom line. The next piece of the puzzle is to figure out how to price those inelastic products to make sure you’re getting the most bang from your shopper’s buck.

Price testing can help you figure out the best price in accordance with demand and competitor prices. These products have power, so don’t be afraid to inch the price up and see how much you can increase your margins. You’ll be surprised at how much higher you can price above your competitors while still maintaining sales. The variance of your prices can differentiate between competitors, but in general, it’s good to test over time to make sure your confidence level is high.

Once you’ve built the foundation for your averages, there are plenty of little hacks you can implement to capitalize on the ever-changing nature of the eCommerce industry. The industry is becoming less static every day, and therefore you have to make sure you’re prepared for any changes that can impact the space. Luckily, it’s 2015, and you can ride the waves of a ripple effect on a surfboard made of competitive and customer data.

You can generate temporary demand spikes through promotions to combat another competitor’s series of discounts. These sales can be unpredictable, but monitoring your competitors’ prices can help you make sure you’re fully equipped with the information you need to drop prices efficiently.

You can also use your pricing as a way to generate more customer loyalty. It’s always less expensive and more rewarding to sell to returning customers instead of new ones, so make sure you take note of what price captures first-time customers the best. You can then follow that up with timely promotions to bring customers back and drop prices for those you’ve sold to before (kind of like a thank you to the shopper for returning to your store).

All of this is possible only when you monitor your competitors’ prices. The saying “knowledge is power” has never been more true. Once you keep an eye on their prices, you can get an understanding of your own assortment. This way you can understand your competitive landscape in a better light and avoid making detrimental mistakes.

If your elastic products are your eCommerce’s fuel, then your inelastic products are the engine. Your elastic products are the base of your business, attracting shoppers to your store. But your inelastic prices can help drive your store’s profitability. You can’t have one without the other, and both will help you sustainably grow your profits. The easiest way to change and monitor prices? A dynamic pricing strategy. Check out Wiser to see how we can give you a hand.

Contributing Writer: Brian Smyth

Arie Shpanya

Arie is the former COO, Executive Chairman, and Co-Founder of Wiser, a dynamic pricing and merchandising engine for online retailers and brands. He has extensive experience in business development with a focus on eCommerce (eBay and Amazon), and is a guest blogger on Econsultancy, VentureBeat, and more.

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