Like building a recipe or writing a song, sculpting an effective pricing strategy for your business takes a lot of trial and error. You want your customers to like it, and you want it to work well for your business model. But, there’s no cookie cutter way to create a great strategy. Every customer would love ridiculously low prices every day, but that comes at a major cost to your business. This can leave you wondering what to do next.
What if there was a way that you could make your pricing strategy not only look good, but boost your profits as well? Staying competitive in the online retail industry is incredibly important in order to be a success, but it means nothing if your profit margins are completely slashed. Optimizing your pricing strategy to actually boost profits and stay competitive is easier than you think, and can be done in three different ways.
Keep An Eye On The Competition
If you’re unsure of where to start with your pricing strategy, look to your competitors. If shoppers are buying from them, then obviously they’re doing something right. Monitoring your competitors can give you a ballpark estimate of how you should price your products. It also gives you a reference to how you want to position your products and brand in the market for same and similar products. Price is all relative to the types of items your competition is selling. Measure their prices against your costs, and you can get a basic understanding of your margins. If you don’t think you can carry healthy margins, you may want to look for different products to sell.
Go beyond the prices and take other competitive factors into account. Study their product assortment to see where your inventory overlaps with theirs, and to see opportunities to expand your inventory. Just because everyone is selling a certain item doesn’t mean you should add it to your assortment. If they all have ridiculous low prices on the product, and you can’t obtain it at a decent price from a supplier, it’s better to let it be and save your profits. If you see that you’re the only seller of a certain product, you know you can increase your prices to capitalize on the high demand and low supply.
The world isn’t static. The internet has enabled retailers to frequently change their prices to keep up with fluctuations in demand and other market factors. Keeping up with these price changes is completely necessary if you want to stay on top of sales and keep inventory moving. Luckily, repricing software can help you stay on top of these changes.
Most repricers do more than just change your prices, though. It will make sure to uphold or even boost your margins by establishing minimum and maximum costs. By establishing price floors and ceilings, retailers will never let their prices reach the cost level, and will make sure their prices always follow their brand image. Integrating assortment data into a repricer can also help you boost your prices to capitalize on times when you’re the only seller.
If at first you don’t succeed, try and try again. A/B testing is common when it comes to site layouts and email marketing, but have you ever considered doing so with your pricing strategy? Say you were trying to price 5% below the competition. How can you make sure that was actually a successful strategy for your business? Receiving reports and analytics about your pricing strategy’s effect on your bottom line can help you craft an optimal strategy.
Now is the best time to A/B test your strategies. According to a recent report by Software Advice, an online review site for point of sale systems, 60% of retailers are adopting reporting and analytics software into their POS system. This allows them to get a better idea of how their sales are really affecting their bottom line. If a certain strategy is boosting profits, then you know you’re doing something right. But the ecommerce landscape is constantly changing, so be sure to stay on the ball!
There’s no perfect pricing strategy when it comes to online retail. There are so many factors that go into a consumer’s purchase decision that it’s impossible to perfectly forecast your profits with any pricing strategy. That’s why dynamic pricing is so imperative to succeed in online retail. You don’t have to slash your margins to stay competitive. Instead, stock only what makes sense to sell, adjust prices to stay competitive, and use the results to modify your repricing rules. This way you can find the sweet spot in your pricing, and use it to boost your profits sky high.
How else can you optimize your pricing strategy to boost profits?