It’s never an easy decision to adjust your pricing strategies. Even slight changes up or down can result in angry customers, bad press, concerned shareholders, and more.
However, changing a pricing strategy can be exactly what your business needs. But, you may be saying, that is easier said than done. That’s fair. There are two main challenges to optimizing your pricing strategies:
- Knowing when it’s the right call
- Implementing the right changes
To address Issue No. 1, we shared some thoughts with marketing consultancy firm Econsultancy. Check out that piece for the full details, but in short, there are six main reasons why your pricing strategies aren’t working. Those range from working with inaccurate competitive pricing data to poorly timed promotions.
As for Issue No. 2—implementing the right changes—keep reading to learn what comes after you’ve identified the warning signs and know a change is needed.
Strategize Via Price Elasticity
Step No. 1 is to evaluate your products’ price elasticity and their supply and demand. Price elasticity is the effect price changes have on demand. For instance, demand for an elastic product is very sensitive in the event of a price change. A small tick up or down can lead to large swings in consumer demand. The opposite is true for inelastic products.
Whether or not your products are elastic will affect your pricing strategies. If you’re not concerned demand will drop, consider pricing higher if demand is strong. Or, price lower if demand is lower. Regarding supply, price higher when supply is limited and lower when you have too much inventory.
Overall, focus on making your products essential to the marketplace. This will help contribute to more inelasticity, thus letting you adjust prices based on other factors with a reduced concern of a dip in demand.
Complete Your Competitor Dive
Next, do a deep dive into your competitors’ pricing strategies. The competition dictates much of a product’s price—look no further than the Amazon effect and its low-low prices.
Your competitors’ prices will influence much of your own strategy. Again, this ties into price elasticity. Elastic products often mean the market is saturated with similar offerings and consumers will have no problem switching brands in the event of a price increase. Therefore, keep an eye on how you fit within the competitive landscape.
Say you are locked in a hyper-competitive battle for market share. There is little to differentiate your products from your competitors and you all are fighting for consumer loyalty. In this scenario, an increase in prices will likely drive many shoppers to your lower-priced competitor. So, your pricing strategy should be to match your competitors as closely as possible while you work on value-adds and loyalty.
On the contrary, say you are in a non-competitive market and your products stand alone. You have loyal consumers and few direct competitors. In this case, an increase in prices will do little to hurt demand. Instead, you’ll want to price based on factors other than what your competitors are doing.
Understand Your Pricing Strategies
Pricing strategies come in a few shapes and sizes. Once you have a confident assessment of your products and the impact any change will have on your business, it’s time to identify which strategy is right for you.
Two of the most common are rule-based repricing and algorithmic pricing. In rule-based repricing, you set the rules for the price changes. Competitor drops prices? You drop prices. Holiday season coming up? You increase prices. Want to protect your margins? Set price guards to ensure a minimum price.
Algorithmic pricing is all about dynamic pricing, as algorithms automate repricing without as much input from you, often changing prices more frequently to maximize profit and revenue. The algorithm monitors many different factors and adjusts prices as needed. Changes can be incredibly granular, such as lower prices at night—when demand is lower—and higher in the middle of the day when demand is higher.
Automate Pricing with Wiser
Let us know if you have any questions about what comes next after the pricing strategy warning signs. Wiser offers automated repricing solutions so you can strengthen your price position, maintain price parity across multiple marketplaces, and so much more. We will also monitor your competitors’ prices, automate price changes, and work to keep your prices in that ideal sweet spot. Connect with us today to learn more.