Online retail is going through radical changes associated with active growth of the number of customers coming to offline channels, manufacturability of new players, increasing price transparency and market awareness of customers – all these factors have an enormous pressure on pricing business processes.
Over the past 5 years, the active use of the Internet has led to the fact that the buyer of the product have expanded choices for the optimal price, in his opinion. Distribution price playgrounds made easily accessible information about the price of a particular product, respectively, increased buyer sensitivity to price.
But the methods of calculating the basic prices and the revaluation of most retailers are not so quickly changed – they continue to be guided in their business obsolete knowledge.
According to the data 60% of buyers in 2016 made a purchase at your favorite retailer, because they considered it the optimal price. Looking at the statistics of consumer preferences, we can make a clear conclusion: the price was and still is the main factor that attracts audience.
These companies research say that more than 80% of online shoppers are now reviewing their approaches to pricing, because the old methods no longer work.
If you have not thought about it, here’s the bad news: making ill-conceived strategy of “surgical strikes” on the issue of pricing, the company runs the risk of making a lot of mistakes, which leads to irreversible changes in the perception of the brand, and lost profits.
We want to draw attention to the top-5 of failed decisions that must give pricing specialist.
Unsuccessful solution # 1: Ignore the price sensitivity of its audience in pricing
Buyer intuitively always determines what price he is willing to pay for the goods. For example, the client is ready to buy more expensive goods from well-known brand which he trusts, overpaying up to 2% of the user-defined price. But if the price of the goods interesting already above 5%, the value of the brand is eroded and no purchase will be made in this store. Moreover, the store loses not only the buyer at the moment, but also risks losing its confidence that it will be very difficult (expensive) to return.
The sensitivity threshold also depends on factors such as the elasticity of demand for a particular product, its category, the season, and the audience (consumer segment at a specific point of sales). For online store are also important sources of traffic (direct, organic, referral).
Shops who understand what it is advisable to set the margin to a certain group of products and properly calculate the price sensitivity of its audience in the end turn out to be more competitive in the retail market.
For more information about how to calculate the sensitivity of customers to price the channels to attract, groups of products, brands, visit here .
Price sensitivity is formed depending on the purchasing power of the audience, as well as in the store and for each category it is different, the perception of price is also determined depending on the involvement of channels.
Pricing Policy Store largely determines the price sensitivity of its audience.
If pricing specialist creates price without taking into account the price sensitivity of the core audience of his shop, and a specific category, there are two scenarios:
- If the price is higher than the perception of the customer value of the goods, it increases the time to return on investment in the commodity price store image falls.
- If the price is lower than the perception of the customer value of the product, sales are going well, but the company does in fact financially unprofitable deal, missed an opportunity to profit. It is also important that blurred the store brand value in the eyes of customers, since the longer the shop sells products with low prices without a strategy, the harder it is to return the premium.
The Company may decide to set prices for some goods below cost for a certain period. This solution takes only a Category Manager in the strategic interests of the company and only in relation to key products – “fishers of buyers.” However, to determine the successful store is always necessary to consider only two important variables: growth in sales and profit.
Unsuccessful solution # 2: Keep the price at the same level for a long time
Many companies mistakenly believe that the use of dynamic pricing will lead to customer dissatisfaction, so keep prices at the same level. Yes, indeed, a regular customer who makes a purchase only in your online store can now find items for one price, and already see another tomorrow. What outputs are companies that think strategically? They teach their customers and sales managers to the dynamic changes in prices.
How? With the use of dynamic pricing can increase the conversion of site thanks to the game components: the buyer is looking for the most advantageous offer, knowing that the price may change at any time. This encourages visitors to quickly make a purchase. Also help solve the problem of improving the service – systematic notification of customers about the money saving offers that appear after the price change.
It is also important to take into account the fact that 8 out of 10 customers from the core audience online stores often compared to the price of the goods interesting even with at least one store. Amazon Company reassesses the products by categories every 15 minutes. Large stores with a wide range need to react quickly to changes in competitors’ prices when pricing their own product categories in order to remain competitive. For niche goods stores revaluation speed often is even more important, since they are involved in a fierce price war.
pricing manager must accept the fact that in a volatile market, high competition, the proposed value of goods or services is changing, so hold the same level of prices for a long time leads to a situation when you have to sell stagnant for goods at prices warehouses, which do not give profit store.
Unsuccessful solution # 3: Apply discounts to attract buyers
On the part of the buyer’s offer discounts looks both attractive and repulsive. Problems arise from the misuse of discounts and customers, who are willing to part with money easily, and with customers, which is of fundamental importance for the low price.
Quality customer understand that the discount – it’s the easiest way to cater to their interests. For shopping, instead of improving service and take to win by careful attention to the needs of customers, offering discounts, selling at the expense of their profits.
The rest of the customers quickly becomes accustomed to low prices, as discounts form the buyer understated price expectations, which will be very difficult to overcome. You should always remember that the audience “discount hunters” worse responds to your other marketing campaigns and almost does not make spontaneous purchases.
Market leaders are trying to get rid of such an audience, to teach customers to make repeat purchases, promotions and discounts is formed only with the guarantee of the customer in the long term.
Unsuccessful solution # 4: Produce pricing manual control and without competition
In a highly competitive environment, changes in the price of your no doubt involve the reaction of other players in the market. Successful companies know everything about their competitors and make every step of predicting response.
Thus, these companies are prepared for the consequences, and may avoid price wars, protecting the profitability of the industry. However, in many companies pricing issue is resolved at the meetings of disaster. As a result – a hasty assessment of products or services, irregular reassessment and revision of the price management process. Present at these meetings often are not competent in the matter, and base their assumptions on the random case studies from practice, or what is worse on older competitor’s prices.
Data for the successful pricing are the result of research and measurement behavior of competitors in the market, as well as the calculation of the impact of their pricing policy for your sales. To make such an analysis in manual mode – a laborious and time-consuming process. Manual re-evaluation takes almost all the time, category manager – he cannot respond to the main challenges. In addition, this analyst is rapidly losing its relevance, given the rate of revaluation of the main competitors and the pace of market changes.
Failure decision # 5: Do not optimize the pricing process
Unfortunately, pricing strategy – the most neglected factor from those that significantly affect the company’s profitability.
The issue of quality of pricing in niche stores usually falls on the shoulders of category manager, in larger – it is the competence of pricing manager that is a specialist who has enough knowledge and time effective solutions.
The use of primitive procedures eventually leads to the fact that the store is missing the opportunity to increase turnover. In the best case, the company will keep its position and increase its revenue by expanding the product range. But frequently mentioned solutions adversely affect the gross profit.
In the top of the primitive procedures are such:
- Pricing in manual mode;
- definition of competitors on subjective views;
- Ignoring the market impact of price deviations on the level of sales in the group category, the family goods.
“During our work, I noticed how much the change of pricing processes and presenting them at retail. If before the formation of prices was based on setting 2-3, now online shopping premeasured several times a day, based on the factors of 17-20. The scope of e-commerce is growing rapidly and the competition stream leaders are those who primarily understand what they are doing, they know how to collect and analyze the right information using quality resources.
Remember, the price – what most excites customers and forms the image of the price perception of the store. That is why the optimization of pricing processes can become a competitive advantage of the company that wants to increase profits and to unlock the full business potential in the highly competitive market.