Pricing Strategies to Capture Comparison Shoppers
With the growth of e-commerce, comparison shopping websites and apps as well as coupon services have sprouted up to satisfy the needs of price-sensitive consumers. With more options available to them, price has become a differentiating factor for many shoppers as they consider the merits of buying the same or similar product from one retailer over another. As a result of this consumer behavior, brands have been forced to alter their pricing strategies to keep pace in today’s ultracompetitive retail environment, particularly online.
In a session at last week’s Internet Retailer Conference & Exhibition (IRCE) in Chicago, John Valente, lead product manager, seller insights, eBay; and Cory Atkinson, senior manager, marketplace and pricing, Benchmark Brands, parent company of FootSmart, discussed how retailers can develop a pricing strategy that allows them to both capture sales and preserve margins.
Lowest Price Not the End All, Be All
“Effective pricing isn’t just about having the lowest price,” said Valente. “Remember that you’re in control of your pricing, not your competitors.”
It’s no longer enough to adjust price on a daily basis, added Atkinson. You need to be evaluating and adjusting prices throughout the day. Consumers are getting smarter at when to buy — i.e., when prices are at their lowest — therefore retailers need to use data to help inform their pricing decisions.
Atkinson listed the following steps for creating an effective pricing strategy:
- State your success metrics for the product. Are looking to maximize margin? Liquidate excess inventory? Introduce a new product? The answer will dictate how you price the product, factoring in variables such as the product’s pricing history, the number of competitors for the product, who is the target buyer, etc.
- Identify your competitors. Look at their historical pricing, what else they’re selling that you also sell and how the product is being promoted (e.g., sale item, clearance item, best-seller, etc.).
- Study traffic patterns. Look at the behavior of your website visitors. For example, have they made previous purchases from you? Have they paid full price? Bought only with a promotion (e.g., free shipping)?
- Don’t set and forget. To Atkinson’s earlier point, your pricing needs to be evaluated multiple times throughout the course of a day, Valente said. To illustrate his point, he referenced the infamous book that was listed for $23,698,655.93 on Amazon.com, the result of a robot price war that had gone unchecked by the publisher. You need to be thinking multiple steps down the line [when it comes to price], Atkinson said.
Building Your Pricing Strategy
Segment your product assortment into four categories: high-traffic items, destination items, add-on items and new items. You can expect different results from each segment, Atkinson said. For example, high-traffic items produce lower margins, higher external traffic and more competition, while destination items produce higher margins but with less external traffic and competition.
Furthermore, optimize pricing by channel — online marketplaces (Amazon, eBay), e-commerce site, brick-and-mortar. Benchmark Brands does this through testing, specifically looking at conversion rate and how its competition responds to its price changes, noted Atkinson.
Going Beyond Price
In addition to pricing, there are several other factors that consumers consider before making a purchase. Valente and Atkinson listed the following:
- Brand perception: How comfortable are your customers buying from you, Valente asked the audience. He cited eBay’s Feedback score as a useful gauge into how customers feel about brands selling on the online marketplace. The better your Feedback score, the better your sales will be.
- Tune the metadata: Make sure you’re using high-quality product photos; the product quantity count is accurate; and keywords, product descriptions and item specifics (e.g., sizes and colors available) are relevant and accurate.
- Use promotions: Test offering free shipping and/or returns, sponsored ads, retargeting, and sitewide promotions.
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