The 5 ingredients of an effective pricing strategy

The importance of the price in the online purchase decision is very high, so defining an appropriate pricing strategy can be the difference between the success and failure of an eCommerce.

When we see the main players of electronic commerce, such as Amazon or Alibaba, we observe that they use dynamic pricing technologies, which allows them to make adjustments in their prices that are totally personalized and in real time.

If we the glass half empty, we could think that everything comes down to making large investments in technology, which is usually within the reach of very few, and that the competition battle is lost before we start.

But if we see the glass half full, we understand that it is not only about technology, and that by defining a pricing strategy we must combine strategic decisions and agile tools. With this need to be competitive in prices, there are five essential ingredients to consider:

1. Unique sales proposal

The unique value proposition, or USP for its acronym in English (Unique Sell Proposition), is the starting point for the pricing strategy. It is like the compass that marks the direction of the business. The unique proposal of sales is the reason why customers buy in an eCommerce,and it is what makes an online store stand out from others.

Each eCommerce develops its own proposal, which does not necessarily have to be linked to the price. The assortment of products, the exclusivity, the speed of delivery, the value of the brand, etc., are some of the usual proposals in an ecommerce. Each one must develop a solid and differentiated proposal that allows him to make a hole in the minds of the clients.

The great shoe eCommerce, Zappos, sells the same shoes as everyone else. However, their sales proposal is based on a very simple return process and excellent customer service. An unknown online store outside its local reach, Nerd Fitness, created its sales proposal using humour as a resource, and understanding very well the need of its potential customers: those 'geeks' who want to exercise, but who refuse to compete for the musculature.

2. Price per perceived value

The price based on the perceived value requires a deep knowledge of the potential clients and for this the communication actions are essential. Approaching customers and discussing this with them is the basis for obtaining accurate information about their interest in products, service quality, return policy, shipping costs, etc.

The prices based on value give solidity to the pricing strategy, strengthen the perception of the brand and create better relationships with customers.

3. Discount scales

This type of strategy assumes that customers will buy more products if the item proposed is below the usual market price.

Although it´s a strategy that must be managed with care, the interesting thing for an eCommerce is to apply it in products that allow them to minimize the acquisition cost per customer (CPA). In addition, it is a good starting point for cross-selling or up-selling actions that increase the total amount of the sale.

4. Offers

Discounts do not necessarily ensure sales, but they do generate attraction. The buyers are always struck by a great offer. A good policy of offers and discounts can be very positive in many aspects, from attracting new customers to rewarding the most loyal customers.

In essence, an offer can take three forms: a reduction of the price in percentage, a reduction of the price in amount, or simply, a very low new price.

Discount offers allow for a huge range of promotional actions, such as special offers, seasonal offers, offers for quantity, offer for renewal of stock, offer for removal of catalogue, anniversary offers, offers for festive events, and many more.

5. Monitoring

If the price is key in eCommerce, price intelligence should be a key part of the strategy.

The use of a competitive analysis tool allows obtaining very valuable information about competitors' prices, their references, stock, assortment, etc. With the functions of monitoring this type of tools, you can analyse price histories or identify trends to understand the movements of the competition and adjust prices.

In addition, competitive intelligence tools help eCommerce make short-term decisions, such as a promotional action; and long-term decisions to strengthen the pricing strategy.