Setting the right price
Pricing has stopped being perceived as a theme of intuition and calculations based solely on production costs. Nowadays it has become something much more complex and many criteria need to be taken into account in order to set the right price. In the same way, there are also many factors that directly impact on these prices.
Optimizing pricing strategies has become one of the main concerns of both brands and stores around the world. Brands are worried about how to price their products and how these are being sold by their distributors. They want to protect their brand image and ensure the transparency of their prices. Retailers, on their side, want to stay competitive in a market full of competitors and consumers willing to find the best offer online.
The price directly affects the perception that buyers have of the product. The truth is that we are facing a public that is much more sensitive to prices and does not mind investing their time until they find the option that suits them before making their purchase.
So, definitely, you need to find the right pricing strategy, this is set the right price, if you want to improve on aspects such as the following:
Improve your positioning in the market.
Identifying opportunities to negotiate.
Take the right decisions in respect to your price changes.
Define the offers and promotions that suit you best.
Enhance your profit margins.
Improve customer loyalty.
Increase your sales volume.
Price transparency online and offline
According to Deloitte, 84% of consumers who buy in a physical store use their mobile phones to compare the prices they see in the store with those published online, both by the store itself and by its competitors in the market.
84 % of consumers use mobile phones to compare in-store prices with online prices.
As it can be observed, transparency in product information and price has made consumers increasingly more aware of the price. This is why they spend so much time comparing the best prices and offers.
Many factors influence the strategy that aims to achieve good results in your sales volume. With no doubt, good pricing combined with an appropriate marketing strategy can yield very positive results on the number of sales made. The perception of the price directly influences the sales of your e-commerce and that perception, of course, is reinforced by the message that is transmitted from the marketing department. The question is: How to find the right price?
The importance of the right price
Many companies continue to price their prices based on costs. The truth is that it is relatively easy to calculate the cost of production, in the case of the brands or manufacturers, or the purchase cost, in the case of the sellers, and add the ROI that you want to obtain. However, this is not a guarantee that the price set is the most profitable one. So, how to set the right price?
That is why so many other companies start to implement their customers’ perception of value in their pricing models when it comes to unique and innovative products that are difficult to compare with other products on the market. Nevertheless, this pricing system is very complex, precisely because of the difficulty of evaluating this value. In the middle of two approaches, the most traditional and the most innovative one, there is another approach that takes into account the prices and state of competition in the market. This method is very useful in the case of products for which there is a high level of competitiveness, since they can be efficiently compared in many ways.
Planning an appropriate pricing strategy is one of the best levers to increase your profitability.
It is very important to decide what approach you will use to set the price of your products, because this is an essential part of the whole of your marketing strategy.
What’s more, you should not lose sight of the fact that planning an appropriate pricing strategy is not a big investment and, on the other hand, if done properly, it is one of the best levers to increase your profitability.
The conditions that promote the purchase of a product among consumers vary in many ways. It all depends on what motivates and defines your ideal client. The ideal pricing will take into account the sum of these elements, as well as the costs of purchase or production.
Furthermore, monitoring your competition in the market can significantly help you increase your profitability and avoid profit loss. Learning how to set the right price is not a simple task, since, as we have seen, it depends on many factors and, without a doubt, has a great impact on the final purchase decision of consumers. That is why, when setting prices, the only goal is not to lower prices to be the seller with the lowest price, but also to understand what your price elasticity is in relation to market changes and to ensure your profitability.
How to set the right price
Analyze your product elasticity
The product that you sell will determine the type of elasticity and what will happen to the demand if you change the prices. Let’s see what we mean through different situations:
Little price elasticity
In cases where we are in front of products of necessity, we speak of products with very little price elasticity.
This is because, no matter how much the price changes, demand varies very little.
Great price elasticity
It’s the case of products considered as expendable.
For this type of products there is more price elasticity, since any change in them can lead to a greater or lesser variation in demand.
In most cases you should be very aware of what your price elasticity is and how changes in those prices can play for or against your product and the quantity demanded by consumers. Price elasticity, like all other pricing factors, is an essential element of your pricing strategy.
In the case of brands that create products without elements of differentiation, the elasticity will be very great, since the product can be easily compared to others. The competitiveness in this sense will be much greater and that will allow you to control the market in much more precisely and set prices much more competitive not to lose demand.
In the case of retailers, the same thing happens. If you distribute a product for which there is a lot of competition and the product in question is perceived as one more, the price elasticity will be much greater. On the other hand, if products that are more difficult to find or for which there is little competition are distributed, price elasticity will be much lower, as demand will continue to be fairly constant despite price changes. The same will happen for products whose proposal is perceived as unique by consumers.
For this reason, it is so important to carry out a marketing strategy that focuses on differentiation, either through the supply of products, the way in which it is sold, as well as in the image of the company and its services. Moreover, it is essential that your potential customers, the final consumer, have a clear picture of your company and the message you want to convey.
However, in our current retail, price elasticity remains quite large for some types of products. So price elasticity, in many cases, is not a simple reflection of the effectiveness of your marketing strategy, but also a reflection of your final customer and the context of the sector in which you are, which can become very competitive.
Calculate its impact
How can you calculate the impact of your prices on demand, namely your elasticity? The only way to calculate this is to make the price changes and check the results of those changes. After a series of changes, you will be able to determine what has been the impact in each case.
In fact, in the current digital market, these changes are not easier to analyze. Analytics platforms, task automation, and other elements such as creating dynamic data feeds make it easy to change and to update prices quickly and see what effect those changes have had.
In sectors where price elasticity is lower, there will be few changes in terms of demand, while those with high elasticity fluctuations will have much more quantifiable effects. For this reason, it is essential that you carefully monitor price fluctuations in the market for products with great elasticity by monitoring your most direct competitors, since their price changes could be significantly affecting your demand and market share.
Monitoring as a lever of profits
Knowing how to set the right price, as we can see, should be one of the priorities of your company. Not only in terms of competitiveness, but also to ensure that you do not lose the opportunity to maximize your profits and increase your profitability through small changes in your prices.
Price monitoring can play a very important role in your pricing strategy and, without a doubt, it is a lever that you should activate to optimize your pricing decisions.
How to activate your lever?
Controlling price fluctuations and competing products should not be used solely for the purpose of reducing prices to the lowest or most competitive price.
For those products that you share in common with your competitors and for which there is no differentiation in the product you can undoubtedly focus part of your strategy in offering competitive prices to get a higher number of conversions in your Google Shopping campaigns, for example. We all know that a large number of price sensitive buyers exist, who namely spend much of their time prior to the purchase in finding the best price online. Following the price movements of your competitors to offer a lower price, provided that the margin allows us, is a strategy that will help you win to that sector of consumers we were referring to.
Considering the information about the price that your competitors are selling in the market you can analyze what the minimum sale price is that you can afford according to your margins and try to negotiate better conditions with your distributors.
When the margin does not allow you to make successive reductions in your prices without jeopardizing your profits, the approach should be different. The most price sensitive consumers will not buy a product with the same characteristics and the same conditions of purchase that can be offered by another seller at a lower price. What is the focus then? While you cannot change the product itself to make it better and more attractive, what you can do is improve the offer and conditions of purchase of your online store to make them more attractive and offer greater benefits than your competitors. This will compensate for the lack of competitive prices for certain products.
Learn to detect in which products you can make a greater profit to compensate for those in which your margins are smaller. And, above all, do not fall into a price war that could completely shatter your profits.
Monitoring, however, should be organized in a way that does not entail a great deal of time and money. In fact, there are solutions in the market to automate this task. It is a type of SaaS (Software as a Service) of intelligence that allows you to automatically perform the monitoring and maintenance of the pricing data of your competition. These are some of the functionalities that can offer you this type of platforms:
Automatic tracking of your competitors in the market without having to invest a lot of time in manual data capture.
Stock tracking and promotions of each of your competitors to better understand your sales strategy.
A scraping system that allows access to the price information of your competitors without saturating your web pages.
Notification system via email to alert any price changes at competing sites.
Frequent updates for detailed information about the state of the market.
netRivals’ software can help you to deepen your understanding of your own positioning in the market, as well as your price elasticity. If you want to find a tool that complements your marketing strategy, and helps you to have a more positive impact on your pricing decisions you can consult us or visit our website.