Four Critical Factors to Optimizing an eCommerce Pricing Strategy

Exploring the nuances of ecommerce pricing — and how each impacts your pricing approach

It wasn’t that long ago when market dynamics and consumer behaviors actually took time to change.

For many retailers and verticals, brick-and-mortar was king, and the faster-moving ecommerce world was just a small piece of the business. These retailers could afford to wait and see whether or not, for example, their customers would trust a stranger to pick out the right produce. Or could get away with setting and forgetting a favorable price online.

But after years of unprecedented change and the accelerated adoption of digital sales channels, a sizable (and growing) share of retail transactions have moved online. And with that has come a whole new set of challenges, particularly when it comes to ecommerce pricing.

As the fastest and most visible influencer, price perception is a powerful tool for staying competitive today. And since it doesn’t require the time and resources needed to change the supply chain, pricing is the fastest lever retailers can pull to make a major impact.

But the pricing concepts and tactics that often work in the store may not work online. And of course, the relationship between your in-store and online prices has to be considered as well. eCommerce brings a whole new set of rules and behaviors at a significantly faster pace. So, let’s explore what you need to consider when developing your ecommerce pricing strategy.

Competition is drastically higher

It used to be that when a customer walked into your store, you commanded their full attention and wallet share. But the dynamic is different online.

Your competitors are just a tap (or tab) away. Price comparison has never been easier. Building multiple baskets at the same time has never been so convenient. When your customers are shopping your site, there is a good chance they’re shopping another site too.

Price has always been a key factor of buying decisions, especially on the items consumers care about most. But online, it has become a particularly visible and critical piece of the puzzle. Particularly for those in low-loyalty verticals.

You can’t control how your customers shop, but you can control your pricing and how it compares to your competitors’ pricing — and, in turn, influence how your customers shop. If you have full clarity over your pricing data and the right analytics, you have the insights and tools necessary to be competitive on those Key Value Items your customers are paying the most attention to and shift shopper demand to you, with understanding into the impacts to your bottom line.

Prices change at the speed of online

“The ability to move fast is everything in a price perception-driven environment,” Matthew Pavich, Senior Director of Retail Innovation at Revionics, said. “In a store, you may only be able to make a set number of pricing changes per week. You have to wait to get pricing moves approved or for the store to execute it. But online, you can move faster.”

But that also means your competitors are changing prices faster, too. And it’s becoming more of a disadvantage if you’re still applying a slow, traditional pricing process in your ecommerce strategy. For example, if your strategy for a particular Key Value Item is to match the lowest price in the market, you better be able to move fast to keep up with competitors, or you’re losing out on market share and sales.

However, it’s also important to not just settle for reactionary tactics. Granular pricing data and sharp science can help make strategic and informed pricing decisions that put you in control over your revenue potential and ahead of your competition. And with technology like electronic shelf labels, you can bring that same online price optimization speed into the store.

More options for leveraging affinities

Designing store shopping journeys around product affinities has some inherent structural challenges.

Take grocery. Placing pasta sauce next to spaghetti is an easy one. But you only have so much flexibility with how your shelves and aisles can be configured to appeal to, and encourage impulse purchases from, as many customers as possible.

In this example, what about the gluten-free shopper? The kosher shopper? Keto? Differing consumer preferences likely call for different assortments and shelf arrangements.

With ecommerce, retailers have substantially more flexibility in individualizing affinities to shoppers. Personalization is much easier to execute, and the shopping journey is easier to track. “You can look at what people are putting in carts together, when they buy things online, and whether they were more likely to buy something at one price or another,” Pavich said.

Rich data about the shopper’s journey, preferences and buying behavior helps retailers craft tailored shopping experiences. With personalized promotions, product recommendations, and pricing, retailers can create a great online shopper experience that will build bigger baskets and increase sales.

Margin management is more complex

Third-party delivery services and the rise of new fulfillment methods have made margin much harder to manage for online transactions. Shipping a product or selling through a service comes with additional costs that don’t exist for in-store shoppers. And fulfillment methods like Curbside Pickup and Buy-Online-Pickup-in-Store (BOPIS) may come with increased labor costs.

This can quickly become precarious. How do you balance margin across different products and fulfillment methods? Where do you find margin to protect revenue?

“With online purchasing, you have to understand which items are most important to consumers. For many retailers, their top items online are often different than their in-store top items,” Pavich said. Your high-margin background items may be different online, too.

“But with pricing optimization, retailers are using science to surgically balance margin and price image across the entire assortment through all channels.”

And price perception is as much about your brand as it is about your individual SKUs.

Knowing where to find margin is part of the equation. But knowing what your customers are willing to pay for is equally important. Customers are willing to pay for value, and convenience is a potent value proposition. Retailers ought to know whether, and how much, their customers are willing to pay in delivery fees or other additional costs.

Make ecommerce pricing decisions with confidence

Retailers today need the flexibility, scalability, speed and technology to adapt to constantly changing conditions. A sophisticated solution is essential for getting the optimal results from a quick and effective lever like online pricing.

“Pricing optimization can help achieve any business objective, whether it’s driving more units, more revenue, more profit, a better competitive price point or a bigger basket size,” Pavich said. “The right solution can help you do what’s good for your customer, shareholders and organization in an efficient and dynamic way your competitors can’t compete with.”

Want to learn more about executing an effective ecommerce pricing strategy? Talk to one of our pricing experts today.