Pricing is fundamental for running a multichannel business.
As an online retailer, you rely on customers to purchase what you're selling. The buyer and seller enter into an agreement, and it all centers on pricing.
You lay out a pricing strategy that balances you enough in the profit margins while still keeping it low enough to beat out other sellers. This process can be complicated in the digital world because shoppers often compare your listings with competitors' prices.
How can you ensure that your store stands out among all others?
By utilizing optimizing prices.
We want to help you get the most out of your pricing strategy, so we've outlined some of the best price optimization tips for multichannel sellers.
What is Price Optimization in Retail?
Price optimization is a strategy that uses customer and market data analysis to identify the best price points for any given product or service.
For online retail companies, price optimization is critical because of the constantly fluctuating prices and the ability for potential customers to compare your competitor’s prices with just a few clicks of a button.
If your brand is not offering competitive prices, customers will likely look elsewhere. At the same time, if you're merely copying what they're doing, you risk starting in a pretty gnarly bidding war.
What's the Difference Between a Pricing Strategy and Price Optimization?
Every offline and online store has some sort of pricing strategy, even those that just write a random number on a sign and stick it to a product. Their strategy is to wing it, and as bad as that strategy is, it still is a strategy nonetheless.
These people, and others with simple pricing strategies, are missing the math.
Pricing optimization models utilize complex formulas to come up with the best solution. They consider several items, like:
- Market norms
- Inventory numbers
- Discounts and promotions
- Customer behavior
You can imagine that this involves quite a bit of math, which is why successful brands tend to rely on software solutions to do the heavy lifting. A dynamic pricing tool of some kind can help you set the best prices for your products without you having to do all the complex math.
They're sort of like that one smart kid in algebra that everyone wanted to partner with for school projects, except this time, no teacher is getting mad at you for taking the easy way out. Nor are there any ethical problems with doing so. Instead, you just get to benefit from the software’s knowledge. They'll calculate the algorithms and formulas to set you up for success.
6 Tips for Better Price Optimization
As helpful as these tools are, they don't eliminate the upfront work on your end. You still have to set a pricing optimization strategy for them to implement. The trick is finding an optimal price point that saves you and gives your customers the best value, too.
So how do you do that?
Optimizing prices come down to knowing your customers and market well enough to make informed decisions.
These six tips can help you make that happen.
Dive Deep into Data Analysis
Pricing optimization removes the guesswork from your prices. It's a calculated strategy based on precise numbers. Both quantitative and qualitative data can help you see how much customers are willing to spend on any given item.
We'll tackle the quantitative data first because, frankly, it’s easier to measure and utilize.
You can pull historical data from your own analytics, or you can look into things like:
- Customer demographics
- Supply and demand data
- Sales metrics
- Churn data
- Your competitor's price for a similar product
Once you have all this data in place, you can make more informed choices about what is and is not working in your existing pricing strategy.
Know Your Customers
Qualitative data offers something a little different. It allows you to gather specific feedback from different customer segments so you can hear directly from your supporters. Surveys are the easiest and most effective way of doing this.
Ask about the buying process, UX design, loyalty programs, discount prices, and other experience-driven items. What you'll find is that people may find something special in your brand beyond just the lowest price. You may be able to charge a little extra if you can identify what other value you bring them.
Limit Yourself to Specific Goals and Constraints
Your price optimization strategy should be aligned with other major and specific initiatives for your company. Are you trying to raise overall profits? Increase customer loyalty? Build up more acquisition? Reduce churn?
Whatever the goals are, having them defined clearly will help you determine whether or not your pricing is bringing you closer to what you want to accomplish.
Consider Selling Bundles or Tiering Your Prices
Your pricing doesn't have to be universal. You might find that some products sell better as add-ons than they do as a single item. Throw them in as a package deal with a discounted price.
Another option that works incredibly well for a subscription-based business model could be offering different pricing levels depending on the type of engagement. Your pricing tiers may differ depending on things like:
- Products per subscription
- Length of agreement (yearly price vs. monthly)
- Add-ons beyond a base price
Keep an Eye on Things and Be Flexible
You're not going to solve all your pricing woes overnight. It takes time and evaluation to get just right.
That's why you'll want to make sure you're monitoring your pricing and collecting data on the different areas you adjust. When the numbers indicate it's time to change prices, it might be worth a shot, even if it's just a test.
However, you don't want a price structure that is constantly in dramatic flux. Customers value experience over anything else these days, and consistency is a big part of a pleasant experience. If they can never predict what your product will cost, they may not be willing to return time after time.
Use Dynamic Pricing Strategies
Finding the right balance for your prices can be tricky. Any introductory economics class will tell you that the market is hardly static. That means your pricing probably won't be, either.
In addition to collecting and monitoring your data, many online sellers utilize dynamic pricing.
A dynamic pricing strategy considers the market's fluctuation. It ebbs and flows with the changes and allows your prices to follow with regular - but minimal - changes. This way, your company is offering the best prices at any given moment.
Closing Thoughts
StoreAutomator exists to help make life easier for multichannel sellers while still maximizing their sales efforts.
Our platform equips a sophisticated Amazon Repricer tool that allows users to automate their pricing, giving them time to focus on other vital parts of their business.
This tool takes the burden off of your people and allows you to:
- Monitor current conditions in the marketplace
- Create pricing/profitability rules and strategies
- Analyze all of your items quickly and easily
- Reprice your products in realtime
To learn more about how StoreAutomator can help you optimize pricing and improve other parts of your multichannel business, book a free, live demo with us anytime. We'd love to hear about your company and see how we can help.