Utilizing competitive pricing intelligence to the fullest is much more than getting your competitors’ prices and information and then reacting to it. You have to look at your own pricing in new ways to find out where can you make money, save money, and increase your profit margins. And this race is a marathon you have to be in for the long run. Here are some wizardly ways to use your competitive pricing intelligence to maximize profits.
#1. Must Have: Strategic Plan
Don’t make the mistake of thinking that competitive pricing is only about setting numerical values. It’s really about creating a set of strategies to maximize your company’s profits. You’d be surprised how often we hear that our customers don’t have a strategy, until they begin using our pricing intelligence tool. You have to develop a real plan of how you’re going to proceed, and continuously monitor your prices. Focus on the profitability (or lack of profitability) of every product you sell. Make your best-selling items more valuable and competitive. Find the products on which you may be losing money, and, unless it is a loss leader, fix them as soon as you can, per Elizabeth Wasserman, Editor, Inc. Magazine technology website, How to Price Your Products.
In his book, The Art of Pricing: How to Find Hidden Profits to Grow Your Business, Rafi Mohammed urges online retailers to find hidden profits residing in your current products or services -- and also consider that consumers like to have choices in their buying decisions.
Mohammed talks about price discrimination (described in a recent blog I posted about how retailers use price discrimination). Additional eCommerce examples of price discrimination include train or plane ticket prices based on time of day and distance traveled; phone companies that charge by usage (minutes or megabytes) ; large business firms that pay a higher rate for local telephone services; and supermarket price differences based on specific neighborhoods or ZIP codes.
#2. Beware The Pitfalls of Underpricing
Many businesses underprice their products hoping to drive up volume by offering their product as the least expensive alternative. There are at least two downsides to this: 1. Not knowing that you are pricing a lot lower than your nearest competitor results in thin or greatly decreased profit margins, and leaving money on the table unnecessarily. 2. If you price low on purpose, but don’t have brand recognition, your product may be perceived as being “cheap” or suspect and people won’t buy it. That’s why you need competitive pricing intelligence / pricing intelligence tools to give you the information you need, says Laura Willett, small business consultant and faculty member at Bentley College in Waltham, Mass.
#3. Find Additional Value In Your Product
You may have opportunities to price higher by providing additional value. Do you offer additional service with your product or are your goods of perceived higher quality? Will you take returns without question? Do you cover return postage? If so, you may be able to justify a higher price.
#4. Raise Your Prices And Monitor What Happens
A pharmacy owner tried to figure out how much to charge for a bottle of aspirin. Sales were steady at 99¢, but what if he could charge more? To find out, he raised the price 20¢, to $1.19, and observed whether or not customers continued to buy the aspirin. If sales fall off, cut the price back down to what the market will bear. If they remain steady, keep pushing up the price. The key is to constantly monitor the effects, tracking your sales volume to be sure that you are benefiting from these actions.
#5. Lower Your Prices Without Lowering Your Prices
-- You may have priced your products too high for part of your target audience. The question is, should you lower them to accommodate everyone? (Answer): No. You can always discount your products or give customers something free in order to get them to try your product or generate traffic. You can offer special holiday or promotional prices; or price promotions based on joining a club or email list. The key is that you are not lowering the price, but you are offering special prices to special people at special times.
-- Offer less product for the same price. Different proportions and sizes effectively reduce your costs without appearing to reduce the value to the customer. Food companies do this all the time -- see if you can do this with your products.
Find other ways to save money or make more money on each order. Break down each order by customer, product, and order size to figure out where money is being saved or lost:
-- The pharmacy owner mentioned above examined prices and sales and learned that some customers were placing only very small orders of some lower-priced items. By the time his salespeople took the calls and located the products, he was already losing money. “If it costs $30 to make a trip down the aisle, why not get the order up to the $30 level for the same trip?" So he began offering customers a price break for ordering more products at the same time.
-- Take a creative approach to price variables like shipping. A company, which had long offered two-day delivery, switched to three-day deliveries, thereby saving enough to cut some prices without cutting into margins, per Inc. Senior Editor Nadine Heintz in The Price Is Right.
Try, watch, do, be patient. Online retailers have to keep their pricing intelligence tools -- and their wits -- sharp, as they seek winning, wizard-like strategies and make clever, low-cost, high-result pricing decisions. To be successful, you need to monitor your data incessantly and analyze competitive pricing changes over time to get the true picture.
Tell us what "wizardly ways" you have for making money, saving money, and increasing your profit margins in online retailing. Thanks. Gilon