5 Smashing Ways To Greatly Increase Your Profit Margins Using Competitive Pricing

Competitive pricing is the most important element of your online retail business! And the more I work with competitive pricing and Competitive pricing intelligence, the more I know how simple and obvious it looks, even though it’s not. So let’s get something straight right away: Pricing competitively does NOT necessarily mean looking at your costs and setting a price that covers them. Or looking at your competition’s costs and meeting or beating their prices. In fact, that’s not even close to how to price correctly. Or, to paraphrase the words of legendary football coach, Vince Lombardi: “Pricing isn’t everything. PRICING IS THE ONLY THING.”

Competitive pricing is an elusive element - I’m going to do a reprise of how to really price for profit when you price competitively.  

There are many different ways to identify great new pricing opportunities. The main issues are: What prices are your consumers willing to pay for your product and at what point do you make the most profit? Value comes into play in many ways. There are ways to get the answers to these questions.

And, yeah, you need pricing intelligence to get the information you need to make intelligent, correct decisions about your pricing. Pricing intelligence tools can get the information you need to price for as much profit as you can.  


1. Pricing By Perceived Value (based on emotional needs) rather than cost. This is where you are fulfilling an abstract concept for which people are willing to pay the going price: e.g. urgency (need it tomorrow); self-esteem or indulgence (Manolo Blanik Shoes); fear mitigation (travel or cancellation insurance); quality name attraction (Chivas Regal); help is on the way (flat tire; locked out of your house); rare product (may be out of stock, difficult to find, or just plain rare).

2. Differential Pricing Or Price Discrimination: Differential pricing is selling the same product (movie tickets; seats on the same air flight; same product, different location) to different customers at different prices, depending on the customer’s value of the item, or ability to pay.  See a discussion about price discrimination at one of my recent blogs.  

3. Pricing Value At Different Levels: (i.e. good, better or best products, accompanied by good, better, and best profit margins). allows customers to choose the version that best fits their valuation and allows a company to profit accordingly. (Rafi Mohammed, Strategy of Pricing). 

There’s also the realm where “private label” or “house label” products compete with name products. The consumer may simply be willing to buy the house coffee for $4.98 rather than the brand name coffee for $7.88 -- and this is a case where you’re not looking at your branded competitor, because they are in the same boat that you are.

4. Versioning. You can also practice “versioning”. This is where customers have different needs that you can accommodate in your pricing, such as... Need different color paint, different sizes of bottles or containers, different quantities at one time, customization, etc. In short, customers are unique individuals, not just “generic customer” and no two customers necessarily want the same product the same way. It’s up to the savvy business to recognize this, service this, and price for profit accordingly.

5. Find Your Price Point. Watch and track sales as you gradually increase price and see the results: i.e. maximum number of sales at your lowest price point vs. number of sales at a higher price point. Find out if the extra revenue by pricing higher and selling fewer is better than pricing low (it often is); and know when to stop.

Your bottom line, literally:

On one hand, profitable prices can be determined by the value that the consumer ascribes to the product. On the other hand, you can be profitable based on the value that you ascribe to the customer. Ultimately, it’s the price that you ascribe to the product, based on awareness of customer needs, based on getting as much profit as you can out of it. 

I’d love to hear the ways you’ve discovered to price competitively and for profit.

Thanks. Gilon

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Gilon Miller, CMO

About Author

Gilon is a seasoned marketing, sales and business development executive with over 15 years of experience in the software and Internet business. He is the Founder and CEO of GuruShots. Previously, Gilon was the CMO of Upstream Commerce, VP of Marketing at iMDsoft and Director of Global Marketing at SAP. He earned an MBA at the MIT Sloan School of Management and a BS in Electrical Engineering from Tufts University.
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