Pricing is a tricky process because it involves your competitors and your customers. In this article, you’ll see how the good use of data can be crucial in making pricing decisions for your products and solutions.
In the digital world, knowledge is everywhere. That’s why you need to make data-driven pricing decisions.
In fact, that’s one of the fundamental differences between good old brick and mortar and digital. Back when consumers had limitations to their knowledge of the market—limited mobility, limited sources of knowledge—sellers had more freedom in decision making.
You could charge a much higher price than the store in the next town, or your own store located in another area. Price discrimination was a common practice that many people were not even aware of.
But online prices are transparent.
Customers can compare prices from countless sellers effortlessly in no time. Perhaps more importantly, companies can gather and analyze competitor data to reveal each other’s strengths, weaknesses, and strategies.
Companies that harness data in pricing decisions:
– Hold competitive advantage
– Have greater control over price positioning
– Enhance profitability when there is room for it
– Successfully align pricing with their business objectives
So how do you turn your business into one of those that execute data-driven pricing decisions?
5 tips to make data-driven pricing decisions
1. Know your competitors
Start by identifying other players in the market. Remember that more and more businesses move online every day. Repeat this process regularly to see if a new player pops up.
In any case, you must be able to read data.
TGN is an important asset for any business owner. If you’re running an online business, it’s a must-have. It helps you:
– Increase your sales & Profits
– Negotiate better prices
– Control your Stock – Availability
– Make efficient and effective decisions
– Be Competitive
– Follow market trends
– Save Time for you and your team for what you do best.
2. Comprehend market prices
Modern consumers are price-sensitive, and they have all the reasons to be prudent spenders.
So, if the consumer is price sensitive, it’s best to make sure you have fair prices. How?
In competitive markets, prices change often. Manual pursuit efforts kind of go in unproductive, since it takes too much time that you end up with obsolete or entirely wrong data.
If you’re selling in a highly competitive market like retail, some level of automation is certainly necessary. Let’s better understand with two examples.
Example 1: Searching for a smartphone we found 2 e-shops with the same Smartphone model but at 2 different prices. The e-shop A sells at 900€ and the e-shop B sells at 1598€.
In other words, e-shop B is charging almost 700€ more for the same item. The problem here is that big profit margins do not guarantee good profit.
On the other hand, searching for a pair of shoes this time we found 8 e-shops with the same product. 7 of them sell the product at 200€ and only 1 of them sells at 99€. So this e-shop leaves money on the table because they don’t increase prices when there is room for it.
For that reason, we conclude that the two e-shops above are either not monitoring competitors or doing it manually, so they can’t find time to use the data before it’s too late. So, what’s an effective way to collect pricing data?
It goes without saying, you need some level of automation. You can either have a developer(s) build a price tracking engine, or use a price monitoring solution as TGN, which is customizable to your needs in order to have access to fresh pricing points (price, stock, availability) 24/7.
3. Select the right positioning
How buyers perceive your prices is perhaps more important than how much you actually charge them. So how do they assess the fairness of your prices?
A buyer’s willingness to pay depends on many factors like:
– A person’s income level
– The situation of the economy
– Alternatives of the product you’re selling
– The perceived quality of the product
– Brand image
– The emotional benefits they get from using the product
– The self-expressive benefits they get from using the product
– Reference prices
You can’t possibly increase a person’s income level, or improve the situation of the economy. Neither you can get rid of the alternatives for your product.
Surely you can—and should—work on building a strong brand, growing a highly engaged customer base, making data-driven pricing decisions, and improving the perceived quality of your product.
Overall, there are some ways you can increase a buyer’s willingness to pay for a product or service. But it’s a marathon, not a sprint.
The bottom line is, there is no one-size-fits-all strategy for all your products. Consider these factors when pricing your products/services.
Luckily, with TGN you can have market prices in front of you. Meaning, you’re monitoring the price points consumers see every day (Your Competitors’ price points).
Most online businesses have a good number of both direct and indirect competitors. In crowded markets where there are a significant number of alternatives to what you sell, below-average prices will help you get new customers and maintain a good relationship with them.
4. Choose the right Data for your Dynamic Pricing Software
A Dynamic Pricing software as Pricefx will enable you to become competitive in your market and win more sales. Also, you can create an infinite amount of pricing rules that change your prices in your e-commerce store, to always align with your market and your competitors, while still keeping your minimum margins.
In order to achieve Perfect Product Repricing, you need a Price Intelligence Solution as TGN which can fuel your pricing system with Premium data sets.
Monitoring your competitors’ prices, stock status, and pricing history is the foundation for implementing dynamic pricing in your e-commerce store.
Once you have TGN’s Premium Pricing Data you can use your new insights to make decisions and build your pricing strategy.
That way you’ll find the options for creating pricing strategies that help you manage your product prices, adjust to your competitive landscape, and sell your products faster.
The insights gained from a Premium Price Intelligence solution as TGN, allows you to have a full overview of your competitors’ price position in the market, at any time. Armed with this knowledge you’re able to set up dynamic pricing rules that take your competitors’ product prices into account when choosing the right pricing for your own products.
5. Analyze historical data
A while after you start collecting competitors’ data, you’ll notice some patterns in their behaviour.
– Which times of the year do they implement a price increase?
– How long do they wait between two discount campaigns?
– Do they offer storewide discounts or do they focus on a particular category/brand?
– Do they hike up prices before Black Friday and Cyber Monday?
These insights—and more—that you can get out of historical data analysis will help you develop counter-strategies in the long run.
For example, if you can’t sell a product because you can’t compete on price, it’s likely that your competitors have a significant cost advantage or they get a better deal from the supplier. You can either ask for a better price from your supplier or stop selling it.
In other words, analyzing historical data will help you fully understand in which categories/brands you have a competitive advantage, which products are more profitable for you, how you can improve your profitability by changing your prices or assortment, etc.
In conclusion, when it comes to pricing, cost-based price settings, or relying on your gut won’t work anymore. Online prices are transparent and the modern consumer is price sensitive.
Data is everywhere in the digital sphere, and big companies have been using them to strengthen their dominance for years. Today, more companies have access to data thanks to data collection and analysis solutions.
Identify your competitors and start making data-driven pricing decisions. Don’t forget that it must be a continuous process so that you always know the market prices.
Use the data to set dynamic prices that’ll change when market conditions change. Analyze historical data to reveal competitor behaviour and develop counter-strategies.