In e-commerce, retailers are always looking for ways to improve their online business and edge out their competition. Some of the ways used to ensure this include segmented emailing, improvement of user experience and publishing of good ads. However, one of the most important aspects of e-commerce success is pricing. You can have the best product in the market but with poor pricing strategies, it will not sell.
While having data from your competitors is important, how you use this data to benefit your e-commerce business is more important. You can uncover competitors’ strategies with NetRivals competitor monitoring system to identify, for instance, what products your competition has out of stock. generate strategies to edge out your competition using the information gathered. One way to use this information is to come up with the best dynamic pricing strategy for your eCommerce business.
Understanding dynamic pricing
Dynamic pricing is not a new strategy. However, it is not until recently that e-commerce retailers started using it on a wider scale. Simply put, dynamic pricing is a strategy that makes it possible for e-commerce retailers to set flexible prices for their products. It takes into account various factors such as cost of production, expected profit margins, market demand and the prices set by your competition.
With dynamic pricing, retailers can adjust prices according to the state of the market and find ways of improving their strategy to become more competitive without risking their profits. This makes it possible for them to analyze price possibilities and use varying price limits before settling on the best product price. One of the best ways of verifying that the strategy set by dynamic pricing systems is by use of paid advertising.
For instance, Google shopping will provide a retailer with real-time data on how consumers are reacting to your new pricing. You can change the pricing and analyze impressions, conversion rates, margins, and CTRs. Through these continuous tests, a retailer will be able to understand if their pricing strategy has worked as expected and if not perform the right changes on it.
How to use dynamic pricing in an eCommerce business
Pricing based on demand
Pricing of products based on the current market demands makes it possible for an e-commerce business to benefit from a fluctuating market.
If the seasonal or general demand for your product is low, it is best to get rid of excess stock to be able to control extra costs. The best practice is to lower the cost of the product to be able to boost sales.
If the demand for your product is high, the best practice is to increase the price to be able to boost profits.
You can use a competitor monitoring system to identify what products your competition has out of stock. This information will determine the market demand for the product and will help in identifying products that are most popular at a certain time frame.
Pricing based on time
This is a dynamic price approach that enables retailers to optimize product prices depending on certain periods like certain days, months or year. The time-based model of pricing is more predictable than any other model.
This strategy also works well when it comes to the sale of outdated products. Whenever you release a new product into the market, the old version product can retail at a lower price to attract more buyers and help to clear stock.
Pricing based on competition
Price competition in e-commerce has made online pricing a key element in influencing purchase decisions. This is why retailers need to pay attention to pricing optimization and management.
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Your competitors are always looking for ways to adjust their prices to boost sales and remain relevant in the market. Consumers are always on the lookout for the lowest rates for products. Therefore, it is important for any e-commerce business to monitor the pricing competition in the market and adjust.
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By monitoring what your competition is doing, you will be able to tell whether your prices are too high or too low. This information will make it possible for you to hold your place in the market by adjusting your prices accordingly.