If you’ve heard of “pricing strategy” and are wondering if it’s something you need for your business, this post will help you. Chron defines pricing strategy
as the method by which businesses arrive at optimal prices for their products. One key problem for many sellers, however, is knowing exactly how to price their products to increase sales. In competitive product categories such as electronics and fashion, for example, charging prices that are out of step with the competition can hurt sales.
With price monitoring
, you can address this problem head on and, in the process, boost your sales. Using a competitive price monitoring approach can be the secret sauce that makes hard to sell items finally become highly demanded.
Below, we explore the benefits of price monitoring and the technology that allows it to be an automatic part of your business or buying.
Build A Reputation As The Lowest Cost Vendor For Certain Items
Sometimes, it helps to be the lowest cost vendor of a highly demanded item. For example, if you are selling video games or gaming devices in a large market, word quickly spreads if you have the best deal. Particularly in industries where there are many bloggers reviewing the latest items and where to buy them for the least money, low prices can be your competitive advantage.
By monitoring the prices that other sellers of your product are charging, you can easily see what price you need to charge. Unless your competitors have done similar research themselves, you might be able to undercut them and get the bulk of the orders. Not only does this work short term but, long term, your new customers could also order other, more expensive, items.
Increase Price For Products When There Is Little Competition
If you supply a popular product in a market where you have little competition, you can boost margins and actually be more profitable than before. You can do this by increasing prices on products for which you are the sole or preferred supplier. An analysis of the competition can reveal products where you are the only supplier.
For example, if you are in the souvenirs market, and you are the only supplier with access to authentic items, you might be able to charge higher prices. Be careful, however, with this strategy. If your prices become too high, you might encourage multiple new suppliers to enter the market. In the end, you could sell to fewer customers and make less profit than before.
Track Historical Data To Better Understand Changes In Consumer Preferences
Online price monitoring can help you be the first to know and understand when consumer preferences are changing. For instance, if you see that year after year, suppliers are slashing prices and demand is waning for a product, you can know when it’s time to change strategy.
Perhaps a new product has entered the market and consumers no longer want the old product. This happens frequently in the software products market. By tracking historical price data, you can be alerted to these market changes and respond appropriately. You can be one of the first to start stocking the new products that consumers in your market are looking for.
Take Advantage Of Limited-time Price Promotions To Boost Sales
Imagine running a sale, and not knowing that your competitors are already charging lower prices for your product! This dilemma can make your promotions rather ineffective.
With the use of price monitoring, however, you can easily fix this problem and make sure your promotions are well priced. By using a price monitoring tool, you can better decide an attractive price for your sale.
Checking what competitors charge amplifies the effectiveness of your discount promotions and can help move inventory during slow periods.
If You Are Purchasing, You Can Save Money By Shopping With Lowest Priced Sellers
Online price monitoring can help not just sellers or ecommerce managers
, but buyers as well. You can use monitoring to find the best deals on everything you already buy. Online pricing tools will help you compare the prices on items as listed on different merchants’ websites.
As an end user of a product, you might be interested in getting a costly item for the lowest possible price. A retail manager or reseller, on the other hand, might be interested in finding the lowest cost wholesalers for a particular product line.
Monitoring the price online, especially with the help of cutting edge software, will point you to the best merchants to purchase from.
Decide Which Low-margin Items Are Becoming Too Competitive
As you will discover as a retailer, pricing strategy is closely tied to competitive strategy, an area closely associated with the research of Michael Porter
. Professor Porter, of Harvard University, recommends that businesses should be aware of how competitive their prices are relative to others in a market.
Sometimes, however, markets become crowded and you will need to add new ways to compete. In Porter’s framework, this is called product differentiation. Using online price monitoring, you will be better able to predict when a low-margin item is now oversupplied in the market. The result is that you can choose to focus on more profitable items or product differentiation to keep your profits up.
Monitor The Entry Of New Sellers In Your Category
Yet another benefit of online price monitoring is the ability to monitor entry of new sellers in your product category. For example, if you supply orchestral musical instruments, you might be lucky enough to be the only supplier of certain specialized instruments in your target area.
However, the entry of new sellers of the same items can change market dynamics. New sellers sometimes try to undercut your prices without you knowing.
Rather than be caught unawares when major customers start defecting, online price monitoring tools can alert you when a new seller appears. You will then be able to secretly study the new comer’s strategy and respond adequately to the competition.
Online Price Monitoring Critical For Optimal Ecommerce Decisions
As you can see, the use of online price monitoring can present your ecommerce team with crucial market intelligence. By using tools that automatically update with fresh data, you can make the best decisions for your brand in real time.
Such decisions could be lowering prices to more effectively compete against a price threat, or raising them to take more profit in markets where you have little competition.