The 5 Most Common Pricing Mistakes in eCommerce and Tactics to Avoid Them
Everything has a price, and eCommerce is no exception to that.
Even though pricing strategy is really at the heart of doing business, it’s not rare to see that eCommerce companies of all sizes failing to implement the correct strategies to make most out of their business potential. I’m not talking rocket-science pricing strategies here. Despite of the intuitiveness of pricing, companies sometimes miss the really basic stuff about pricing and as a result they miss many other details down the road.
Here, we’ll identify the 5 most common pricing mistakes that we see in eCommerce companies of all sizes from all around the world. We’ll prescribe some advice to make sure that your company doesn’t fall in the same trap.
1. Running the business with no clear view on unit costs of goods sold
Let’s start with the basics. “Know your costs!” would probably be the First Amendment of the Pricing Constitution if there was any such thing. Simply put, a business can only remain on the ground – before really taking off – if it makes more money than it spends. Therefore, at unit level (or at product level in eCommerce) the price of a product should be higher than its unit cost. Period.
Interestingly, things don’t work that way in many eCommerce companies. One of the main reason why companies can miss such a basic business fact is that they often fail to put the right values into the equation. More specifically, they can not really define their costs to really operate a cost-based pricing strategy.
In eCommerce, the unit cost of a product actually is not only what a company pays its supplier, but contains many other overhead costs to be associated with each product in its assortment. Companies often take the super simplistic approach by simply comparing their prices vs. the amount of money they pay to their suppliers and fail to add the employee costs, the marketing costs or all other generic operating costs within the company to the unit product cost, and this cause a deficit in the budget at the end of the month when all the costs really become real and appear on the books.
To avoid this, companies should really implement a solid unit cost calculation for each of its product by taking all its expenses into account. With such unit costs in place, the rest is all about not making it below that unit cost to build a profitable and sustainable eCommerce business.
2. Not updating pricing frequently – or at all
Fancy antique stuff? Well, that’s OK if you’re a wine-lover and you found an amazing Bordeaux from ’83, but when it comes to your price-points, they’ll just age like milk rather than wine.
As an evangelist of dynamic pricing in eCommerce by heart, I believe this is the most neglected pricing mistake that we encounter, and it really hurts to see how companies can act so static in such a dynamic environment like eCommerce when it comes to pricing.
It’s pretty common to see pricing schemes within companies where the price-points of the whole assortment is set on an annual, quarterly or monthly basis. However, business-wise this is not different from simply launching a webstore, entering the products, sitting by the computer and waiting the shoppers flock in. The eCommerce market moves fast, so if your prices simply stand still, the market will move away from you, probably inclining towards your rather dynamic competitors.
Therefore, the management of prices within an eCommerce company should be aligned with all sorts of dynamic operations of sales and marketing and the price points should be always questioned, tested and aimed to be improved, simply like a Facebook Ad Campaign where all the marketing dollars go.
When intended, the problem boils down to finding the right changes to be applied on your prices, and that actually brings us to another mistake, not knowing what to look for in achieving competitive and dynamic prices.
In eCommerce, you can track your competitors’ prices with solutions like Prisync, and this will enable you to update your prices frequently.
3. Always aiming for the minimum
It’s no secret that online shoppers are solid deal hunters. They make sure that they’ve looked out for enough alternatives online before making a purchase decision, and one of the major criteria that they hold in mind before making that decision is surely the price. Commonly, they aim for the best price out there, but before acting upon this fact, eCommerce companies should think twice.
Always aiming for the minimum may lead companies to a race to the bottom. Here, the key thing to consider is – as always – the costs. Does the minimum pricing position you’re aiming for achieve profitability? If not, and if you still insist on moving in that direction, the potential sales boost that you may gain out of that effort would only yield more loss, not profit.
In most cases, people can’t correctly value what they already have in hand, and aim for more by looking externally for new opportunities. Considering the shoppers’ inclination towards the best deals online, an eCommerce company can actually seek out an internal opportunity within its assortment and can identify the products that it are already best sellers online. Those pieces are actually the products to be polished by your marketing efforts, because if those products appear in front of the buyer who looks for that product, the likeliness is it’ll be preferred much more than another product. Because you’d already have the best deal out there.
You may even notice that you really offer the best price out there by far. I mean, by too far! In that case, even a $50 USD increase in price would not hurt your best deal position, so why would not you simply lift your prices, still hold your best deal position in the eyes of your shoppers, and make those extra dollars out of each of sale you make for those products?
However, doing this is easier said than done. To be able to see your actual position in the market, you should have some level of intelligence. In this particular case, you should look for competitive pricing intelligence. And if you don’t, well, let’s investigate how big of a mistake it is not to do that.
4. Being detached from the competitive market
eCommerce is not a monopoly. It’s nothing close to that. Your eCommerce business is a little atom in this gigantic universe, and you’re also not alone in your own galaxy, where you operate alongside your competitors. Therefore, you can not sell that sought-after product by simply putting a random price tag on it. Because your competitors won’t do that.
In a transparent market like eCommerce, where shoppers have the utmost visibility into the offerings of various webstores, you’ll always be benchmarked, and in some cases, you’ll be selected, and in some cases, you won’t.
Increasing your chances in this game is completely in your hands. It really depends on how aware you are of your competitive landscape, how closely you can monitor your competitors’ pricing moves, decisions, strategies and how well you act upon them – not always by going deeper underground.
Companies often fail to gather the right dose of competitive intelligence from the market. There’s a common misconception about gathering competitive pricing intelligence due to the conventional market research tactics that have been in the business for decades. Competitive pricing intelligence gathering is often regarded as an expensive, enterprise effort, of which an eCommerce SMB can not afford. Wrong!
We see that many eCommerce SMBs that feel this way, go down the extremely time-consuming road of gathering such intelligence manually by hand, visiting their competitor’s webstores one by one, checking out their products on daily or weekly basis and compare vs. their products. Again, wrong!
Thanks to automated competitor price tracking softwares out there, in today’s eCommerce landscape, any size of eCommerce company can gather the right dose of competitive pricing intelligence. Now you can react upon your competitor’s moves and fight for the reign of your galaxy.
5. Getting distracted by the competition
Too much information is definitely not a good thing. In this case, focusing too much on the competition data, trying to get more and more of it infinitely can cause a company to lose its own track.
Often, eCommerce companies benchmark themselves vs. the wrong companies. Another mistake here is to benchmark all sorts of products vs. competitors. While gathering competitive pricing intelligence, eCommerce companies should always focus on the real reason why this data is being gathered and required.
Like all the successful strategies in eCommerce, customers should be in focus while making a decision. When it comes to competitive pricing intelligence, an eCommerce company should focus on the right assortment of products that customers are researching. Then they should focus on the right set of competitor websites in question. Gathering competitive pricing intelligence data for products that don’t fall into this criteria and comparing prices vs. the websites that don’t really cause any competitive force is a clear waste of resources.
An eCommerce company of any size can immensely benefit from competitive pricing intelligence when it gets automated for the right product assortment and can save itself from being distracted by too much information.
