Ecommerce pricing: strategies and automation

This article is inspired by interesting case GRIN tech recently implemented for client store and somewhat confusing points of writing ranking for ‘ecommerce pricing strategy’ term. Later on I also decided to test available SaaS solutions to compare their results against those we got in-house.

They say, it is three major e-commerce pricing strategies out there, i.e., they can be applied to all your inventory. As a bonus I discuss minor tactics as well, meaning they can be used only to part of your inventory.

Big three:

1. Cost-based e-commerce pricing strategy

It is as simple as that: add your margins, hope for the best. Probably not the best approach, taking into account that some say there are 12-24 million e-commerce websites (only 650,000 generate annual sales of more than $1,000 thou). Of course, you might be in a unique niche or have a killer value proposition but then why make it cost based rather than Apple-style your prices?

2. Value-based \ audience-oriented

Out of three, this one is the vaguest sounding. Ultimately it seems to boil down to whether you have value-related or price-related products. In these terms, a high-end fashion store can care less about how they match the market while selling gadgets is the opposite case.

3. Market (competitors) based

In a nutshell, you come up with a price for any given product satisfying you in terms of unit economy and then check your competitor’s’ price for precisely the same or very similar product.

In my biased opinion, this is the most viable approach because one can differentiate a lot within this paradigm via a set of rules.

• Do not go below price X within category Y
• If my price is lower, increase it, but stay 5% lower than my competitor
• If my price is higher, check for margins and do that, etc.

Whatever you chose, you will need to create a spreadsheet and fill in your top 10 competitors. Take the most common query like “shop tennis rackets online” and fill in shops from the first page.

Manual comparison

No need to scale if there are only ten products in question, right? Search the same products on those ten (or so) websites and fill in the spreadsheet. If you have a reasonable number of goods and don’t want to hustle, get some cheap workers from Amazon’s Mechanical Turk.

Keep in mind, that manual check is useful as a research starting point, and you will not be able to automate that solution later.

Programmatically at bulk

As you might guess from the word “programmatically’ — this requires coding of some sort.

1st option: pick a SaaS company focusing on e-commerce repricing

One can’t claim to be an excellent eCommerce-oriented web agency and leave such struggles and tests to clients. See our research and trials below.

2nd option: building an in-house system

In a nutshell, you ask your developer to parse competitors websites (category, product name link and its price), then you ask one to match your list with those parsed and put everything in one spreadsheet. I recommend to start slow and chose only one leading category to work with.

What is important to realize is that doing such data mining and matching is one step away from automation. Would you go this extra step?

Consider automation for your e-commerce pricing strategy

Price automation for e-commerce is not limited by just tracking competitors. However, I think the latter is the most viable automation for small and medium-sized online stores. Some other examples include:

A\B testing. Consider this though: purchases on only one item are not enough for proper statistics. Also, there is always a chance of a customer revisiting using another device and therefore seeing a different price.

Consumer demand: pricing expectations, pricing elasticity, pricing availability

Stock-based pricing strategy. This strategy performs profit-oriented markdown management and works best for seasonal products (like winter coats) or products that become obsolete due to technology life cycles.

Speaking about competitors-based pricing strategy, it is essential to understand the means of implementation. As stated earlier, the choice is either SaaS or in-house development. There is an astounding choice of cloud service providers. I found two fair looking listings with 71 companies in total, 70 of those — unique (Capterra’s listing & GetApp). So it boils down to costs of implementation and deliverables.

In its blog post, a service provider is imposing that it’s a no brainer to use SaaS (like their own, for example) instead in-house solution (as GRIN tech suggest). While some points of Prisync post make sense to me, some strike me as dishonest:

In the case of applying the in-house system, at least one skilled developer and one system engineer should be in charge of maintaining the software server costs should be taken into account.”

Oh boy, how do you even make money on the web if you are not a SaaS company?

The truth is, it depends. Firstly, companies usually chose to track two competitors and settle in between. As a rule of thumb: I think there is no need to track more than five rival stores. Secondly, companies should not benchmark the whole catalog against their competitors but prioritize instead. Options to do so include filtering the highest selling products, highest popularity (equal to views), etc. Implement categorical thinking rather than SKUs or apply the Pareto rule of 80/20. Therefore, I say such work does not require two full-time engineers.

For something like a tennis.delivery catalog (GRIN tech’s client project with over 4500 product positions) we needed to parse and automate only about 1500 positions. It took us 30 hours of coding to implement and tune-up the solution. I should note that a primary goal was to check how well our prices were in the market and we got only a few hundred matches because the client store has the biggest listing in the niche. We run the whole online-shop on a 4GB RAM server, and we didn’t have to scale it, even regardless of daily parsing.

Support. Ok, you got that one. Nobody wants their price automation to go off the road in the middle of the night.

Features list and – Integrations point sounds like milk-and-water to me.

Word on real-time price changing

Manual price regulation is necessary, but has its limitations: you need personalization services to adjust prices in real time for each specific customer depending on their purchasing power.

External personalization service is going to analyze each customer’s behavior: what products they view, what products they buy, do discounts matter for some of them, etc. Because the service tracks users from all similar shops, that have such a personalization system — you get a precise customer profile.

Then there are two ways to use the personalization system:

1. To adapt prices for a specific individual customer in real time. Depending on their paying capacity, one customer is going to see a lower price with a discount, while the other one will see the usual price with no discount.
2. And to provide relevant product recommendations. Those who seek lower prices are going to find a similar and cheaper product in recommendations. Recommendations are also personalized, depending on the customer’s habits.

Delivery terms

Some online stores may find it difficult to determine their competitive advantages while competing on a price field can be not enough to succeed, primarily when you compete with big retailers.

That’s when appealing delivery terms can become an ace up your sleeve, even if your competitors boast lower prices.

First, specify what delivery terms your competitors have:

• Delivery cost.
• Free delivery terms.
• Delivery timeframe.
• Who manages delivery: logistic company or in-house delivery. Take time to monitor reviews on the logistics company in charge. It may be that there are several companies doing business with a store.
• Additional options: delivery to multiple addresses, delivery as a gift (packaging included).
• Delivery bonuses: thank you letters, bonus merchandise, various additional gifts (calendars, test samples of different products, etc.).

It is a common occurrence for an online store to drive prices lower, but compensate the profit with a paid delivery service. That’s how you can significantly improve the competitiveness of your business — offering delivery terms that will be convenient and appealing to your customers.

Play with your customers

That’s a common tactic used by stores during a peak of the sales season, like Black Friday. You offer a customer to lower your price if they find the same product with a lower price tag. That helps you solve three tasks at once:

1. A customer shops at your place, instead of going to your competition
2. You become able to monitor market prices and set them to an adequate level, without any expenses on the monitoring itself
3. You work with customers’ loyalty: they love such “game mechanics” and will come back to you to hunt down lower prices and get a discount once more.

Some Russian shops not only do this but also provide a partial cashback: if within 14 days after a purchase, the price of a product somehow drops, the shop pays the difference back to a customer.

SaaS and in house solution case study

Disclaimer: The research below does not use a rigid scientific approach or any unified assessment system. It is instead a compilation of subjective reviews in the form of video record for their demos while others are in plain text and screenshots. I used two listings from Google’s first page as a source of SaaS services to test. There were 71 companies in the Capterra and GetApp directories combined. Some of them are focused on industries rather than e-commerce or pricing automation for marketplaces like Amazon and eBay (so-called ‘repricers’). I took the top 20 from both listings and tested those that deal with online stores. See the combined table below.

Also, I’d like to point out that there certainly are enterprise level solutions like boomerangcommerce.com by former Amazon executive. None of the listings have it. Probably their marketers never got in touch. Anyway, this post focuses on small and medium-sized online stores and such industrial monsters are out of consideration.

Here’s a brief overview of cloud solutions:

Competera review

Never got a chance to see their admin dashboard, because after a few emails I received this one (vulnerable translation from Russian):

We analyzed our 3 years long partnership with over 200 companies in 19 countries and came to conclusion that Competera is efficient only for businesses over 1000 monthly transactions. Check our blog and knowledge base to reach this turnover faster…

Sorry folks, I do not have that big store right now to do tests. Do you?

Prisync review

From the start, I was bashed with the necessity to manually enter products (!) and links to my own product pages and all competitors I want to track (!!!). Why though?

Pricelab review

Pricelab is a significantly cheaper (starting at $20 a month) solution but makes no real sense to use, since it lacks some vital features like competitor analysis and recommendation engine. Going with an in-house solution is a better option.

So it is more or less similar with some exceptions. And what about an in-house solution?

In house solution

An in-house solution may seem to be more complicated and expensive, while in reality, it can easily prove to be not just a cheaper one, but also much more flexible. Its functionality only limited by your demands and your programmer’s professionalism. External services provide quite a lot of features, but almost none provide all at once, and none at all provide an extensive set of features.

The first thing you need to consider is hiring a programmer, who can handle the task of developing an in-house price regulation and personalization system. Prices may vary depending on your region, so before you take any further steps do a little research: check the prices of external services you consider using and the average hourly rate of a programmer in your region. Try to evaluate how much each solution may cost you in the long term. Consider using Upwork to hire specialists that fit both your requirements and finances.

We can help you calculate a cost sheet for your in-house solution, taking into account all your preferences, needs and, in case your budget is tight, help you adjust the scope of work accordingly.

To sum it up on price automation

So, there are two critical aspects to consider in pricing strategy: the behavior of your competitors and the interests of your customers. You can handle competitors manually, but customers require an automated personalization approach.

It is important to:

• Be aware of prices and product availability of your competitors;
• Track both current prices and price dynamics;
• Adjust your price tags according to your competition (e.g., “find a better offer, and we’ll give you a discount”);
• Form product bundles. It creates a set of exclusive competitive offers unique to your shop;
• Pay attention to delivery terms of your competitors (a feasible opportunity to outcompete even those with the lowest prices);
• Use personalization platforms to adjust prices in real time.

Choosing a solution depends on what is more effective both functionally and financially in your particular case.