Ecommerce pricing: strategies and automation

Exploration of 3 major pricing strategies with focus on competitors based one. Followed by a research for SaaS solutions, testing them and comparing to in-house development.

Author
Dmitrii Borodin
Founder and product owner

Outline

'Ecommerce pricing: strategies and automation'

Ecommerce pricing: strategies and automation

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

They say, it is 3 major ecommerce 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 applied only to part of your inventory.

Big three:

1. Cost-based

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 ecommerce site (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 most vague sounding. Ultimately it seems to boil down to whether you have value-related or price-related products. In these terms high end fashion store can care less how they match the market, while selling gadgets is definitely 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 exactly the same or very similar product.

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

Competitors based pricing rules code example

Either way you chose, you will need to create a spreadsheet and fill in your top10 competitors. Take most common commercial query like “shop tennis rackets online” and fill in shops from first page.

Manual comparison

No need to scale if there are only 10 products in question, right? Search same products on those ten or so sites and fill in the spreadsheet. If you have reasonable number of goods and don’t wanna hustle get some cheap workers from Amazon’s Mechanical Turk. Keep in mind, that manual check is good as a research starting point and you will not be able to automate that solution later.

Programmatically at bulk

As you might guessed from “programmatically’ word this option requires a coding of some sort.

1st option: pick a SaaS company focusing on repricing for ecommerce

One can’t claim to be an awesome eCommerce-oriented web agency and just leave such struggle and tests to clients. See our cozy research and tests below.

2nd option: building such system inhouse

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

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

Consider automation

Flavours of price automation for ecommerce are not limited to competitors tracking only, however the later is the most viable automation for small and medium sized online stores, I think. Some other examples would include:

A\B testing. Consider this though: there might be not enough purchases on one item for statistically relevant info. Also, there is always a chance of a customer coming back with 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 highly seasonal products that go out of fashion or products that become obsolete due to technology life cycles.

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

Leading in both listings provider in its blog post is imposing that it is a no brainer to use SaaS solution (as their own, for example) instead in-house solution (as GRIN tech is imposing, huh?). While some points of Prisync post make sense to me, some strikes me as dishonest:

In the case of applying 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?

Truth is, it really depends. Firstly, companies usually chose to track two competitors they stay in between. I think as a rule of thumb there is no need to track more than 5 rival stores. Secondly, companies should not benchmark against their competitors the whole catalog, but rather prioritize. Options to do so include filtering products with highest sales volumes, highest popularity (equal to views), thinking in categories terms rather than SKUs or simply apply Pareto rule of 80-20. Therefore, I say such work does not require two full time engineers.

For something about 4 500 positions of tennis.delivery catalog (GRIN tech’s client project) we end up in need to parse and automate only 1500ish, the whole adventure took us a 30 coding hours to implement and tune the solution. I should note that a primary goal was to check how well our prices were in market and we got only few hundred matches, because client store has the biggest listing in the niche. The whole shop we run on 4GB RAM server, didn’t have to scale it due to daily parses neither.

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.

Hold on, ecommerce is all about testing and numbers, right? So do not take my word for granted, let me test.

SaaS tests and home made solution case study

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

Also, I’d like to point out that there are certainly enterprise level solutions like boomerangcommerce.com from former Amazon executive. None of the listings has it. Probably their marketers never got in touch. Anyway, this post focus on small and medium sized online stores and such industrial monsters are not considered.

Name & link Monthly starting
price
Field Listing Brief, subjective verdict
Prisync $49 multipurpose Capterra Takes in any data you provide, which is good. You need to do data mining yourself, which is not.
API adds 20% to your subscription cost and requires own devloper as well.
Still, the best in list soltion. Nice support.
PriceLab $50 ecommerce? Capterra Didn’t show up on scheduled demo. Wouldn’t recommend.
Darwin Pricing $50 ecommerce Capterra Doesn’t seem to be a viable solution. Didn’t go further than installation screen. Wouldn’t recommend.

Rest of the services for illustrative purposes
Beyond Pricing revenue based Airbnb repricing GetApp
prix $198 Real estate renting reprising GetApp
RepricerExpress $45 Amazon and eBay repricing Capterra
Seller Republic $9 Amazon repricing Capterra
EReprice $19ish Amazon repricing Capterra
SellerActive $299 Amazon repricing GetApp
SolidCommerce $399 Various marketplaces repricing GetApp
Price f(x) 2 495 Retail and Distribution, CPG, Industrial Manufacturing, Aftermarket Parts, Chemicals, Medical Device, Financial Services, High Tech, Energy. Capterra
JDA on request Manufacturing, Offline retail, logistics, hospitality Capterra
Price f(x) 2 495 Retail and Distribution, CPG, Industrial Manufacturing, Aftermarket Parts, Chemicals, Medical Device, Financial Services, High Tech, Energy. Capterra

Competera review

Never got a chance to see their admin dashboard, because after few emails I recieved 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 necessity to manually enter products (!) and links to my own product pages and all competitors I want to track (!!!). Why though?

prisync dashboard screenshot

the writing is still in progress and is waiting for for other tests results