Essentials for E-commerce Pricing Optimization

Best practices in price monitoring 14.6.2019. Reading Time: 3 minutes

Customers are very sensitive to price changes. People’s spending habits are limited by their budgets. And any price change can affect and change them. Because of this, the demand for some products will change due to the price changes (up or down). This is known as the price elasticity of demand. For example, if the price of gas goes up, the demand won’t be much affected, since it’s one of the products that is needed for everyday life. But if the price increases for something random, let’s say chocolate, the demand will go down. People don’t need it. They’ll just substitute it with a cheaper brand or other sweets.

pricing optimization

Basically, the price effects the demand and supply characteristics and the demand determines a company’s position on the market. If a company can’t offer a competitive price, it will be a big problem for them. It leads to fewer sales, less profit, all in all, it leads to poor business performance. This is where pricing optimization comes in the game. It is one of the most important tasks, but also one of the toughest.

First of all, optimization is a decision-making process which uses data, software, and algorithms to make recommendations. And pricing optimization is using all of that in order to make better pricing decisions.

Why use and automate pricing optimization?

Pricing optimization brings many benefits to the company, especially when the process is automated. Let’s see what are the crucial benefits that will make your business sail smoothly:

  • Competitive price – everything is turning around the right price. By analyzing different factors (like the ones mentioned previously) pricing optimization helps companies find and apply the right prices for their products.
  • Speed of decision making – automating pricing optimization process saves time – one resource that money can’t buy. It increases the speed of decision making.
  • Reduces required manual effort – Employees can focus on other, value-adding tasks, while the software is dealing with pricing optimization.  Plus when changes occur too often on the market, people need more time to adapt and find the right price, but not the software.

How to automate pricing optimization?

Since this is a very hard task, companies turn to software solutions such as Price2Spy. The tool offers fully automated pricing optimization, to be more precise, price monitoring and repricing services. Repricing allows companies to define their own pricing strategies (can be segmented either per product category, brand or supplier) identifying which products can go up / down in price, and get these prices changed in their online store in a direct or an indirect way.

Of course, when setting up pricing optimization rules there are many factors that you need to think about. Some of the most important ones are; your own product price, competitors’ product price, products stock availability, products’ purchase price, desired profit margin, targeted price (MAP), etc. Each of these has a certain impact on your price, which affects the demand for a product.

Depending on your situation, Price2Spy offers different, default pricing optimization options.

  • If you have an overpriced product, there is a possibility that a price can be lowered and your business performance will still stay good. This option is called a clever drop. Here because of the purchase price (or production costs) and the profit margin you can somewhat lower your price and still make money (without jeopardizing your success).
  • Next, we have a reversed situation – clever raise. In this case, your product is underpriced compared to the competitors. With right pricing rules, you’ll be able to raise your price, just enough not to put your sales in danger and increase your profit.
  • The third option isn’t really about the pricing, but stock opportunities. Here you’ll see which products your competition has but you don’t. It will help you create a better and well-rounded offer for your customers.

Since Price2Spy is very aware that default repricing opportunities aren’t going to meet everybody’s needs, we’re also offering custom repricing opportunities. You’ll set your own repricing logic and we’ll implement them for you. It’s easy like that.

Keeping up with the market is hard. If you have many products, it’s near impossible to keep track of all of them and change their prices manually. On top of that, you can’t only think about your goals, because you also need to think about your customers, since they’re the ones that keep you in the business. That’s why pricing optimization is a great help when it comes to finding the middle ground between companies’ goals and customers’.

Let us know your experience with pricing optimization softwares.