Having a specific pricing strategy is crucial for online retailers since no one-price-fits-all strategy would work for everyone. Besides, one pricing strategy won’t always work for all SKUs of a particular retailer. But more importantly, pricing strategies would and should always evolve with the changing times. So how do you determine the most appropriate pricing strategy for your business?
Use Relevant Data to Create a Pricing Strategy
Data mining is the process of gathering data to pinpoint outliers and patterns. It enables retailers to make accurate and more realistic predictions according to previous events. Creating a data-driven pricing strategy involves the following actions:
- Collecting competitive data in real-time for updated insights on inventory and pricing. The easiest and most convenient way to go about this is by using a price monitoring tool.
- Pricing according to relevant variables, which includes your sales data and mined competitive data.
- Evaluating the link between your profit and revenue and price adjustments, and then utilizing your findings for making appropriate changes to make more informed choices and optimize prices consistently.
Price Testing Basics
It’s extremely vital to have a clear goal in mind to ensure that you’re monitoring and mining the appropriate data. Start by determining what you could gain from the data. For instance, if you price 2% below your competitor, would your revenue increase? Do your due diligence, check how your top competitors price their products if they consistently adjust their prices, and if they do, try to determine why and when. Based on the results of your evaluation you could now conduct your experiment.
For example, you could test your findings on a particular set of SKUs with sufficient sale volume to obtain enough data from and utilize another set, with comparable sales, as your control group. Test for a month or two at least and then review the outcomes. If your sales increased or decreased, try to find out why. Next, test again because optimization is a never-ending process.
Based on your ongoing price tests’ results, you could make accurate and better data-driven pricing decisions that would serve your short and long-term goals. Implementing the best pricing strategy for your business is a balancing act—you have to maintain brand identity and reputation, while still being flexible enough to compete with others. In the immensely competitive retail industry, you need an effective pricing strategy to maintain your competitive advantage.