Selection of Products for Pricing Strategy

Time and again, eCommerce store owners adopt various pricing strategies to maximize their margins on their products. The main idea behind these is to optimize margin (and hence revenue) without upsetting the existing customer base and affecting the current sales. What are the two components to a good pricing strategy?

  • Selection of the right product for which you want to raise prices
  • The amount of price variation for these products

In this blog post, we shall discuss some key factors for product selection, while the second point shall be covered in an upcoming blog post.

So let’s try to drill down into product selection. Since eCommerce stores usually have a large inventory of products, they wouldn’t reprice all of them. A subset of the inventory is selected for repricing. But which criteria should be taken into account while selecting products?

Product Selection is influenced by these major four factors:

  • Type of Product
  • Consumer market
  • Competition
  • Product Positioning

Selecting the right product to conduct a pricing experiment is very crucial. Why? Because your consumers are very tech savvy. They take time to review their purchases. Besides, they also compare price of product on competitors’ website. One of the studies undertaken by Continuum, a consulting firm suggests that 25% consumers tend to buy online because of better prices.

Taxonomy of criteria for Product Selection for Pricing Strategy

In each segment if your product falls into any of the factors then we shall recommend to increase the price of such products.

Type of Products:

1) Based on Selling frequency (Regular or Fast moving Product): For your estore, let say few products are regularly sold at consistent quantity (Daily, Weekly, Monthly) and the demand does not vary w.r.t season than those products should be included in this scope. You can increase the price of such products slightly and its effect can be observed eventually by end of year (or yearly) in your profit but not too soon.
For e.g.Toothpaste or deodorant. Frequency of purchasing such products is too often.

2) Based on Demand of Product

Here, demand can be seen from two different stand points.

➔One is consistent demand throughout the year. Like any products which are related to household requirements. For e.g. Milk carton would require on consistent basis.
➔Second is seasonal demand which occurs only specific time of the year but is consistently seen year over year. For e.g.  Purchasing presents for friends and relatives during Thanksgiving.

3) Long tail Product

This product generally does not constitute a major part of revenue but does generate decent revenue.
For e.g. Comparing mobile phones vs. headphones where in your store 50% revenue comes from selling mobile phones whereas headphones generate 4% of total revenue.

4) Vital /Luxury Product

When we say vital it means products which are very essential in your day to day life and inevitable.
For e.g.Basic necessity or medicine suggested by doctors.

Luxury goods are products and services that are not considered essential and are associated with affluence.
For e.g.wrist watch of branded company (Rolex)

Consumer Market:

1) Age + Income level: Creating groups on the basis of age (like 20-30, 30-40) to know which cohort of consumers purchase more from your website, and then checking which of these cohorts purchase some sort of items on regular basis, such products can be part of price experiment.

For e.g. 30-40 age group people earn good amount of money hence there spending capacity is higher. Depending up spending pattern of consumers you can come to know to which age and income level they may be falling.

2) Gender: In general, women are very particular about their needs for requirement like jewelries and accessories. If your store selling items catering to females then it’s time to rethink over their price.

3) Type of population: If the approach of your target audience towards product is not price sensitive than those products can be consider for this experiment.
For e.g. If your target audience are corporate employees and your store is selling professional attire, in such cases if you’ll figure out that professionals wouldn’t mind to spend more on attire to look good then you can run test on such products.

Competition:

1) Fierce competition: Most of the time you find that your competitor is also selling similar products.  Let say Samsung galaxy s4 is available at your store and amazon is also selling it.

It’s important to keep in mind the price of your competitor while experiment on such products.

2) Monopolistic Situation: one should certainly take into consideration the products which are accessible at your store only. For e.g. Cool gadgets from star wars series i.e. Star Wars R2-D2 Talking Robot

Product Positioning:

So far, we have discussed about the segments of the products where you should increase the price of product. However, there are certain set of products or segments where by increasing price you might loss trust of our customers.

Consider the Products for which campaigns are running on various social media network (where you highlighting the price) you shouldn’t increase the price of such products while campaign is running. Because when visitors came through such campaign and if they find different price then it might loss trust for such customers (visitors).

There are certain products which come under government authority or regulations and your store selling such products online, we recommend excluding such products from experiment.

We are yet to incorporate more factors under which you’ll find various set of product segment according to your ecommerce store. The scenarios that we have mentioned are very generic in nature. We would also like to mention that few scenarios might not applicable or appropriate for your certain products, in such situation you might want take decision based on your judgment. Because at the end of the day you know your customers and product better.

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Mrugesh Soni

Mrugesh is a Web Analyst at Tatvic. He provides insights of data extracted for various website as consultant along with strategic plan and recommendations based on major KPIs. Extracting business insights around traffic, engagement and leads to guide and help optimize marketing campaign are his areas of interest. Google + Profile: Mrugesh Soni

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About Mrugesh Soni

Mrugesh is a Web Analyst at Tatvic. He provides insights of data extracted for various website as consultant along with strategic plan and recommendations based on major KPIs. Extracting business insights around traffic, engagement and leads to guide and help optimize marketing campaign are his areas of interest. Google + Profile: Mrugesh Soni