Do you know why consumers purchase products from a certain store where they could’ve found them on a billion other stores?36% of consumers stated that price is the most important factor in a purchasing decision. Some might think that millennials value personalization, convenience or a company’s ethics over good prices. But KPMG’s Global Online Consumer Report reveals the fact that millennials are even more price-sensitive than older generations.
Some say money can’t buy happiness, but online shoppers disagree. The more they save, the happier they are. That’s why you have to offer the best prices. Joking aside, there are many aspects that differentiate you from your rivals, but a competitive pricing strategy is a top priority that must be taken seriously. In fact, it is the most powerful instrument one has if she knows how to utilize it.
How consumers make decisions based on price?Let’s say you’re going to buy a speaker and after long hours of product comparison, you’ve decided to purchase a Klipsch. Like every other online shopper, you’re going to search it online before making any decisions. You find the two stores below.
What do you think about the fairness of the price on the left? Why is it much more expensive than the other, while the product is identical? And more importantly, which one would you buy? The problem is obvious. In the harshly competitive e-commerce environment, ignoring competitor prices will seriously impair a company’s competitive strength. Let’s learn how the giants deal with this problem.
How do others deal with the competition?Everyone is amazed by how Amazon dominated multiple industries even though the company was a late-comer. Let’s take Amazon Books at hand. People prefer it because they have better prices and an extensive selection of books. Think about AWS. A majority of software developers use it because of its prices and transparent pricing model. That’s why Amazon sets the best example of a successful competitive pricing strategy. The giant accounts for 40% of US e-commerce spending thanks to its competitive pricing.
Harvard Business School professor Gerald Zaltman states that 95% of purchasing decisions are made in the subconscious mind. Although Amazon is not the cheapest marketplace for every product, many shoppers are loyal to it. Since they purchased so many products at the best price from Amazon, the unconscious mind repeatedly returns to the marketplace.
How Amazon prices its products?Well, it invests millions into an internal pricing engine that makes 2.5Mn price changes in a day. Changes are based on historical sales data, live demand, and most importantly, competitors’ prices. On top of that, their regional decision-makers evaluate this data to finalize pricing decisions. We understand that SMBs neither have the financial capacity nor the giant data Amazon has. But that doesn't mean you can't compete with big players.You too can have a loyal customer base by pursuing a long-term competitive pricing strategy and this article is all about that. But first, you need to learn how to track competitor prices and here are three ways of doing it.
3 methods for collecting competitive dataManually collecting prices
If you have loads of free time and thousands of dollars to trifle away, you might prefer manual tracking. For a store that has 10 competitors with 150 product matches, it takes 19 hours and costs $532 to acquire daily price information.
Of course, you can optimize this process, train your team to get much better at this highly entertaining task and decrease its cost to $300. Unfortunately, price is volatile and relying on outdated data might hurt your business in so many ways.
Developing in-house softwareThe cost of building in-house software ranges from $250 to $1000 according to our research and it depends on how you want to customize it. However, the one thing you should know about software is how much it resembles a living being that consistently faces problems throughout its lifetime. Naturally, it requires maintenance. For software that operates on the internet, maintenance takes 80% of its lifetime. Even if you have in-house developers to take care of its maintenance, on average, it will cost an additional $200+ each month due to its nature.
On top of that, the customization you need at the initial stage may not work for you after a while since e-commerce is a technologically fast-moving industry. Be extra careful when you’re designing the features of your software or you can end up with a doomed one.
Using pricing SaaSLast but not least, there is price tracking SaaS and if you’re reading this then you’re amongst the lucky ones. 75% of e-commerce businesses are unaware of such technology. There are things you need to watch out before choosing one though. Some important points you need to check are:
- Easy to use and understand UI
- Responsive customer support
- Free trial option
- Transparent pricing plans
How to use competitor price information?Collecting data was the first step in your journey of competing with the giants. So what can you do with such data? Many things, but the first step you should take is putting that knowledge into action immediately.
Make adjustmentsTo offer better prices, you need to be able to make price changes at any minute of any day. Remember, on average, Amazon changes a product's price every ten minutes. You too should change your prices to keep up with competitor prices or leave that to a dynamic pricing software.Set up pricing rules depending on the product category, brand, or competitors’ prices such as “decrease prices 5% lower than the market average”, or “keep a certain brand $100 cheaper than the cheapest rival”. Consider your production costs and operational costs when setting up these rules. We don’t want you to go bankrupt trying to compete for the best prices.
Plan for the long-termThe software stores historical data that'll help you detect patterns in competitor behavior. After observing price changes for a while, you'll be able to predict offseason sales campaigns that competitors plan and respond with counter campaigns in time. Now, stop and think for a moment of all the times you missed the chance to prepare a sales campaign in time, and your biggest rival swept away all the demand in the market with its super annoying campaign that came out of nowhere. Now you know how to cope with it!
Furthermore, historical data also reveals the relationship between price and demand. Testing different prices with various smart pricing rules will enhance your ability to make better pricing decisions in the long-run.
Final WordsPrice is the most important factor in a purchase decision. Many stores sell products from popular brands and customers reasonably choose the best offers among all. Giants like Amazon make more than 2Mn price changes in a day to offer the best prices. To thrive in this industry, you must pursue a competitive pricing strategy that’ll help you become the cheapest address for the products you sell. The first step in building a competitive pricing strategy is to track competitor prices and there are three ways to do it:
- Manual price tracking
- Developing in-house software
- Using pricing SaaS
After deciding which method to pursue, we come to the second and more important step: making use of that knowledge. With SaaS, you can set smart pricing rules that’ll automate the process of adjusting prices. This way, you’ll be able to react to price changes immediately and preserve your price positioning. More importantly, you can observe the patterns in the historical data it provides, and build a long-term strategy that’ll help you stand out in a crowd of competitors.