Pricing is a critical part of an E-Commerce store’s strategy.
Well tuned prices will bring in customers. Bad pricing will turn them away. Customers are always looking for great deals, suppliers are looking to preserve their minimum advertised prices, and stores need to make a profit. That’s why vendors need to have a pricing strategy. They need to make a profit and compete in the online marketplace or else there is no point selling anything. We need to find the right mix between competitive pricing and long-term sustainability of the store.
Suppliers provide two prices – the warehouse cost and the suggested retail price (MSRP). Some will also provide a minimum advertised price (MAP) and other price related options. The store owner can simply choose to list all of their products using the MSRP. Since the MSRP is higher than the warehouse cost, the store owner will have a profit margin built-in. Using the MSRP will pretty much guarantee that the store isn’t competitive. This is due to the fact that every other drop-shipping vendor is doing the same thing. So what can be done?
Data Here-to-There provides a wide range of pricing strategies. Here is a quick overview.
This is the simplest approach I mentioned above. We use the MSRP from the drop-shipper for each product. It comes with a built-in profit margin but is not very competitive.
We can discount MSRP values based on a dollar amount or percentage. This allows the vendor to undercut other stores which are simply using the de-facto MSRP value. Prices do not appear ‘on sale’, they simply show a lower value. It applies to all products uniformly.
Standard Margin Pricing
This option is the most popular among our clients. They choose a margin (percentage) that they wish to add to the warehouse cost of each product. Here is an example where the store owner has chosen a margin of 1.25 (25% above cost).
Item ID / SKU = BK13934
Name = Peter’s Favorite Recipe Book
Cost = 44.47
MSRP = 59.95
Using the Cost field of $44.47 and a margin of 25% we end up with a store price of $55.59. The MSRP is $59.95 so the store will show ‘on sale’, discounted by $4.36. The same rule will apply to all products. The margin will always be preserved because it is added to the warehouse cost. If the supplier increases the warehouse cost, the system will automatically increase the price accordingly.
Category Based Pricing
Some categories can be set up as ‘loss leaders’ to entice customers into the store. Other categories can be higher. This is a good strategy for selling accessories. For example, we can price printers at a lower margin than printer ink.
For this approach we assign a default store margin to catch any products that aren’t categorized. We then set margin for each category which differs from the default margin. For example, printers and plotters should be set to 10% which printer ink and toner has a margin of 25%.
Category based pricing gives the vendor more control over pricing.
This is one of our more advanced pricing strategies. We can design a system which pulls prices from competitor web stores. For example, we might find the following prices for “Peter’s Favorite Recipe Book.”
Walmart shows a price of $62.33
Indigo Books shows $68.34
Mary’s Books shows $59.95
We can set it up to take the lowest price (or the average price) then subtract a fixed amount. For example the lowest price is $59.95. If we subtract $1 the store price would be $58.95 which is lower than all of the other stores.
We can also set up a lower limit so that the system never goes below a minimum margin. This ensures that the competitive pricing does not drop below the vendor’s comfort level. So taking our previous example with a margin of 25%, if a competitor drops below $55.95 this store will not chase it down any further.
Data Here-to-There can ‘decorate’ prices to a common value. You’ve probably seen stores where prices always end in .99 or .95. We can do this for any store.
In addition to the above strategies we can also develop completely custom solutions – integrate with an online pricing service, create custom rules, synchronize prices across multiple stores or markets, and much more.
Regardless of the strategy chosen, Data Here-to-There ensures that prices never drop below a special safety margin. No matter what happens, products will not be sold at a loss. We also ensure that any minimum advertised price (MAP) restrictions from the supplier are enforced. In addition, we also handle bad data problems which should never happen (but do!) where MSRP is lower than cost, MSRP is not available, cost is not available, etc.
Pricing is a very strategic part of an E-Commerce store therefore our system has been built to be flexible. Contact us today to discuss your E-Commerce automation needs.