Price Points by Omnia Retail

In Omnia's Pricing Blog, our pricing experts cover all the latest trends, Omnia pricing events, customer insights and pricing strategies.

24.04.2025

How to Set Up a Request for Proposal (RFP) for Dynamic Pricing Software

How you price your products defines how you compete. Dynamic pricing software gives you the tools to move with the market and react to shifts in supply, demand, and competition. But before you get there, you need the right setup. That starts with a clear, well-written RFP. An RFP gives shape to your pricing goals. It helps you define what matters, align internally, and filter out solutions that won’t scale. It saves time in the long run and leads to stronger conversations with vendors. At Omnia Retail, we’ve spent over a decade helping companies roll out dynamic pricing at scale. This guide shares what we’ve learned about writing an RFP that leads to better outcomes, from vendor selection to long-term success. Understanding Your Business Needs Before drafting your RFP, it's important to build a clear picture of where your pricing organization stands today and where you want it to go. An RFP grounded in a real business context not only improves internal alignment but also makes it easier to identify a solution that fits your needs now and into the future. A. Evaluate your current pricing capabilities Start by asking the tough, yet important, questions: Do you have a good overview of the market already? If so, how confident are you in the accuracy and freshness of your pricing data? Do your teams rely on manual processes like Excel sheets or fragmented tools to set prices? Can you trace back how a price was calculated, or do pricing decisions feel vague? By examining your current state, you’ll uncover where the bottlenecks lie: maybe it's the inability to respond quickly to price changes in the market, or a lack of transparency that makes it hard to explain decisions internally. These pain points will help you define the needs that need to be addressed in your future solution. B. Define strategic goals and success metrics Dynamic pricing is not a one-size-fits-all concept. Depending on your business model, category strategy, and market position, your objectives may differ: Gaining speed in reacting to market changes Improving margins without sacrificing competitiveness Scaling your pricing strategy across multiple teams or regions Make these ambitions clear in your RFP. This will allow vendors to demonstrate how their platform adapts to your specific goals, not just how it works out of the box. C. Bring the right stakeholders into the room Dynamic pricing software often touches multiple departments, from category management, e-commerce, and marketing to finance and IT. Involving these stakeholders early ensures that the RFP reflects operational realities and reduces friction later in the buying process. Ask each team: What challenges do they face with current pricing tools? What visibility do they need over pricing rules and outcomes? Who will be working with the new pricing platform and how often? How do they envision interacting with a new platform? Also, consider the importance of ease of use and the learning curve. Pricing is too important to be limited to just a handful of specialists. Your RFP should encourage responses that support accessibility across your organization. Key Components of an Effective RFP With your internal objectives mapped out, it’s time to translate them into a structured RFP that helps you evaluate the technology and the partnership behind it. A strong RFP goes beyond listing technical requirements, it creates a foundation for finding a solution that aligns with your pricing strategy, your organization, and your long-term vision. Start with a short company overview. Vendors will benefit from understanding your market positioning, product categories, and pricing maturity. Next, describe the pricing functionalities you’re looking for, not just in terms of “what” the system should do, but also how your teams will use it. If your current tools make it difficult to manage complex strategies or require technical support for every change, you’ll want to focus on: The ability to easily build and modify pricing strategies without developer involvement Support for sophisticated rule logic across different product types, categories, or brands Tools to manage promotions and event-based pricing (e.g., Black Friday templates) Features like reverse pricing to help you calculate ideal price points based on target margins This is also the point in the RFP to address data and integration. Pricing platforms don’t operate in isolation; they rely on clean, consistent data inputs and must connect smoothly to your existing systems. Your RFP should cover: What types of data will you feed into the platform (e.g., ERP, PIM, competitor data) How the pricing outputs should be delivered to sales channels or marketplaces Expectations around security, GDPR compliance, and scalability for international expansion Want to see what smarter pricing could look like in your team? Book a short session with our experts and get tailored insights. Schedule demo Timelines and budgets, while often flexible, give vendors a better sense of your expectations. Sharing target milestones, like pilots, go-live dates, or category rollouts, helps providers align their implementation approach with your internal planning. Even a ballpark budget range can make responses more realistic and tailored. Finally, clarify how you'll evaluate proposals. Rather than focusing only on checkboxes, emphasize criteria like: Strategic alignment with your pricing goals Ease of use for both technical and commercial teams Speed and flexibility in reacting to market changes Depth and reliability of pricing data sources Quality of onboarding, support, and partnership By clearly structuring your RFP around current challenges and future goals, you create space for meaningful responses and make it easier to identify vendors that can turn into long-term pricing partners who will grow with you. Best Practices for Writing the RFP Even with the right structure in place, the quality of your RFP ultimately comes down to how clearly you communicate your needs and how well you create space for meaningful vendor responses. While a well-written RFP extract feature list, it also encourages potential partners to show how their solution fits your business and supports your growth. Here are a few best practices to make your RFP process as effective and efficient as possible. Write with clarity and intent Avoid vague or broad questions that result in low-quality answers. Instead, focus on real-world scenarios that reveal how a vendor thinks and operates. For example, asking “How do you support promotional pricing across 3,000 SKUs during high-traffic events?” gives more insight than simply requesting “Support for promotional pricing.” Similarly, make sure your internal definitions are clear. What one company calls a “rule,” another might define as a “strategy.” Aligning terminology upfront ensures you’re getting accurate and comparable responses. Balance specificity with flexibility You want to be specific about your goals and challenges, but avoid locking yourself into rigid requirements that limit innovation. The best pricing platforms evolve with your business. Let vendors show how their tools adapt to different pricing strategies, market shifts, or organizational growth. Including a few open-ended questions about how vendors approach flexibility, customization, and long-term roadmap development can reveal valuable differences between solutions. Involve the right stakeholders early An RFP for dynamic pricing shouldn’t live in isolation within one department. Because pricing touches multiple parts of the business, from merchandising to e-commerce to finance, it’s essential to bring those voices into the process from the beginning. Involving key users early will: Surface hidden requirements that might otherwise be missed Improve buy-in and adoption later on Make your RFP more reflective of day-to-day operations You don’t need to solve every stakeholder’s concern in the document itself, but asking for feedback and gathering input will lead to a stronger, more grounded final version. Set realistic timelines It’s tempting to move quickly, especially when pricing inefficiencies are visible and costly. But rushing the RFP process can lead to confusion, misalignment, or missed opportunities. Give vendors enough time to properly digest your requirements, consult their product teams, and prepare tailored responses. This is especially important if you’re asking for live demos or detailed technical documentation. At the same time, build internal buffers into your own evaluation schedule. Time for alignment meetings, cross-functional reviews, and follow-up questions will help you make a confident and well-informed decision. Evaluating Vendor Responses Once the proposals start coming in, the real work begins. At this stage, your goal is to go beyond the surface, beyond polished presentations or long feature lists, and assess which solution truly fits your business, your people, and your long-term pricing ambitions. Focus on fit, not just features It’s easy to be impressed by platforms that check every box. But dynamic pricing isn’t just about what a tool can do, it’s about how well it aligns with your organization’s way of working. As you review proposals, look for signs that the vendor understands your specific use cases, not just the generic ones. How deeply do they engage with your context? Are their answers tailored, or are they simply echoing back the RFP language? Do they offer examples of how they’ve solved similar challenges for other retailers or brands? A good fit goes beyond functionality, it includes cultural alignment, flexibility, and a shared understanding of pricing as a strategic lever. Test for usability and transparency If your pricing team needs to call in IT every time a strategy changes, or if they can't explain how a price was generated, the tool won’t scale. During demos or workshops, pay close attention to the interface and how pricing strategies are built, adjusted, and explained. Make sure your team, not just the vendor, is hands-on. Ask them to walk through a real-world scenario: creating a pricing rule, applying it to a segment, adjusting a strategy ahead of a seasonal campaign. See how intuitive the process feels, and whether the system provides clear visibility into price calculations. Ask yourself if you could see yourself work with the platform and if it fits within your company's workflow. Software is worthless without adoption. Look beyond the launch A successful pricing implementation is just the beginning. You'll want a partner who invests in your long-term success, through onboarding, support, and continued development of the platform. As part of your evaluation, explore: What kind of onboarding process is provided, and how hands-on it is How support is structured post-launch (dedicated contact? self-service knowledge base? SLAs?) How often is the platform updated, and how does customer feedback influence the roadmap Don’t underestimate the value of a proactive, responsive, and committed partner who will help your team grow its pricing expertise over time. Evaluate total value, not just cost Price will always be a factor, but evaluating it in context is important. Consider the total cost of ownership, including setup, support, and the internal resources required to maintain the system. Also weigh the potential return: time saved, margin gained, and the strategic advantage of reacting faster than competitors. A slightly higher upfront cost can easily pay for itself if the solution enables your team to act with more confidence and speed. Common Pitfalls to Avoid Even with the best intentions and a clear structure, the RFP process can fall short if certain traps aren’t avoided. After years of working with leading retailers and brands, we’ve seen patterns emerge in what slows down or derails the selection of the right pricing solution. Here are a few key pitfalls to be aware of. Trying to be everything to everyone It’s natural to want your RFP to reflect every possible scenario or future use case. But overloading the document with too many requirements, especially from different departments, can create confusion or dilute the core objectives. Instead, focus on the capabilities that are critical for your team’s success today and in the near future. Be open about your long-term ambitions, but don’t let them dominate the evaluation process. The right partner will grow with you, and flexibility is often more valuable than a bloated spec list. Being too vague, or too prescriptive On one end of the spectrum, vague questions like “How does your platform support dynamic pricing?” lead to generic answers that don’t help with differentiation. On the other end, being too prescriptive (e.g., demanding a specific rule engine architecture or internal nomenclature) can block vendors from proposing innovative approaches. Aim for specificity in your goals, not your methods. Ask about how vendors would support key scenarios or challenges, and let them show how their technology and philosophy can help you get there. Overlooking the end users One of the most common missteps is focusing solely on technical checklists and forgetting about the people who’ll be using the system day-to-day. A solution may tick every box, but if your pricing managers find it unintuitive or disconnected from their workflow, adoption will suffer. Include those users in the evaluation process. Let them participate in demos. Ask them how comfortable they feel building strategies or adjusting rules in the platforms under consideration. Their input is often the most honest, and the most valuable. Ignoring the long-term partnership An RFP is more than a vendor selection process; it’s the beginning of a strategic relationship. Failing to assess what working with the vendor will feel like in six months or two years is a missed opportunity. Ask about post-implementation support, the roadmap, and how other customers are supported over time. Look for signs that the provider isn’t just offering software, but is invested in helping your teams become stronger, faster, and more confident in their pricing decisions. Conclusion Even though choosing a dynamic pricing software is a high-effort task, it is also a strategic decision that will shape how your organization approaches pricing for years to come. A clear, well-structured RFP gives you more than a shortlist of vendors. It clarifies your internal goals, reveals where your pricing strategy needs support, and sets the stage for long-term growth. By aligning your RFP with your business needs, focusing on usability and transparency, and evaluating vendors beyond feature checklists, you’ll be in a much stronger position to find a solution that fits, not just technically, but strategically and culturally as well. And when you're ready to start those conversations, make sure your RFP invites the kind of partner who’s ready to meet you at that level. Want to learn more about how dynamic pricing can be integrated into your business? Schedule a call with our experts! FAQ Who should be involved in writing the RFP? Bring in key stakeholders from pricing, category management, e-commerce, marketing, IT, and finance. Their input ensures the RFP reflects real needs and increases adoption later. Read More Who should be involved in writing the RFP? How long does it take to write and run an RFP process? It depends on your company size and complexity, but most teams spend 2–6 weeks drafting the RFP and 4–8 weeks evaluating vendors. Build in time for alignment, demos, and Q&A. Read More How long does it take to write and run an RFP process? How do I compare dynamic pricing vendors fairly? Create weighted evaluation criteria that reflect both technical needs and strategic goals. Ask each vendor to walk through real use cases, not just generic demos. Read More How do I compare dynamic pricing vendors fairly? How can I ensure the pricing software integrates with my existing systems? Include specific data sources (e.g., ERP, PIM, e-commerce platforms) and ask vendors to detail how their solution handles both inbound and outbound integrations. Read More How can I ensure the pricing software integrates with my existing systems? Read more about interesting pricing strategies here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What are the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value-Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Retail Know-How

14.04.2025

Marketplace Pricing Secrets: Should You Use Different Prices on Amazon vs eBay?

Pricing on online marketplaces plays a vital role in e-commerce success. Online marketplaces now make up 62% of all online purchases. Retailers who sell on multiple platforms earn 190% more revenue than those selling on a single channel. These numbers show the massive potential of a smart marketplace strategy. Setting the right prices across different marketplaces remains challenging. Amazon's marketplace illustrates this perfectly - 63% of its shoppers check prices before buying, while close to 2 million sellers compete for the Buy Box. A powerful marketplace pricing strategy matters more than ever. Different pricing on platforms like Amazon and eBay might help maximize your revenue. This piece will guide you in building an analytical pricing framework, highlight key differences among various marketplaces, and provide tips for developing differentiated marketplace strategies. These practical approaches will help you understand why its important to optimize prices and maintain profitability on each platform. Building Your Marketplace Pricing Strategy Framework A marketplace pricing strategy requires a clear framework that aligns with each platform's unique ecosystem. Selling across platforms demands a more strategic approach than traditional retail. You need to consider varying customer expectations and operational costs. Brands, retailers, and consumers all converge on these platforms, each with their own motivations and benefits. Brands and retailers leverage marketplaces to enhance visibility, boost profitability, and assess price competitiveness. Meanwhile, consumers are drawn to marketplaces for the convenience of comparing prices across multiple vendors without the hassle of navigating different websites. How do marketplaces shape online pricing? Marketplaces significantly influence pricing dynamics. The low entry barriers allow more competitors to join easily, reducing the need for extensive SEO and SEA efforts. This environment fosters dynamic pricing, where prices fluctuate based on various factors. Consumers benefit from increased transparency, not only in pricing but also in delivery and service options. Additionally, marketplaces introduce Buy Box dynamics, making pricing less static and more competitive. What do we know about the pricing differences in marketplaces? In an in-house research study, we analyzed data from the beauty, sports, and fashion industries across different marketplaces in Germany between January and December 2024, focusing only on non-promotional weeks. This comprehensive analysis allowed us to identify key trends and pricing behaviors unique to each marketplace. By examining these patterns, we can better understand how various factors, such as competition and consumer preferences, shape pricing strategies across the board. Marketplace Pricing Differences Marketplace pricing is not one-size-fits-all Different levels of competition and fee structures influence pricing per platform. Some marketplaces encourage low pricing, while others allow premium positioning. Most vendors adjust prices per platform 61.1% of vendors use a differentiated pricing strategy tailored to marketplace dynamics. No single marketplace consistently offers the lowest price, making pricing decisions complex. Price trends reveal strategic opportunities Amazon maintains stable pricing. eBay shows higher price volatility. Kaufland positions itself with consistently higher prices. Pricing strategies vary significantly per marketplace Some platforms have more competition encouraging low pricing, while other maintain different fees leading to higher pricing. Amazon tends to have lower prices than eBay, indicating a more competitive landscape. In comparison to Kaufland we would see lower pricing, indicting a difference in fees. Understanding price trends across marketplaces helps identify competitive differences and strategic opportunities. While Amazon maintains stable pricing, eBay shows volatility, and Kaufland positions itself with consistently higher prices. Amazon.de: Stable Pricing - Likely automated repricing, fewer fluctuations eBay.de: More volatile, declining prices - Price-sensitive sellers, heavy competition Kaufland.de: highest and most stable prices - Less discounting, possibly premium positioning Understanding your competition in different marketplace You need to know your competition in marketplaces to position your products well. Each platform draws different customer groups with unique price sensitivities. Amazon shoppers compare prices 63% of the time before buying, which makes competitive pricing vital. Software like Omnia help you track competitors' pricing patterns and learn about market trends to make smart decisions. Creating clear pricing strategies for each marketplace Your marketplace pricing framework needs specific goals translated into pricing strategies. These goals should line up with your bigger business plans, whether you want to maximize quick profits through price skimming or gain long-term market share through penetration pricing. Your pricing goals might change between platforms. Amazon's fierce Buy Box competition might make competitive pricing your top priority. eBay lets you retain control over customer relationships and branding, so you might focus on higher margins or customer loyalty. Smart and dynamic pricing strategies will keep your business profitable long-term. They help maintain your market position and build customer loyalty. Data-Driven Decision Making for Cross-Platform Pricing Companies that use data based analysis to set their marketplace prices make better decisions. Research shows data-driven organizations are 19 times more likely to remain profitable. Highquality data, such as provided by Omnia, plays a crucial role to optimize your cross-platform pricing strategy. Analyzing current marketplace data in Omnia Omnia’s offering includes price monitoring across multiple domains, featuring a user-friendly interface that encourages collaboration on various market strategies, including international ones. An all-in-one solution is essential for optimizing and implementing automated pricing strategies across platforms in the long term. Here are some questions that Omnia can help you answer: Which marketplace has the highest number of listings for different categories? Are your main competitors more active in one domain than others? Which marketplace has the most offers below your selling price? Which marketplace shows the largest average price difference compared to your selling price? Which marketplace has the least price variation? How can Omnia help? Wide array of marketplaces data source to choose from in different countries Options to choose the different data points from directly scraped marketplaces. Eg: bol sold by bol or cheapest on bol. Competitor selections in the pricing tree based on the different marketplaces Blacklist and whitelist different data points from marketplaces from price calculations Timing your price changes for maximum effect - With Omnia, get pricing data whenever you wish and automatically update your prices. Unlock smarter marketplace pricing & schedule a pricing insights session. Schedule demo here Measuring Success and Optimizing Your Pricing Strategy Successful marketplace pricing needs regular evaluation and updates. Companies that rely on analytics are 6% more profitable than their competitors. Measurement plays a vital role in your cross-platform pricing strategy. Key performance indicators for cross-platform pricing The right metrics help you make better pricing decisions across marketplaces. These are the vital KPIs to track: You should watch how price changes affect each metric. Regular monitoring helps you spot trends and adjust your marketplace pricing strategy as needed. Understanding how market conditions and the prices of your competitors impact sales is crucial. With Omnia’s insight, you will be able to better assess the influence of factors like competitor pricing on your product’s performance. Long-term vs. short-term pricing considerations Smart pricing balances quick wins with sustainable growth. Short-term pricing aims for fast gains through promotions or temporary discounts. Long-term strategies focus on customer loyalty and steady revenue. Many new sellers focus only on revenue, but this approach can mislead. Pricing Expert Prof. Hermann Simon, puts it well: “Profit orientation is the only meaningful goal because it is the only one that observes both the market side and the cost side”. The priority should be profit margins that keep operations running smoothly. Setting competitive prices while maintaining profits is vital for lasting success. Your pricing strategy must evolve with market conditions, seasons, and other factors. Conclusion Smart pricing across marketplaces gives sellers the most important advantages. Market data reveals that sellers who match their prices to each platform's unique features perform better than those who use the same prices everywhere. Sellers need to find the right balance between being competitive and making a profit. Amazon's fierce Buy Box competition demands aggressive pricing, but it often shows more stable pricing patterns. This stability is likely due to the widespread use of automated repricing tools that reduce fluctuations. In contrast, eBay.de experiences greater volatility, with prices often dropping due to intense competition among price-sensitive sellers. This marketplace allows for more flexible approaches. Meanwhile, Kaufland.de maintains the highest and most stable prices, indicating a premium positioning strategy that could benefit brands looking to differentiate themselves in the marketplace. Each platform's environment needs customized pricing to ensure profitable growth. Making use of highquality data is the life-blood of effective cross-platform pricing. Quick responses to market changes come from analyzing key metrics, watching competitors, and using dynamic pricing software. Platform pricing may look complex. A systematic approach to these strategies will help build a lasting competitive edge. Your pricing strategy needs constant fine-tuning. To stay ahead, it's essential to regularly assess market trends and competitor actions. With our Omnia team by your side, you can leverage advanced analytics and insights to refine your approach, ensuring that your pricing remains competitive and aligned with your overall business objectives. Learn more about our revolutionary and intuitive approach to Dynamic Pricing here. FAQ Is it beneficial to use different pricing strategies on Amazon and eBay? Yes, using different pricing strategies on Amazon and eBay can be advantageous. Each platform has unique characteristics and customer behaviors, so tailoring your prices to each marketplace can help maximize revenue potential and maintain competitiveness. Read More Is it beneficial to use different pricing strategies on Amazon and eBay? How often should I adjust my prices on online marketplaces? The frequency of price adjustments depends on your goals, competitiveness in the market, and marketplace-specific characteristics. With Omnia, you get your competitor’s pricing data whenever you wish and automatically update your prices. Read More How often should I adjust my prices on online marketplaces? How can I track competitors’ pricing on marketplaces like Amazon, Bol.com, or Zalando? You can track competitors' prices on all popular marketplaces like Amazon, Bol.com or Zalando, but also on niche marketplaces or direct stores using pricing software like Omnia. The software provides an overview of who else is offering the same products, on which marketplaces, and at what price - including market averages and how your prices compare, either by item price or total price including delivery. You can also dive into detailed competitor analysis for each marketplace, with the flexibility to pull pricing data at any time of day. Read More How can I track competitors’ pricing on marketplaces like Amazon, Bol.com, or Zalando? How accurate and real-time is marketplace pricing data? Marketplace pricing data can be highly accurate and real-time, especially when using Omnia Retail. Unlike other software that limits users to fixed schedules, Omnia allows pricing data to be refreshed at any chosen time of the day, offering unmatched flexibility and up-to-date insights. Read More How accurate and real-time is marketplace pricing data? How do I get insights into Buy Box dynamics? To gain insights into Buy Box dynamics, sellers should focus on optimizing product listings with relevant keywords, high-quality visuals, and detailed descriptions, while maintaining competitive pricing and excellent customer service. Marketplace-specific factors, such as Amazon's emphasis on fulfillment and eBay's focus on keyword relevance, also play crucial roles in determining Buy Box winners. Read More How do I get insights into Buy Box dynamics? Read more about interesting pricing strategies here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What are the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Pricing Strategies

10.03.2025

Competitive Pricing as a Strategy: What Most Businesses Get Wrong in 2025

Your product's price can determine your business's success or failure. A small price difference could win or lose a sale in today's crowded markets, even though competitive pricing might seem simple. Competitive pricing provides a straightforward way to position products in the market. Many businesses make the mistake of simply copying their competitors' prices. This approach often leads to missed opportunities and lower profits. Smart competitive pricing needs careful price selection based on market competition. The goal isn't to slash profits or start a race to the bottom. This piece reveals common misconceptions about competitive pricing strategies. You'll discover how these strategies work and why pricing software gives you up-to-the-minute data analysis to make smarter pricing decisions. The discussion includes practical examples to help you dodge typical mistakes, plus the pros and cons of competitive pricing. What is Competitive Pricing? Competitive pricing is a strategy where businesses set their prices based on the prices of their competitors. Instead of determining prices solely based on production costs or desired profit margins, companies analyze the market and adjust their pricing to stay competitive. This approach is commonly used in highly competitive industries, such as retail and e-commerce, where price sensitivity plays a crucial role in consumer decision-making. The benefits of competitive pricing The primary benefit of competitive pricing is that it helps businesses attract price-conscious customers and increase sales. By offering prices that align with or undercut competitors, companies can improve their market position and boost customer loyalty. Additionally, this strategy allows businesses to react quickly to market changes, ensuring they remain relevant and appealing to consumers. However, it requires continuous monitoring of competitor pricing to maintain effectiveness. Why Most Businesses Fail at Competitive Pricing Businesses often struggle with competitive pricing because they don't understand the basics. Studies show that competitor-based factors explain 30.2% of price variations in certain markets. Focusing only on competitor prices Your business success faces real risks when you blindly copy competitor prices. You make poor decisions by setting prices without knowing your competitors' strategies or costs. Price wars often start when businesses only try to match or undercut competitors, especially in markets with many competitors or price-sensitive customers. Smart businesses analyze their unique value instead of just matching market prices. Companies that only rely on competitor pricing lose their grip on real market demand over time. Lower prices don't always attract more customers - they can make people doubt your product quality and cut into your profits. Ignoring customer value perception Businesses make a huge mistake when they overlook how customers link price to value. Studies show 71% of shoppers trust the brands they buy from, with Gen Z caring about this the most. Customers judge value based on quality, brand reputation, and their overall experience. Price makes up just one part of the value equation. Research of McKinsey shows customers decide to buy based on what they think they'll get minus what they think they'll pay. The best pricing strategies look at both sides rather than just focusing on costs. Not considering market dynamics The market keeps changing, and so should your pricing strategy. Businesses must keep checking their pricing approaches to stay ahead of competitors. Keep an eye on supply and demand changes that affect pricing, observe customer behavior and market trends, and adjust prices proactively while considering regional differences in perceived value. Retailers who use flexible pricing strategies can increase profits by 5% to 10%. But to keep your competitive pricing strategy working, you need to analyze the market constantly and adapt to new conditions. Key Elements of Successful Competitive Pricing Market positioning is the lifeblood of effective competitive pricing. Your market position helps you make pricing decisions that match customer expectations. Understanding market positioning Your market position shapes how consumers see your brand compared to competitors. You can build a unique identity in the marketplace through product features, price points, and quality indicators. Examples of competitive pricing strategies These effective competitive pricing approaches work well: Price matching: Your prices stay equal to competitors while you highlight unique value Premium pricing: Higher prices show superior quality or exclusive offerings Penetration pricing: Lower prices help gain market share, which works best for new market entrants Research shows that businesses that use dynamic pricing strategies see 5-25% more revenue when they adjust prices based on market demand. Advantages of competitive pricing Competitive pricing helps businesses attract customers by offering prices that align with or undercut competitors. This strategy can increase sales volume, enhance market positioning, and boost customer loyalty. It also allows businesses to stay relevant in highly competitive industries by responding quickly to market fluctuations. Advantages: Makes pricing easier Boosts sales volume Responds fast to market changes Guards market share Disadvantages of competitive pricing While competitive pricing can be effective, it also comes with drawbacks. Focusing solely on competitor prices may cause businesses to overlook critical factors like production costs, profit margins, and customer perception of value. This approach can lead to price wars, reducing profitability and making long-term sustainability more challenging. Disadvantages: Might not cover operating costs Could start price wars Misses customer value perception Wrong pricing happens if competitors make mistakes Your competitive pricing success needs constant market monitoring and smart positioning choices. Good pricing software and market analysis tools help you stay competitive while keeping profits healthy. Real-Time Competitor Pricing Insights As a large retailer or D2C brand, it's vital to monitor supply and demand changes affecting pricing. Observing customer behavior and market trends allows proactive price adjustments, ensuring competitiveness and meeting audience expectations. Regional value differences should also be considered. Price monitoring software is crucial for real-time monitoring, offering insights into market dynamics and competitor pricing. This tool helps maintain competitive and attractive prices, maximizing profits and strengthening market position. How to Set Up Competitive Pricing Strategies? A competitive pricing strategy works best with systematic implementation. Start by finding direct competitors who sell similar products and indirect competitors with alternative offerings. Next, build a data collection system using price-tracking software that pulls competitor pricing information automatically. The best results are driven by key factors such as market positioning and value proposition, which determine a product's competitive edge, along with inventory levels and demand patterns that ensure optimal stock management. Additionally, seasonal variations influence consumer behavior, while regional price differences play a crucial role in pricing strategies, all contributing to overall success. Automated pricing tools let you view data through different parameters. You can sort by price range, product performance, and shipping options. Of course, human oversight is vital - don't let algorithms make all your pricing decisions. Price intelligence software helps businesses spot opportunities and react quickly to market changes. This makes competitive pricing a vital part of business without cutting into profits. These tools help maintain the best price points through systematic monitoring while keeping profit margins healthy. Conclusion Price competitiveness drives business success, but matching competitor prices alone misses significant market opportunities. Companies that use strategic competitive pricing among modern pricing tools see revenue increases of 5-25%. Businesses thrive when they balance multiple pricing factors. A company's market position, customer perception of value, and operational costs matter as much as competitor prices. Price tracking software helps track these elements and make analytical insights that protect profit margins. Your unique value proposition matters more than constant price matching. Research indicates that 71% of customers value brand trust over the lowest prices. Pricing software helps spot opportunities, analyze market patterns, and adjust prices strategically without hurting profits. Price competitiveness needs constant monitoring and quick market responses. The right pricing tools and regular market analysis help maintain optimal price points and build strong customer relationships. Note that competitive pricing becomes a powerful strategy when used wisely, not as a simple copy-paste solution. Learn more about our revolutionary and intuitive approach to Dynamic Pricing here. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments.

Pricing Strategies, eCommerce, Pricing

23.12.2024

What is Price Discrimination and how to leverage it?

What is Price Discrimination? In today’s highly competitive retail landscape, pricing is no longer just a numbers game—it’s a strategic lever that can make or break a business. As consumer expectations evolve and markets become increasingly fragmented, retailers face the challenge of setting prices that maximize revenue while staying competitive and meeting diverse customer needs. Price discrimination (also known as differential pricing or price differentiation) is defined as a strategy that involves tailoring prices based on customer segments, behavior, or willingness to pay and offers a powerful solution. It enables businesses to unlock hidden revenue potential, capture greater consumer surplus, and provide personalized value to their customers. When executed effectively, price discrimination doesn’t just boost profit margins; it also strengthens customer relationships by aligning pricing with perceived value. However, success in this area requires a deep understanding of market dynamics, robust data analytics, and the ability to navigate challenges like fairness and compliance. In this article, we’ll explore the fundamentals of price discrimination, its practical applications in retail, and how businesses can leverage this strategy to thrive in an increasingly complex marketplace. If you are interested in other pricing methods, check out our recent blogpost on 17 key ecommerce pricing strategies. 3 types of Price Discrimination Price discrimination is the practice of charging different prices for the same product or service based on specific customer characteristics, market conditions, or purchasing behaviors. It allows businesses to optimize revenue by capturing as much value as possible from diverse customer segments. Broadly, price discrimination is categorized into three types: First-degree price discrimination involves setting a unique price for each customer based on their willingness to pay. While challenging to implement, it can be seen in industries like real estate or high-end consulting, where prices are often negotiated individually. Second-degree price discrimination offers varying prices based on the quantity purchased or the version of the product chosen. For example, bulk discounts, tiered pricing plans, or premium product variations fall under this category. Third-degree price discrimination segments the market into distinct groups based on characteristics such as age, location, or time of purchase. Examples include student discounts, regional pricing, and off-peak travel rates. For price discrimination to succeed, three key conditions must be met. First, the business must have a degree of market power, enabling control over pricing rather than being dictated by competition. Second, the market must be divisible into distinct customer segments with different price sensitivities. Third, the company must ensure limited or no arbitrage between segments, preventing customers from exploiting price differences across groups. These principles form the foundation of effective price discrimination, enabling businesses to align their pricing strategies with consumer behavior while maximizing profitability. Price Discrimination Examples Price discrimination in retail and ecommerce manifests in various ways, tailored to the unique characteristics and purchasing behaviors of different customer segments. Subscription-based services like Amazon Prime or Dropbox offer another example of second-degree price discrimination, utilizing tiered pricing structures to cater to diverse customer needs. For instance, Dropbox offers four different plans, allowing customers to choose based on their usage preferences and budget. Another proven method is regional price discrimination (third-degree price discrimination) and involves setting prices based on geographic factors like local market conditions or cost of living. Retailers might charge higher prices in metropolitan areas compared to rural regions, or low-income vs high-income countries, like the Big Mac index from McDonalds, reflecting differences in purchasing power and operational costs. At last, another common example of third-degree price discrimination is dynamic pricing, where prices fluctuate based on demand, inventory levels, or customer behavior. This approach is widely used in e-commerce, where pricing software adjusts prices in real-time to optimize sales, as seen during flash sales or peak shopping seasons like Black Friday (see below). When to use Price Discrimination? Deciding whether to leverage price discrimination in your business requires understanding its feasibility, customer impact, and potential to boost profitability. Here’s a structured way to evaluate it: 1. Understand your Market Segments Before implementing price discrimination, ensure you have a clear understanding of your customer base. Are there distinct groups with varying willingness to pay, such as business users versus personal users or price-sensitive versus convenience-focused customers? Effective segmentation is essential, and this can be achieved by analyzing demographic factors, geographic location, purchase intentions, or other attributes. The better you understand your market segments, the more tailored and effective your pricing strategy will be. 2. Assess your Product/Service Not all products or services are suitable for price discrimination. Consider whether your offering has elastic demand—products with varying perceived value among customers are better suited for this strategy. Additionally, low marginal costs are a key factor; price discrimination works best when the cost of serving an additional customer is minimal, allowing you to capture value without significantly increasing expenses. 3. Check Operational Feasibility Implementing price discrimination requires robust operational support. Do you have the tools and data systems necessary to execute dynamic pricing or customer segmentation? Advanced analytics and real-time data are critical for success. Additionally, ensure you can enforce segmentation effectively; preventing arbitrage, such as customers reselling products between segments, is crucial to maintaining the integrity of your strategy. 4. Analyze the Competition Understanding the competitive landscape (see below) is vital when considering price discrimination. Are your competitors already using this strategy? If so, it may indicate that customers in your market expect it, and adopting it could help maintain competitiveness. However, you must also evaluate how price discrimination might affect your market position—while it could strengthen your edge, it might also alienate certain customer segments if perceived as unfair. 5. Test and Iterate Price discrimination is rarely a one-size-fits-all approach. Start small by running limited experiments, such as A/B tests or pilot programs, to gauge customer responses and measure outcomes. Use these insights to refine your strategy, making data-driven adjustments as needed. Iterative testing ensures that your approach evolves with your customers’ needs and market dynamics, maximizing effectiveness while minimizing risks. When to avoid Price Discrimination? Retailers and D2C brands should avoid price discrimination when there is no customer segmentation possible, or when there is a risk of harming customer trust or brand values like transparency and fairness. It's also unwise in highly commoditized markets, where customers can easily compare prices. A thoughtful, transparent approach ensures pricing strategies align with both business goals and customer expectations. So in summary: No clear segmentation: If customers have similar willingness to pay, it won’t yield benefits. High enforcement costs: Preventing abuse or arbitrage may outweigh the benefits. Negative customer impact: If it leads to backlash or distrust, it could harm your brand long-term. Addressing fairness and compliance concerns While price discrimination can drive significant business benefits, it also raises important ethical and legal considerations. Striking the right balance between profitability and fairness is crucial to maintaining customer trust and avoiding reputational risks. One key concern is the perception of unfairness when customers discover they are being charged different prices for the same product. Transparency can help mitigate this issue—clearly communicating the basis for price differences, such as discounts for loyalty or reduced prices during promotional periods, can ensure customers feel the pricing is justified. Another challenge lies in navigating regulatory frameworks that govern pricing practices. For instance, certain forms of price discrimination, such as discriminatory pricing based on race, gender, or other protected characteristics, are illegal in many jurisdictions. Retailers must carefully design their pricing strategies to comply with these laws while achieving their business objectives. Ethical price discrimination requires a careful balance: leveraging data to offer personalized and value-driven pricing while ensuring fairness, transparency, and compliance. Retailers who prioritize these considerations can implement price discrimination strategies that enhance customer satisfaction and maintain long-term loyalty.

Dynamic Pricing, Pricing, E-Commerce, Price Discrimination

21.10.2024

Developing a pricing strategy: From 'Pricing by feel' to data-driven decisions

Pricing is one of the most important, and often misunderstood, topics in retail and e-commerce. The pricing 'iceberg' goes deeper than most expect. It starts with a single question: what company aims are you trying to achieve within pricing? Data-driven pricing strategies impact more than just revenue generation. They also play a vital role in shaping customer perceptions, and market competitiveness. Businesses can leverage a wealth of information to fine-tune their pricing strategies. In this blogpost, we dive deeper into the importance of data and automation and how they affect shaping your pricing strategy. The challenge of pricing In the dynamic world of retail and e-commerce, pricing is both an art and a science. Many industry professionals have developed an intuitive sense for what works in pricing, relying on experience and market knowledge to make decisions. However, this intuitive approach, while valuable, often falls short of a comprehensive, developed strategy. The pitfalls of intuitive pricing Companies frequently operate with loosely defined pricing rules that have evolved over time. This approach, sometimes referred to as "pricing by feel," may seem effective in the early stages of a business. However, as companies grow and markets become more complex, several challenges emerge: 1) Overwhelming assortment growth As product catalogues expand, manually managing prices for each item becomes increasingly time-consuming and prone to errors. What once was a manageable task for a small team or even an individual becomes an overwhelming endeavour. 2) Rapid shifts in competitive pricing The digital marketplace is characterised by its volatility. Competitors can adjust their prices multiple times a day, responding to market demands, inventory levels, or promotional strategies. Keeping up with these changes manually is virtually impossible. 3) Expanding market dynamics As companies grow, they often enter new markets or face increased competition. Each market may have its own pricing norms, consumer behaviours, and competitive landscapes, further complicating the pricing process. 4) Inconsistent pricing decisions Without a structured strategy, pricing decisions can become inconsistent across products or over time, potentially damaging brand perception or profit margins. The need for a structured approach Recognizing these challenges, it becomes clear that transitioning from 'pricing by feel' to a codified, explicit pricing strategy is crucial for sustained success, especially as you expand either the number of products or number of markets. However, this transition can be daunting. It requires a shift in mindset, the adoption of new technologies, and often a restructuring of some internal processes. This article aims to demystify this process, breaking down the first steps in developing a robust pricing strategy. Our goal is to guide retailers through the transition from intuitive pricing to making objective, data-driven decisions with increased speed and accuracy. By embracing a structured approach to pricing, businesses can: Respond more quickly to market changes Maintain consistency across large product assortments Optimize prices for different market segments Automate routine pricing decisions, freeing up time for strategic thinking Make more informed decisions based on data rather than gut feeling In the following sections, we'll explore how to begin this journey, starting with understanding your current position and defining your pricing goals. We'll then delve into practical steps for implementing a data-driven pricing strategy that can grow and evolve with your business. The importance of data and automation In the modern retail landscape, pricing excellence is closely linked to the quality and accessibility of data. High quality, trusted data is the foundation upon which effective pricing strategies are built. This data includes not only your own sales and inventory information, but also competitive intelligence and market trends. Understanding customer behavior is equally important. Insights into how customers respond to different price points can guide your segmentation and personalization strategies. Additionally, keeping an eye on broader market trends helps you anticipate shifts in demand or supply that may affect your pricing. The Power of Automation While data is essential, its true potential shines through automation. Pricing automation tools can adjust prices across thousands of SKUs in real-time, something that would be nearly impossible to manage manually. This capability ensures consistency in applying your pricing strategy across your entire product range. Advanced algorithms can consider multiple factors at once, optimizing prices based on a complex set of rules and goals. By automating routine pricing tasks, your team can shift their focus to strategic decision-making and long-term planning. Building Trust in Automated Systems Transitioning to automated pricing requires trust. Start by piloting the system on a subset of products and regularly auditing its decisions. Transparency in how the system operates is key, as is providing ongoing training to help your team understand and interpret its outputs. By leveraging high-quality data and reliable automation, retailers can create flexible, integrated workflows that adapt to market changes in real-time. Starting Your Pricing Strategy Before diving into new pricing approaches, assess your current position. Analyze how effective your existing methods are, evaluate your product portfolio for price sensitivity, and review your cost structure and profit margins. Defining your strategic objectives is the next step. Consider your desired market position and how you want your brand to be perceived through pricing. Think about your growth targets and where your current pricing processes might be inefficient. Transform these objectives into actionable steps by setting specific, measurable goals and identifying key products or categories for focus. Determine the data and tools necessary to support your strategy and outline your decision-making process for price changes. Ensure your pricing strategy aligns with your overall business goals. Collaboration with other departments, like sales and marketing, is essential for alignment. Assess the resources needed for implementation and develop a timeline that includes milestones and checkpoints. Finally, create a feedback loop to continuously improve your strategy. Establish key performance indicators to measure effectiveness, set regular review periods for assessment, and encourage feedback from sales teams and customers. Talk to one of our consultants about dynamic pricing. Schedule demo here Anticipating market reactions In the fast-paced world of e-commerce, where prices can change multiple times daily, anticipating and responding to market reactions is crucial. When implementing a new automated pricing strategy, consider not just your actions, but how competitors and customers might respond. Understanding competitor behaviour 1) Analyse historical patterns: Look at how competitors have reacted to price changes in the past. 2) Identify key competitors: Not all competitors are equal. Focus on those who have the most impact on your market. 3) Monitor frequency of changes: Some competitors may adjust prices hourly, others weekly. Understanding these patterns can inform your strategy. Price monitoring software helps you with this crucial step. Mitigating Risks To avoid detrimental outcomes like price wars, it's essential to adopt a strategic approach. One effective strategy is selective price matching, where you only follow the prices of key competitors and set clear boundaries on how low you're willing to go. This approach allows you to consider matching prices on key value items (KVIs) while maintaining margins on other products. Additionally, implementing safety rules such as setting minimum profit margins, establishing maximum discount percentages, and using dynamic floor prices based on cost and desired profitability can help safeguard your business. Another important strategy is to manage your repricing frequency strategically. Balancing responsiveness with stability is crucial, and you might consider time-based rules, such as not changing prices more than once per day. Different product categories may require different repricing frequencies. Beyond price, differentiation can be achieved by enhancing your value proposition through service, warranty, or bundling. Using dynamic pricing on unique product combinations that are harder for competitors to match can also be beneficial. Lastly, maintaining a consistent price position, such as always being 5% below a key competitor, and adjusting the index based on product category or lifecycle stage can help you stay competitive without engaging in harmful price wars. Monitoring and adjusting Implement a system to continuously monitor the effects of your pricing strategy: Track key metrics like sales volume, revenue, and profit margin Set up alerts for unusual competitor behaviour or market shifts Regularly review and adjust your rules and thresholds By anticipating market reactions and implementing a flexible, rule-based strategy, you can navigate the complex e-commerce landscape more effectively, balancing competitiveness with profitability. Conclusion: Embracing the future of pricing in E-commerce As we've explored throughout this article, the landscape of pricing in retail and e-commerce is undergoing a dramatic transformation. The shift from intuitive, "feel-based" pricing to data-driven, strategic approaches is not just a trend—it's becoming a necessity for businesses looking to thrive in an increasingly competitive and dynamic marketplace. Key takeaways 1) The power of strategy: A well-developed pricing strategy is crucial for optimising sales, margins, and market position. It provides a framework for consistent decision-making and helps align pricing with broader business goals. 2) Data as the foundation: High-quality, trustworthy data is the bedrock of effective pricing. It provides insights into market trends, competitor behaviour, and customer preferences, enabling more informed and precise pricing decisions. 3) Automation as a game-changer: Pricing automation tools allow businesses to respond rapidly to market changes, maintain consistency across large product assortments, and free up valuable time for strategic thinking. 4) Anticipating market reactions: In the fast-paced world of e-commerce, it's crucial to not only set prices but also anticipate and plan for how competitors and customers might react. 5) Continuous Improvement: A successful pricing strategy is not static. It requires ongoing monitoring, analysis, and adjustment to remain effective in a changing market. The road ahead As we look to the future, several trends are likely to shape the evolution of pricing strategies: Artificial intelligence and machine learning will drive predictive pricing and real-time optimization, while more granular data enables personalized pricing tailored to customer behavior and preferences. However, businesses must address the ethical implications of dynamic and individualized pricing. Additionally, pricing strategies will increasingly integrate with broader business functions, such as supply chain and customer relationship management. The future of retail belongs to those who can price smartly, react quickly, and adapt continuously. With the right strategy and tools, your business can be at the forefront of this pricing revolution. The time to start is now. Learn more about our revolutionary and intuitive approach to Dynamic Pricing here. Read more about interesting pricing strategies here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What are the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Pricing Strategies

15.10.2024

Understanding the impact of early preparation for Black Friday

Preparing early for Black Friday is essential for retailers looking to maximise sales and stay competitive in a dynamic market. By planning ahead, retailers can strategically adjust pricing, manage inventory and fine-tune marketing campaigns to attract more customers. This proactive approach enables the identification of key product and market trends, ensuring that promotions are both timely and effective. In addition, early preparation helps to mitigate potential logistical challenges, such as stock shortages or delivery delays, which can negatively impact customer satisfaction. Finally, preparation enables retailers to navigate the complexities of dynamic pricing and price monitoring, ensuring that they can capitalise on increased consumer activity during this peak shopping period. In our recent research, we looked at data from the sports fashion and electronics industries in the Dutch and German markets from 2018 to 2023. The analysis focused on products with price deviations and consistent data streams, providing insights into dynamic pricing, price monitoring and pricing strategies during the Black Friday period. Key findings 1) Early start of Black Friday promotions Our research shows that Black Friday promotions start 10 days before the actual event. This early start continues through the weekend, creating a highly competitive environment. Retailers start lowering prices as early as mid-October, with the biggest discounts occurring on Black Friday and continuing through the weekend. Chart 1: Timeline before, during and after Black Friday. Retailers begin lowering prices as early as mid-October, with the most significant discounts occurring on Black Friday and continuing through the weekend. 2) Post-Black Friday price trends Prices tend to return to pre-Black Friday levels, but gradually decline towards Christmas and beyond. This trend indicates a continuous price decline, influenced by the dynamic pricing strategies employed during the festive season. 3) Impact of the Omnibus ruling The European Union's omnibus ruling in 2022 significantly changed promotional strategies. By 2023, the impact of the ruling was evident as retailers adjusted their pricing tactics to comply with the new regulations. This change disrupted the typical product lifecycle, particularly during the Black Friday period. Talk to one of our consultants about dynamic pricing. Schedule a demo Prepare with 3 key actions to gain a competitive advantage on Black Friday To maximise your competitive advantage this Black Friday, focus on three essential actions before you start your strategies: Identify key players, analyse key products and evaluate key areas. By mastering these three areas, you can create a robust strategy that leverages your competitive advantage and drives success during the Black Friday period. 1) Identifying Key Players One of the first steps is to identify the key players in your market. This process is critical to understanding competitive dynamics and ensuring that your pricing strategies are effective. Questions to ask: Which retailers are price competitive? How often do the key players change their prices? How do the promotional strategies of key players differ from ours? How often should we review and update our blacklist of unreliable offers? In addition to the data available and the overview provided by our dashboards, Omnia's price monitoring software offers two indicators to measure the strength of the key players and quickly identify them. The Price Ratio Variance benchmark allows you to measure the consistency of offers against your current selling price. You can use this metric to assess which key players you should - or should not - focus on in your Black Friday pricing rules. A higher variance indicates greater inconsistency and less uniformity in offers. To ensure the accuracy of our analysis , a recently released new feature that blacklists offers identified as outliers or those with unreliable stock information helps to maintain a more normalised view of the market, especially during the Black Friday period. 2) Analysing Key Products The next step in your preparation is to analyse key products. This is essential to identify significant price variation and understand how competitors are pricing similar items. Identify products with significant price variation per area by analysing the Price Stability Score: Assess how closely your competitors' prices match your own. A score of 100 indicates identical pricing, while a score of 0 means there are significant price differences. By monitoring these scores on a daily basis, you can see which products are moving within their promotions. Top 10 Performers (Slice 1): The Price Stability Score helps you to find out at a glance to what extent your prices for products overlap with those of your relevant competitors. When preparing for Black Friday, it’s important to focus on products with significant price deviations. By filtering dashboards based on the lowest price stability scores, you can identify the most volatile items and plan your promotions accordingly. 3) Evaluating Key Domains When preparing for Black Friday, it’s important to focus on products with significant price deviations. By filtering dashboards based on the lowest price stability scores, you can identify the most volatile items and plan your promotions accordingly. Finally, evaluating key domains is crucial for determining where to focus your marketing spend and promotional efforts. This involves analysing the lowest unit prices across different markets and making informed decisions about where to allocate resources. Within the Omnia software, you can analyse relevant marketplaces and domains by examining the lowest unit price. By identifying the cheapest unit price, we can determine the most effective domain for promotions. If the goal is to offer the product for €20, it makes sense to focus on Kieskeurig, where the price aligns with this target. Conversely, it would be less effective to promote on Tweakers, where the price is significantly lower at €14.79. By combining various dashboards in your price monitoring software, you can gain a comprehensive understanding of market dynamics and better prepare for Black Friday. This holistic approach allows you to navigate the complexities of dynamic pricing and develop effective pricing strategies that enhance your competitive edge. Top 4 strategy ideas to make a success of Black Friday Once the market is understood and you know how you are positioned in the market, the next step is to see what kind of strategies you can implement in your Pricing Strategy Tree in Omnia during Black Friday. 1) Follow the Price Movement in the Market As Black Friday approaches, retailers have begun lowering their prices 10 days in advance. This early discounting is part of a dynamic promotion strategy across different assortments. To effectively track market movements ahead of Black Friday, it's important to include promotional products during the Black Friday period itself. You can still follow market prices to be competitive while ensuring that the cheapest price will be the promotional price during the promotional period. This allows for a comprehensive understanding of price trends and competitive positioning. Several conditions can be used in combination: Stock age: Adjust prices based on how long products have been in stock. Selected competitors: Monitor and compare prices with only selected competitors. Sales Through Rate: Consider the rate at which products are sold to adjust prices accordingly. 2) Promotional price for X units only We often see that in the lead up to Black Friday, companies tend to send out brochures, newsletters and promote some products with special prices on their various marketing channels. These are usually products that are popular in the market, some bestsellers or high runners that have good demand and will attract people to come to your websites when you have good deals on them and hopefully also drive sales of the other complementary products that are on the websites. Sometimes you also have a limit to this especially good price and hence, only want this price to be for X number of units sold. This can be translated into the following pricing rule: Special price only for X units sold, after which it will follow the market prices with assigned safety rules. Pricing Strategy Tree: On the 29th of November (Black Friday 2024), only the first 100 units of the products with assigned special/ promotional prices, will have the promotional price and once it reaches 100, the next price will follow the lowest price of the selected competitors with a minimum boundary of the promotional price/ special price + 5% and a maximum boundary of the MSRP/RRP 3) Avoid Price War Rather than always following the cheapest, identify the situations in which you want to follow the market down. During promotional periods such as Black Friday, it may be strategic to adjust prices temporarily to remain competitive. For example, you may only lower your prices and follow the market down (with respect to a minimum price boundary) under certain conditions, such as when stock reaches a certain age or when there are a defined number of competitors in the market. Pricing Strategy Tree: From 19th of November, for the Electronics products, depending on their stock age, the price is following the cheapest price amongst the selected competitors with minimum safety price and maximum price ONLY IF there are at least 2 of these selected competitors with prices lower than your current selling price. 4) Strategic Price Adjustments post Black Friday The price decrease and increase before and after black friday have bigger scale than the other normal period. Follow the market as retailers start increasing their prices post Black Friday but at a steady rate to avoid too big of price fluctuations. By adjusting prices with a stabilised increase, retailers can ensure a smoother transition to post-Black Friday pricing, maintaining customer confidence and business stability. Example of how this can be translated into a pricing rule: From 30th November until the end of Cyber Monday, follow the average price in the market among selected competitors, but in case of sharp price increases, limit the increase to max. 5% with a maximum of MSRP/RRP and a minimum of either promotional price or minimum margin. Conclusion: Optimise your Black Friday strategy and save time with Omnia's pricing software At Omnia, we aim to empower you with the ability to gather and analyse these insights independently. Our new tool allows you to slice and dice the data using different benchmarks, giving you a comprehensive view of how dynamic pricing and price monitoring can be applied in your industry. Benchmark against competitors: Compare your pricing strategies with competitors to identify areas for improvement. Analyse seasonal trends: Understand how seasonal events such as Black Friday impact your pricing and adjust your strategies accordingly. Regulatory compliance: Ensure that your pricing strategies comply with regulations such as the Omnibus Directive. With these insights and more, you can navigate the complexities of dynamic pricing and develop effective pricing strategies that increase your competitive advantage. Read more about interesting pricing strategies here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Pricing Strategies, Retail Trends & Research, Black Friday

01.10.2024

Top 7 strategies for successful digital pricing transformation

7 Strategies for Successful Digital Pricing Transformation Pricing transformation means completely changing the way a company sets its prices, using new digital tools and technologies to make better pricing decisions. This process aims to set prices that accurately reflect the perceived value of products or services, dynamically respond to market competition, and maximize profitability. Leveraging software solutions, businesses can ensure they are setting optimal prices for each transaction, considering factors such as customer demand, market trends, and competitive landscapes. In today's rapidly evolving business landscape, pricing transformation has become a critical priority for organizations seeking to stay competitive and maximize profitability. As market dynamics shift and customer expectations evolve over time, companies must adapt their pricing strategies to keep pace. Pricing platform provider Omnia Retail has joined forces with Horvath, the international management consultancy with a focus on transformation and digitization, to share insights on the key elements of success we observe in businesses that have successfully undergone a pricing transformation. Drawing on our combined expertise in pricing software and strategies, we've identified seven key pillars that can help businesses successfully navigate this crucial process: 1. Secure Full C-Level Sponsorship The foundation of any successful pricing transformation lies in obtaining full support from top management. Our experience shows that pricing transformation needs to be a top priority for sales and marketing, product management, finance, and IT departments. Without strong backing from the C-suite, pricing initiatives often struggle to gain traction, especially because they impact many teams and may fail to deliver the desired results. With C-level sponsorship, the right KPIs (profit/revenue) can be prioritized effectively within each team. To achieve C-level sponsorship, we suggest: - Articulate the potential value and impact of pricing transformation on the company's top line - Develop a compelling business case that outlines both short-term wins and long-term strategic benefits - Quantify benefits by running a proof of concept (POC) where you A/B test the effectiveness of your pricing strategies - Ensure that pricing objectives are aligned with overall business goals and strategy By making pricing transformation a C-level priority, companies can ensure that the necessary resources, attention, and support are allocated to drive meaningful change. 2. Foster Collaboration Between Business and Technology Teams Successful pricing transformations are not solely a business initiative or an IT project; they require seamless collaboration between both domains. Our experience shows that when both the business and IT sides feel ownership, a well-developed pricing strategy will take shape and can be effectively implemented. We suggest to consider the following: - Establish cross-functional teams that bring together business expertise and technical knowledge - Ensure clear communication channels between business stakeholders and IT professionals - Develop a shared understanding of pricing goals, challenges, and potential pitfalls - Leverage technology as an enabler of pricing strategies, not just as a tool for implementation Remember, introducing pricing software alone does not solve pricing problems. It's the synergy between business acumen and technological capabilities that drives true transformations. 3. Focus on Big Wins and Quick Victories While pricing transformation is often a long-term journey, it's essential to maintain momentum by focusing on major achievements and celebrating quick wins along the way. To do so, we suggest the following: - Build confidence in the transformation process - Demonstrate tangible value to stakeholders early and fast (e.g. the aforementioned POC) - Generate enthusiasm and buy-in across the organization - Secure ongoing support and resources for the initiative To achieve this: - Start with an isolated part of the business. E.g. one category or 1 geographical location. This allows for a quicker ROI and lower time investment. Successful pilots then typically serve as boosters for global roll-out. - Identify high-impact areas where pricing improvements can yield significant results such as focussing on highly dynamic product groups, Key Value Items (KVIs), and high runners. - Use available technology in steps. First automate the more tedious tasks to free up time, then use that time to focus on developing commercial strategy in more depth. - Celebrate and communicate successes internally to maintain motivation and engagement as a transformation needs to be sold internally as well in its early stages. Any improvement in pricing should pay for itself. By delivering on quick wins, you can cross-finance the journey and support fast achievements, creating a positive cycle of improvement and success. 4. Internalize Pricing Know-How External consultants and software partners can kick-off a pricing transformation. They will generate value quickly but it’s crucial to internalize pricing know-how within your organization. Both for adoption and continuity, dedicated resources are critical. This ensures long-term success. We suggest following steps to internalize pricing knowledge: - Invest in training and development for your team - Document how you develop and execute your pricing strategy - Encourage knowledge sharing and best practice dissemination across departments/teams/countries - Use a proper pricing platform that enables collaboration & knowledge sharing within your organization - Develop a pipeline of pricing talent within your organization By making a pricing transformation program truly yours, you build internal capabilities that will drive continuous improvement and adaptation to market changes. 5. Include Local Teams in the Process Pricing transformation should not be an "ivory tower" exercise conducted solely at headquarters. To ensure success, it's crucial to involve local teams and incorporate diverse perspectives from across your organization. We suggest the following to include local teams: - Engage sales representatives in target markets to gather on-the-ground insights - Seek feedback on conceptual and design ideas from front-line employees - Involve top performers from various regions in the transformation program - Conduct pilot programs in select markets to test and refine pricing strategies By going out and involving sales reps in markets, you can get valuable feedback, test ideas, and create a more robust and effective pricing transformation program. 6. Embrace Continuous Iteration and Adaptation In today's fast-paced business environment, a static pricing strategy is a recipe for obsolescence. Your competitors are constantly evolving their approaches, and your pricing strategy must do the same to remain effective and competitive. Following key reasons to prioritize continuous iteration: - Market dynamics change rapidly, affecting demand patterns and customer preferences - Competitors adjust their strategies, potentially eroding your competitive advantage - New technologies emerge, offering opportunities for more sophisticated pricing approaches - New competitors might pop-up or existing competitors might fundamentally change their commercial strategies in certain categories/geographies - Economic conditions fluctuate, impacting customer purchasing power and behaviour To implement an iterative approach to pricing: - Establish a regular review cycle for your pricing strategy, considering both short-term adjustments and long-term strategic shifts - Leverage data analytics to monitor market trends, competitor actions, and the impact of your pricing decisions in real-time - Create a feedback loop that incorporates insights from sales teams, customer service, and market research - Develop scenario planning capabilities to anticipate and prepare for potential market shifts - Foster a culture of experimentation, where testing new pricing approaches is encouraged and learnings are quickly incorporated By committing to continuous iteration and adaptation, you ensure that your pricing strategy remains agile, responsive, and ahead of the curve. This iterative mindset will help you stay one step ahead of competitors and maintain a strong market position in an ever-changing business landscape. 7. Ensure Transparency and Organization-Wide Understanding A successful pricing transformation goes beyond just implementing new strategies and technologies. It's crucial that the entire organization understands and embraces the new approach. Transparency in both the strategy and the tools used to execute it is key to preventing resistance and fostering widespread adoption. Following key reasons why transparency is critical: - Builds trust across departments and hierarchical levels - Increases buy-in and commitment from all stakeholders - Facilitates better decision-making at all levels of the organization - Prevents the "black box" syndrome where pricing decisions seem arbitrary or unexplainable Steps to promote transparency and understanding: - Clearly communicate the rationale behind the pricing strategy to all employees, not just those directly involved in pricing decisions - Provide comprehensive training on the new pricing approach and any associated software or tools - Ensure that the pricing software used is user-friendly and provides clear explanations for its recommendations - Provide access to relevant pricing dashboarding broadly in the organisation - Create accessible documentation that outlines the principles, rules, and logic behind the pricing strategy - Establish open channels for questions, feedback, and suggestions from employees at all levels - Regularly share success stories and case studies that demonstrate the positive impact of the new pricing approach If a pricing strategy is not understood, it is unlikely to be effectively implemented. By prioritizing transparency and fostering organization-wide understanding, you create an environment where everyone from sales representatives to C-suite executives can confidently explain and support the pricing decisions being made. A pricing transformation is a complex yet critical process for retailers aiming to thrive in today's dynamic market. By implementing these seven key strategies, organizations can set themselves up for long-term success. As market dynamics shift, customer expectations evolve, and competitors adjust their strategies, your pricing approach must remain flexible and responsive. By internalizing expertise, leveraging technology wisely, and fostering a culture of pricing excellence throughout your organization, you can create a pricing strategy that is both robust and adaptable. At Omnia Retail and Horvath, we're dedicated to helping businesses navigate the complexities of pricing transformation. By leveraging our combined expertise in retail pricing strategies and management consulting, we provide comprehensive solutions that drive sustainable growth and profitability. As you embark on your own pricing transformation journey, keep these seven key strategies in mind. With the right approach, commitment to transparency, and a willingness to iterate and adapt, you can unlock the full potential of your pricing capabilities. This will not only lead to improved financial performance but also position your organization to swiftly respond to market changes and maintain a significant competitive advantage in your industry. Read more about pricing strategies here: What is Dynamic Pricing?: The ultimate guide to dynamic pricing. What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Pricing

17.09.2024

17 Winning Pricing Strategies in e-Commerce

Setting the right price for your e-commerce products is like playing a game with extremely high stakes, no clear rules and ultra-intense competition. Choose the right price over time and you can win over your target customers, creating loyal buyers who keep your business growing for years to come. Choose the wrong price and everything could go south, quick. So, how can e-commerce merchants choose the right pricing strategy or combination of strategies? In this comprehensive guide, Omnia covers 17 common pricing strategies in e-commerce and offers some advice for finding the right action plan for your business. What are e-commerce pricing strategies? E-commerce pricing strategies are approaches used by online businesses to determine, adjust and maintain the prices of their products or services over time. Strategies should take into account the company’s revenue goals, production costs, and other KPIs like customer lifetime value (CLV) and average order value (AOV). What is the difference between a pricing strategy and pricing rule? A pricing strategy is the high-level concept behind pricing decisions and policies, while a pricing rule is goal-oriented and about the actual execution of that strategy. Perhaps a retailer chooses a premium pricing strategy, where they price a product higher than market average, in order to increase the perceived value; for example, pricing a black chair higher than the average of all black chairs. The pricing rule in this case is the concrete translation of a price formula for a product or product group. In the Omnia platform, this would mean: New price = Market average price x 1.2 So, the price will be calculated and set to be 20% higher than the market average that day. With Omnia, this can be also combined with conditions, filters and more. The complexity of a rule is limitless. Top pricing strategies for retail and e-commerce There are endless examples of pricing strategies in e-commerce, so we compiled a list of 17 common types of pricing strategies below: Dynamic Pricing Dynamic pricing is a pricing strategy where companies or stores continuously adjust prices during the day to optimise margins and increase sales. The strategy applies variable prices rather than fixed prices, meaning they don’t have to decide on a set price for a season, but can instead adapt to the ever-changing market. It is important to note that although the two strategies are often confused, dynamic pricing differs significantly from personalised pricing, which focuses on the behaviours of an individual consumer and adjusts product pricing based on their past shopping experience. Premium Pricing Businesses using a premium pricing strategy want to keep their pricing levels higher than the competition. This can be paired with messaging and branding that shows customers why the higher price is justified. For a premium pricing strategy to work, sellers usually have to have some combination of a strong brand image, unique offerings or innovative product attributes. Examples of companies with a premium pricing strategy include Rolex, Apple and luxury fashion brands like Louis Vuitton and Chanel. Competitive Pricing One of the more common pricing strategies in e-commerce is competitive pricing, where sellers set their prices based on the prices of competitors. Competitive pricing is most often used by businesses operating in competitive markets or one with fairly similar products and little differentiation, as all sellers are then trying to win over the same customers. A competitive pricing strategy does not always indicate undercutting the competition, but rather setting prices in relation to competitors; this could mean setting product prices lower, higher or the same as competing sellers. Running a competitive pricing strategy with manual research can take a significant amount of time and is challenging in today’s fast-paced e-commerce environment. To make price adjustments for listings in real time, most companies use some type of Dynamic Pricing software. Value-based Pricing Value-based pricing, sometimes called value-added pricing or perceived value pricing, is a powerful strategy that requires a deep understanding of the market and of the value your products offer to potential customers. Sellers can use value-based pricing to shape how consumers perceive your product. Want to position yourself as a luxury brand, or to be the best value-for-money option? Price accordingly. Implementing value-based pricing demands extensive research into your target market and what the competition is doing, as well as reflection on and alignment with your business objectives. It will require collaborative effort across the organisation, but can create a very cohesive and effective pricing strategy. Price Discrimination Price discrimination, also called price differentiation or differential pricing, is a strategy employed by e-commerce companies to maximise profits by charging different prices to different customers for the same product or service, based on characteristics of the customer. The objective is to extract the maximum amount of consumer surplus and capture additional revenue based on individual customers' willingness to pay. To use this strategy, sellers make use of their vast amounts of customer data, including browsing history, purchase patterns, demographic information and geographic location. This data is leveraged to segment customers into different groups based on their preferences, behaviour and purchasing power. Once customer segments are identified, prices can be tailored to each segment's characteristics. For example, customers who have shown a higher willingness to pay in the past may be charged a higher price, while price-sensitive customers may be offered discounts or promotions to encourage purchases. The success of price discrimination in e-commerce relies heavily on sophisticated data analysis and algorithmic pricing systems. By leveraging customer data and market conditions, companies can optimise their pricing strategies to increase revenue and overall profitability. However, it is important to note that price discrimination can also raise concerns about fairness, privacy and potential consumer backlash if implemented in a way that is perceived as discriminatory or exploitative. Odd-Even Pricing Odd-even pricing falls under the category of psychological pricing strategies and taps into the psychology of numbers to influence consumer behaviour. Odd prices, like €5.99, are commonly used, but even prices, like €6.00, have their own psychological impact. This strategy can be employed in various ways, from offering strategic discounts to trying to create a memorable price point. For example, take a look at the difference between how luxury jewellery brand Tiffany & Co uses even pricing and more affordable brand Kay Jewellers uses odd pricing. Customers coming to Tiffany & Co. are looking for luxury items and are likely less price sensitive, so the company uses even pricing. Shoppers on the Kay Jewellers website may be more interested in finding a deal, so many of their prices use odd pricing and end in .99 or .95. Charm Pricing Charm pricing, also called psychological pricing, is similar to odd-even pricing, as it leverages pricing to evoke an emotional response and prompt action. This strategy is often observed in late-night infomercials, where potential buyers can be swayed by a price ending in “.99” or “.95” to make an impulse purchase. But infomercials aren’t the only place charm pricing is seen; many retailers use elements of this pricing strategy. There are a number of theories for why charm pricing is so effective: A perception of loss: This is when consumers value a product based on the loss they feel without it rather than the gain. In the Western world, most consumers read prices from left to right, so there is a high likelihood of grasping the first number as an anchor. Under this theory, that’s why €599 would feel so different from €600, even though there is only a separation of €1. A perception of gain: On the other side, perhaps consumers feel they have gained something, i.e. saved money, when they see an example of charm pricing. If the higher price of €600 is the anchor, then the lower price of €599 means you gained something and saved €1. This theory pairs well with the .99 or .95 pricing, which may make a consumer think they’re getting a discount. Specificity: With a charm pricing strategy, the price of an item is so specific that it can trigger a psychological response of customers believing it must be priced at the correct value. This is especially relevant if pricing is fractional, meaning it ends in a cent value. Example: Uniqlo Although the apparel brand rarely has sales, they signify to customers that they are getting a good deal by ending almost every price in “-9.90” or “-4.90”. Bundle Pricing Bundle pricing, also called product bundle pricing, is a strategy companies use to sell more items with higher margins while giving customers a discount for increasing the size of their order. Products are “bundled” so customers receive several different products as a package deal, costing them less than it would have if they made separate purchases of the included products. This incentivises purchases by creating higher perceived value and cost savings. E-commerce companies typically select complementary or related products and combine them into bundles to encourage larger purchases, increase average order value and enhance customer satisfaction. By offering discounted bundle prices, companies can attract price-sensitive customers, drive sales of slower-moving products and create a competitive advantage in the market. Promotional Pricing A promotional pricing strategy in e-commerce involves offering temporary price reductions or discounts on products or services to create urgency, stimulate sales and attract customers. The primary goals are usually to increase sales volume, clear out excess inventory, introduce new products or gain a competitive advantage. Promotional pricing can take various forms, such as percentage discounts, buy-one-get-one (BOGO) offers, limited-time sales, flash sales, coupon codes or free shipping. These promotions can be advertised or offered through any channel, from email marketing and social media to online ads or on-site banners. Predatory Pricing A predatory pricing strategy in e-commerce refers to a practice where a company deliberately sets extremely low prices for its products or services with the intention of driving competitors out of the market or deterring new entrants. By selling products at a loss or below cost for an extended period, the predatory pricer aims to eliminate competition and subsequently raise prices once competitors have been forced out. Predatory pricing is often considered anticompetitive and is illegal in many jurisdictions as it violates antitrust laws created for consumer protection and to ensure market competition is fair. Penetration Pricing A penetration pricing strategy is often employed by online sellers and business owners to attract customers to new products being brought to market. It involves offering an initial lower price than competitors to entice more buyers to purchase. The goal is to secure market share, undercut established sellers in the market and attract new customers who will remain loyal, even after prices are adjusted back up. For this e-commerce pricing strategy to succeed, however, there must be a high demand for the product. Without a significant market, penetration pricing becomes less effective. It's also important to make the price increases gradually to avoid competitors implementing their own penetration pricing tactics and stealing customers. Businesses employing a penetration pricing strategy will need price monitoring software to track and analyse average market prices over a set time period, then use the data to calculate introductory pricing. Price Skimming With a price skimming strategy, the product is initially priced high and then reduced later on, rather than starting with a low price like penetration pricing strategies. This approach aims to maximise short-term profits and segment customers based on how much they are willing to pay, and is often used for innovative products and products with high demand. The top level of customers, the most loyal ones, will buy at high prices. The seller can then continue accommodating new levels of potential customers by gradually lowering (“skimming”) the price. This practice continues until it reaches the base price. Price skimming can be a great way to quickly generate revenue and even break even with a lower number of sales, but companies must be able to rationalise the high price point, especially if the market is saturated and customers have other low-priced alternatives to choose from. One real-world example of a price skimming strategy is Samsung. When a new mobile phone release is planned and demand is high, the price is set higher to bring in more revenue and capture market share and attention from competitors like Apple. The newest model above, for example, retails for as much as €1.819,00 to start. After the demand and hype lessens, the company skims the price back down to reach more customers. Samsung Galaxy phones, for example, are priced to capture share from the iPhone. Price Optimisation Price optimisation is a practice used in most e-commerce businesses that involves analysing data from customers and the market to calculate and set the optimal price for a product. The objective is to find the ideal price point to attract customers and maximise sales and profits. The types of data used can range from demographics and survey data to historic sales and inventory. Pricing optimisation is similar to dynamic pricing, but while the former can be more of a long-term process, the latter is built more for rapid change and adjusts pricing based on real-time data. Surge Pricing Surge pricing is a pricing strategy that temporarily increases prices in response to high demand and limited supply. It is used in many industries, from hospitality and tourism to entertainment and retail. Here are three common types of surge pricing: Time-based: Adjusts prices based on the time of day or during special events and expected or real-time high demand periods. For example, online retailers raise prices between 9 AM and 5 PM when customers shop online during office hours, as well as during large, industry-relevant events, like the Olympics for sporting goods sellers. Weather-based: Incorporates weather forecasts to determine pricing decisions. When favourable weather conditions are expected, prices are increased. For instance, if the weather forecast promises good conditions for the summer, prices for beach goods, summer apparel and BBQs can be raised in anticipation of higher demand. Location-based: Adjusts prices based on the geographical location of the buyer. It is often observed in crowded cities or areas with high-income populations, where customers have a higher willingness to pay. Additionally, surge pricing may be used in places with above-average shipping costs, resulting in higher prices. Loss-leader Pricing Loss-leader pricing, often used as part of a penetration pricing strategy, involves intentionally selling certain products at a loss to attract customers and stimulate additional sales of other higher-margin products. The purpose is to entice customers with attractive prices on popular or essential items, with the hope or expectation that they will make additional purchases of complementary or higher-priced items. While the initial product may be sold at a loss, the strategy aims to generate profits through the sale of accompanying products or services. Effective implementation requires careful product selection, pricing analysis and understanding of customer behaviour to ensure the overall profitability of the business. Honeymoon Pricing Like penetration pricing, honeymoon pricing sets the initial product price low during launch to attract customers. This strategy is common in subscription models, where a low-priced starter offer entices customers who must then be retained. Retaining customers in this model can be achievable, however, since switching providers may be expensive or require too high a level of customer effort. Yield Pricing Yield pricing is a pricing strategy most often seen in the aviation and hotel industries. It involves pricing differently depending on when the customer makes the purchase. Airline seats, for example, are priced based on where you are in the booking period: Booking earlier gets customers a lower price, while late bookings are at a higher price point. This enables those airlines to avoid empty seats and lost profits. How to find the right pricing strategy for your e-commerce business Choosing the right e-commerce pricing strategy requires careful analysis and consideration, and it’s worth noting that most sellers use some combination of strategies. Here are five key steps to guide your research and discussions as you build your pricing strategy: Understand your market and customers: Conduct research to gain insights into customer preferences and market dynamics. Analyse costs and profit margins: Evaluate expenses and calculate desired profit margins to assess feasibility. Consider your business goals and value proposition: Align pricing with your objectives and unique value proposition. Test, monitor, and adapt your strategy: Implement and continuously evaluate your pricing approach to optimise results. Stay agile and regularly evaluate pricing against competitors: Keep an eye on the market and adjust pricing as needed to remain competitive. Over time, pricing strategies must adapt and evolve, both to keep up in the market and to meet the needs of the brand and product assortment. As you build, implement and execute your pricing strategies, Omnia Retail can seamlessly automate any strategy you choose, blending any combination of rules with advanced Machine Learning and AI algorithms. Learn more about our revolutionary and intuitive approach to Dynamic Pricing here. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments.

Pricing Strategies, eCommerce, Pricing

13.08.2024

The Ultimate Guide to Dynamic Pricing

What is Dynamic Pricing? Dynamic pricing is when a company or store continuously adjusts its prices throughout the day. The goal of these price changes is two fold: on one hand, companies want to optimize for margins, and on the other they want to increase their chances of sales. Dynamic pricing is a pricing strategy that applies variable prices instead of fixed prices. Instead of deciding on a set price for a season, retailers can update their prices multiple times per day to capitalize on the ever-changing market. Dynamic pricing often gets confused with personalized pricing. But these two different types of pricing are extremely different from one another. To put it simply, dynamic pricing looks at your products and and their relative value in relation to the rest of the market. Dynamic Pricing vs Personalized Pricing Personalized pricing, on the other hand, looks at individual consumer behaviors and gauges (and changes) a product’s value based on past shopping experience. Personalized pricing is controversial because it uses individual data and shopping experiences information that many consumers consider private and personal. It’s also somewhat risky in an age where consumers can interact with and talk to each other like never before. If Consumer A finds out they paid more for the exact same product than their best friend, their trust in a company will erode. Dynamic pricing, on the other hand, allows you to capture extra sales and take advantage of a changing market without invading consumer privacy or trust. Why is Dynamic Pricing important in e-commerce? Dynamic pricing and e-commerce co-evolved together. As the internet became more sophisticated and online shopping grew, so has the need for dynamic pricing. Consumer electronics was one of the forerunners in the retail landscape in terms of the trend towards online. As a category of elastic products that are sensitive to price changes, it makes sense. Retailers need dynamic pricing to stay on top of the market and continue to offer competitive prices. But as consumer spending rises in this category (and with it the online market share), two developments that affect dynamic pricing have emerged: Increased price transparency: As more people shop for consumer electronics online, the amount of comparison shopping also increased. Consumers are now far more likely to evaluate a retailer’s prices against the company’s competition. This shines a spotlight on your product price and makes it the most important part of each sale. Since consumer electronics are typically highly elastic, a 5%-10% difference between your price and your competitors could be the deciding factor for a consumer. More frequent price changes: Because of this increased demand for price transparency and matching, the number of prices changes every day has increased dramatically since the dawn of e-commerce. Traditionally, the supplier or the manufacturer would determine the price of a product with a consumer advised price (CAP). However, this CAP quickly became irrelevant with the growth of comparison shopping online. Today, prices are determined by the retailer instead of a supplier, and are based on a variety of variables, including general market trends, competition prices, and stock levels. A complete guide to Dynamic Pricing Download free whitepaper A variety of other categories, such as Toys and Games, for example, follow the same pattern: when online spending rises, so does the demand for price transparency. This, in turn, leads to an increased frequency of price changes and the use of dynamic prices. This trend often also attracts new players on the market without physical stores, which makes it difficult for traditional retailers. Although the traditional retailers have the first mover advantage, they are generally less flexible in adapting their (pricing) strategy. However, the retailers that do capitalize on their omnichannel advantage can move ahead of the pack. What are the benefits of Dynamic Pricing? Dynamic pricing is no longer just a strategy for airlines, hotels or ride-sharing apps. For large retailers and D2C (Direct-to-Consumer) brands, embracing dynamic pricing can unlock significant growth opportunities, enhance profitability, and strengthen customer relationships. Here’s why dynamic pricing should be a cornerstone of your pricing strategy: 1. Maximizing Revenue Potential Dynamic pricing allows retailers and D2C brands to adapt prices in real-time based on demand, inventory levels, and market trends. By pricing high-demand products competitively or increasing margins on less price-sensitive items, you can optimize revenue streams without alienating customers. 2. Staying Competitive in a Fast-Moving Market Retail is a highly competitive space, where prices are compared at the click of a button. Dynamic pricing ensures that your brand remains competitive without resorting to blanket discounts, enabling you to respond to competitor price changes swiftly and strategically.Monitoring your competitors' prices enables you to quickly adapt your pricing strategies. 3. Improved Inventory Management For retailers and D2C brands, holding unsold inventory can lead to wasted resources and lost profits. Dynamic pricing can be used to strategically discount slow-moving products while maximizing profitability on in-demand items, keeping inventory turnover healthy. 4. Data-Driven Decision Making Dynamic pricing software harnesses advanced analytics to provide actionable insights into customer behavior, market conditions, and pricing performance. These insights enable brands to make smarter, data-backed pricing decisions, resulting in higher margins and better customer experiences. Dynamic Pricing software By leveraging pricing software, you can simplify the complexities of implementing dynamic pricing, integrate seamlessly into your operations, and realize measurable business outcomes. Most retailers practice a most basic form of dynamic pricing by discounting items at the end of a season or using a clearance sale to get rid of extra stock. However, dynamic pricing can go much further than a discount at the end of a season. When you use a dynamic pricing software, you can wield the power of data to capture more sales and take control of your assortment. Today, almost all major retailers will use some sort of dynamic pricing software. Dynamic pricing software has obvious benefits online: you can follow the competition, adjust prices instantly, and easily capture quantitative metrics about your store to improve your performance. Dynamic Pricing is also useful offline. Through the use of electronic shelf labels (ESLs), you can easily apply dynamic pricing practices to your physical store. This helps you keep your prices up-to-date with what you present online, and makes pricing management easier. Dynamic Pricing software can help you stay in control of your pricing strategies. What are Dynamic Pricing strategy examples? Traditionally, there are three basic ways retailers set their prices: the cost-plus method, the competitor-based method, and the value based method. The cost-plus method is the most simple out of all three. All you need to do is take the cost of your product and add the desired margin on top of that cost. The main advantage of cost-plus pricing is that it’s easy to understand and implement. However, its main disadvantage is that it only considers internal factors, ignoring external market conditions. To determine the margin or 'markup' percentage, use this simple formula: subtract the product's cost from its selling price, then divide that difference by the cost. Finally, multiply the result by 100 to get the markup percentage. The competitor-based method follows your competition. If your competitor changes their price, you’ll change your price as a result, whether that’s to be lower or higher than your competition. The main advantage of this pricing approach is that it considers external factors like competitor pricing. However, its downside is that it assumes competitors have accurately set their prices. The value-based pricing method follows the price elasticity of a product. Different consumers value items differently, so everyone has a certain threshold that they are willing to pay for a product. A value-based pricing method capitalizes on the public’s perception of the value of a product and charge accordingly. The main advantage of this pricing method is that it integrates both external and internal data, providing a balanced approach. However, its main drawback is its complexity, making it the most difficult pricing method to implement. Dynamic pricing software allows you to combine different pricing methods at the same time. Some softwares also allow you to incorporate other useful information, such as your stock levels, popularity score, and even the weather forecast. How Philips implemented Dynamic Pricing Read case study How to implement Dynamic Pricing? Implementing dynamic pricing is a journey, one that has a lot of twists and turns. And it does create a big change in your organization. That’s why you should view the adoption of dynamic pricing as an opportunity to improve your overall pricing strategy and internal systems, as well as your overall margin. After hundreds of implementation projects, we’ve come up with a five-step process to successfully implement dynamic pricing: Define your commercial objective: Your commercial objective is like your company’s compass: it’ll help you navigate any institutional changes and keep you heading in the right direction. The commercial objective applies to more than just pricing and marketing, but it’s the first step for a successful dynamic pricing strategy. Learn more about how to define your commercial objective here. Build a pricing strategy: Your pricing strategy takes your commercial objective, then translates it into strategy that your team will use to sell products. An example? Say your overall commercial objective is to be known as the cheapest retailer on the market. Your pricing strategy would then be to make sure every product in your store is cheaper than the competition’s offering. To develop an effective pricing strategy, follow a three-step approach. Learn how to build a pricing strategy here: Assess Your Place in the Market Start by evaluating your current pricing model—this is known as the "As-Is Situation." Gather stakeholders to review your existing approach and answer key questions: What is your current pricing model, and what are its strengths and weaknesses? Are you a market leader or a challenger? Is your focus on maximizing sales volume or overall profitability? This reflection helps you understand where you stand before making any changes. Build Your Pricing Strategy Framework Next, engage stakeholders in solution sessions to establish a shared understanding of the As-Is analysis. Many assume this step is unnecessary, but it's crucial to ensure everyone is on the same page about existing pricing strategies. Use these sessions to review findings and create a draft framework. This involves leveraging expertise from sales, segment managers, and pricing specialists to craft a strategy that aligns with your business goals and customer needs. Set Business Rules for the Future With a clear framework in place, the next step is defining the "To-Be Situation"—how you want your pricing to function going forward. Establish the levers and rules that will guide your pricing and calibrate them based on your analysis. After aligning internally, begin testing and iterating these rules using tools like Omnia to see what adjustments yield the best results. Choose your pricing method(s): Your pricing strategy tells you what you want to do. Your methods are how you’ll achieve those pricing goals. Your pricing methods are more specific than your pricing strategy. Establish pricing rules: Pricing rules tell your dynamic pricing software what to do. You should set a rule for every product that the software needs to track and change. Test and monitor: The final step for getting started with dynamic pricing is to test and monitor your software’s changes. Learn more about testing the effectiveness of your online pricing. Read more about interesting pricing strategies here: What our the best pricing strategies?: Read about 17 pricing strategies for you as a retailer or brand. What is Price Monitoring?: Check out everything you need to know about price comparison and price monitoring. What is Value Based Pricing?: A full overview of how price and consumer perception work together. What is Charm Pricing?: A short introduction to a fun pricing method. What is Penetration Pricing?: A guide on how to get noticed when first entering a new market. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy. What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. What is Price Skimming?: Learn how price skimming can help you facilitate a higher return on early investments. What is Map Pricing?: Find out why MAP pricing is so important to many retailers.

Dynamic Pricing, Pricing, E-Commerce

19.04.2024

Reflecting on Price Points Live: Lessons for e-commerce in 2024

It’s been a few weeks since Europe’s e-commerce and pricing event of the year, produced and hosted by Omnia Retail, took Amsterdam by storm at the modern Capital C building in early March. Our invited guests were on the receiving end of the knowledge and expertise of some of the e-commerce world’s greatest minds and leaders, making for a successful annual rendition of Price Points Live. On this year’s stage was Prof. Hermann Simon, the co-founder and chairman of Simon-Kucher, who was a returning speaker at Price Points Live. He is known as the world’s leading expert on pricing and growth consulting. Also on the stage was Natalie Berg, an analyst, author and podcast host; Dr Doug Mattheus, a business executive and consultant in marketing, retail and branding; Gerrie Smits, a business consultant, speaker and author, and lastly, Cor Verhoeven, Group Product Manager at Bol, specialising in pricing and assortment insights. To conclude, the warm and confident Suyin Aerts returned as our host. Whether it be transparency in pricing, marketing or e-commerce practices, our panel of speakers bring more than a century of collective knowledge and experience to the table. So, what did our guests learn and take away from each of our speakers? What can brands and retailers understand about pricing, consumer behaviour and branding? Omnia shares the insights and knowledge pertinent to e-commerce success in 2024. Natalie Berg: E-commerce author and analyst “We are living in a perpetual state of disruption, and retail is no stranger to this, but the past few years have seen unprecedented levels of volatility and uncertainty,” shared Natalie. Whether we want to call it disruption, a seismic shift or a geopolitical and socio-economic tsunami, the one mitigating force to today’s ecommerce landscape was - and still is - Covid-19. “Covid has digitised our world - the way we live, the way we shop, or the way we exercise. And when it comes to shopping, most of it is still done in a brick-and-mortar store, but the majority of these sales are digitally influenced,” shares Natalie. This has brought brands and retailers to the popular omnichannel strategy, which has become more and more common and necessary. However, Natalie predicts that retail will start moving from omnichannel to ‘unified commerce’ which is “not just about being present in those channels but centralising those operations and connecting everything in real-time,”.. We see this already taking place with the partnership that shocked the e-commerce world in 2023 when Meta and Amazon announced that Meta users can shop Amazon products without even having to exit their Instagram or Facebook apps, creating a centralised and synonymous experience for social commerce and marketplaces’ shoppers. She goes on to speak about the customer’s time and how much more precious it is going to become for e-commerce and retail leaders. “28% of Amazon purchases take place in three minutes or less,” she stated,” so if you’re not saving a customer’s time, you have to be enhancing it.” A customer’s tolerance for mediocrity or for average service or experiences is getting lower and lower, which is how the customer experience has become the new currency. “It’s about really wowing your customers. Going beyond! Disrupting the status quo.” She shares that a new phenomenon is taking place because of this refreshed focus on the customer experience: The democratisation of white-glove service. “It’s a technology that is helping brands and retailers give this level of service,”.. This includes Walmart, in the US, which will go into your home to stock your kitchen with your newly purchased groceries while other retailers will collect your returns from your house when they make delivery, allowing the customer to kill two birds with one stone. Adidas in London has installed a system called “Bring it To Me” in change rooms where, if you want an item that’s in a different colour or size, a store assistant can collect it for you without you having to leave the change room. “Tech-enabled human touch - that’s what will separate the retailer winners from the retail losers,” Natalie argues. To conclude, Natalie speaks on how the use of AI will empower both e-commerce players and customers when shopping. “In the future, we won’t know where the physical world ends and the digital one begins,” giving an eerie yet exciting conclusion. “As a brand or retailer, standing still is the most dangerous thing you can do.” Dr Doug Mattheus: Consultant and branding expert Hailing from South Africa and living in the UK is Dr Doug Mattheus whose presentation focused on the art and science of brand building. So, what makes a brand long-lasting? “It is a mix of tangible and intangible features that, if properly managed, creates influence and generates value,” says Doug. But, as we’ve seen brands rise and fall over the last few decades, what are some of the factors that have created the most valuable brands in the world, from Apple to Mercedes Benz to Walmart? Creating a brand hook The ways in which a customer can get hooked on a brand are limitless: Reflecting back to the time he received his first pair of Nike shoes in high school, the one item Doug cared about keeping just as much as the shoes themselves was the box they came in. “It wasn’t just a box - it was a Nike box.” Fast-forward to adulthood, he visited a Harrods store and witnessed customers buy empty single-use packets and bags with the Harrods logo on them. In a more recent case, the fragrance of bath bombs and body scrubs in the air at a mall or airport has become one that is synonymous with LUSH. “Just follow your nose,” says Doug. “So, what is your brand hook?” On the contrary, we see brands like The Body Shop that have struggled to keep up with digitally-native challenger brands like Drunk Elephant, Glossier and Paula’s Choice in the personal care market and is undergoing mass closures across the US and EU. Doug’s advice to brands is to create a unique hook - whether it be in the sights, smells, sounds or physical world. What’s your differentiator from competitors? A small player in the award-winning wine industry in South Africa is a vineyard called Vergenoegd Wine Estate. By a large stretch, it is not the most well-known or award-winning brand. However, this boutique vineyard did not refrain from harnessing the commercial value of organic farming. The winemakers introduced runner ducks to the vineyard, which roamed around eating worms, snails, and bugs that could be detrimental to the vines. In addition, these ducks became a tonic for families and couples with kids wanting to experience the vineyard while having something fun for children. The ducks have become a unique feature to Vergenoegd Wine Estate and a key driver of foot traffic and revenue. “This is a great example of how a small player is not being defined by its smallness and not being intimidated by bigger players.” Multiple touchpoints for customers Stemming from Natalie’s thoughts on brands having to go the extra mile to impress customers, Doug shares that there are moments of magic around us at all times, and it is up to business leaders to find and develop those moments. However, where there is ease and innovation between brands and customers (like at Nordstrom in Seattle, USA who did not want to lose their “eyeball moments” with customers from rapid digitalisation, began offering curbside pick-up so they can still have face-to-face interactions with shoppers), there are also moments of friction and time-wasting that cause frustration for customers. It’s about fine-tuning interactions and creating moments that make a brand memorable. Relevance: Do you reinvent like a butterfly or a bull? As the title suggests, brands in many verticals, but especially in fashion, personal care, sporting goods, fitness, and electronics, are faced with the rapid rise of digitally-native brands that exist to challenge the status quo. In fact, these brands, which have only known a digital world, are, in fact called “challenger brands” because of the innovative approach to design, production, supply chains, customer interactions, marketing, and everything under the e-commerce sun. According to Doug, brands who reinvent like a butterfly are those who can go with the changes and challenges in front of them with agility and resilience while those who face reinvention like a bull may be stubborn and ignorant and may face their own downfall. Cor Verhoeven: Group Product Manager at Bol. Coming from one of Europe’s largest and most successful marketplaces, Bol., Cor Verhoeven delved into pricing, specifically how Bol. tackles bad prices on the platform and what the negatives are for a marketplace or e-commerce brand. “We have 38 million items for sale, 13 million active customers, and 50,000 unique selling partners. That means almost every home in the Netherlands and Belgium has bought something from Bol.,” says Cor. With numbers like that, it’s more than possible that a marketplace would run into pricing issues. “Part of our strategy is to make Bol. an equal playing field. Our sellers must be able to make a living off what they sell on Bol. - it’s not just us that needs to do well.” So, how does a customer-centric pricing strategy fall into this? “We all work hard to make sure that the price of an item is not the reason someone doesn’t buy something on Bol.,” says Cor. “Pricing is important because it positions you in a competitive market, it establishes customer trust, and it establishes customer lifetime value. Our success is caused by growth, monetising and retaining in a loop,” explained Cor. “Our three main beliefs when it comes to pricing are High-quality deals, trustworthy and reliable prices, and competitive prices in line with the market.” The balancing act between insult pricing and best-in-market pricing is tricky and precarious, which is why Bol. judges their products on their prices. “If a product’s price is above an allowable price, we take it offline to product the customer,” Cor stated. How does Bol. decide on what is an allowable price? “We source benchmarks. If a product has a benchmark, it’s given a classification - an insult price or an allowable price - and business rules are set,” explained Cor. “When we don’t have a price benchmark, that’s when we have little control.” When Bol. doesn’t have a price benchmark for a product, they utilise their data science model to predict a price while, daily, the model is manually looking for prices to benchmark those products.” The result is a price for a product that is more aligned with the market and within the boundaries of what a customer will accept. “Of course, taking insult prices offline decreases revenue, but what we get back in return is way bigger. The seller sees increased conversion,” said Cor. Sander Roose: CEO and Founder of Omnia Retail Joining the panel was our very own CEO Sander Roose who started his keynote speech by making good on a promise. “At the last Price Points Live event, I promised that Omnia would release a new platform sometime in 2023, and the whole Omnia team is proud to have achieved that.” As a veteran in the dynamic pricing industry, with 12 years at the helm of Omnia Retail, Sander brought to the stage what he believes are the pricing elements and design principles of successful dynamic pricing. According to Sander, there are three factors to successful dynamic pricing implementations: Clearly defined objectives; securing engagement and support; and the spirit of continuous learning. “Without clear objectives, you can have a strong pricing platform, but you won’t know how to harness it,” he said. “And as the market changes, you need to be able to change your objectives.” For the second factor, pricing managers and teams need to be fully on board: “If they don’t understand how prices are calculated, they will reject the implementation as a whole.” Then, the third factor speaks to a dynamic pricing user's ability to be agile and curious: “We see that customers that used the system most intensively to make iterations with their prices get the best results.” As a result, Omnia found that two key design principles for dynamic pricing success are necessary: flexibility and transparency. “Being able to automate any pricing strategy you can think of, to facilitate all the objectives, to keep control while the system is on autopilot, and finally, making sure the users are adopting the system.” Flexibility and Transparency A pricing platform needs to be able to support a vast array of pricing objectives and strategies. “A platform needs to be able to endure various high-level objectives. Perhaps on a global level, you have a profit maximisation objective while the strategy on lower levels, such as on a per country basis, may be different,” explained Sander. “For example, if your global brand has just launched in the Netherlands, you may want to maximise market share. Then, even further down, depending on your various verticals, you may want a stock-based strategy.” Flexibility must also be present not just in pricing strategies but in data collection and the recalculation process. Using the example of a Tesla self-driving car with a blacked-out windscreen, Sander makes the point that customers of dynamic pricing still need to be able to see and understand what’s going on - even if the system is on autopilot: “If you create transparency while the system is on autopilot, you can create buy-in from internal stakeholders and facilitate learning loops.” How flexibility and transparency exist in Omnia 2.0 The culmination of these two values resulted in the Pricing Strategy Tree, developed specifically for Omnia 2.0, making strategy building and interpretation easier and faster. “The copy-and-paste feature means a large D2C brand that wants to launch in a new country can simply execute their entire pricing strategy with just a few clicks by copying the strategy in the tree from another country. This is huge for an international customer to be able to do this.” Another feature called Path Tracking allows you to visually see how your strategy came to be, step by step. “This feature helps to validate if you set up the tree how you intended to,” explained Sander. Another feature that elevates transparency is Strategy Branch Statistics which works to answer burning questions from pricing managers: ‘Which part of my strategy is most impactful? The Strategy Branch Statistics feature works to show you which business rules are doing the work to give your prices.’ An additional feature highlighting transparency is the ability to name branches within the tree. The names not only help coworkers understand what you’ve built, but they differentiate the various strategies that are at play at the same time. Strategy Branch Statistics feature works to show you which business rules are doing the work to give your prices.’ An additional feature highlighting transparency is the ability to name branches within the tree. The names not only help coworkers understand what you’ve built, but they differentiate the various strategies that are at play at the same time. AI in pricing “From private label matching, creating automated weekly reports to send to category managers, to automated insights, AI is a powerful technology that has the potential to contribute to the superpowers we offer customers,” says Sander. However, as of today, Sander believes that AI is one part of the machine and should not be considered the holy grail of price setting. “The true need is goal-based pricing,” Sander says.”AI is a means and not an end.” Sander's vision for AI in Omnia’s pricing platform sees a move from granular pricing strategies that affect the business’s objectives to a scenario where the customer sets the objective, and the Omnia platform automates and optimises prices. “We want to move more and more towards goal-based pricing in our platform. We believe the end game for price automation will be rules and AI, not just AI, and the Pricing Strategy Tree allows for a rules and AI combination.” Prof. Hermann Simon: Founder of Simon-Kucher, author As a world-renowned expert in pricing and consulting, Prof. Hermann Simon joins the panel to share what he thinks are the hidden champions in e-commerce and retail and what their successful strategies are. Specifically, the small and midsized global market leaders with a market share of above 50% and that are little known to the public. “In China, which is by the largest global exporter, 68% of the exports come from small and midsized companies, and behind this number are the hidden champions,” says Hermann. “Inside super export performance requires large companies plus a very strong mid sector. Hidden champions, not large corporations, determine whether a country really excels in global competition. Hidden champions are an untapped treasure to learn about business success.” Focus and Globalisation What characterises these companies? “The three pillars of the hidden champion’s strategy are ambition, focus, and globalisation fueled with the tools of innovation, value and price,” shares Hermann. Focusing on your product makes your market small. How does hidden champions enlarge their market? An example of successful globalisation is Karcher, the global leader in high-pressure water hoses, which began internationalisation in the 1970s slowly and then accelerated in the 90s to become the global market share leader at 70%. Other examples include Deichmann, the largest shoe retailer in Europe, which sits in 31 countries across Europe, Africa, the Middle East and the US. “The lesson here is that if you have a good product, multiply it by regional expansion,” says Hermann. Value and Price For successful companies, value comes from innovation and a closeness to the customer. But what drives innovation? The answer is different for hidden champions and the average company. Below is a pie chart where we can see how little an average company prioritises customer needs: What is the most important aspect of pricing? “It’s customer-perceived value. The willingness to pay is a mirror of perceived value, and therefore, value equals price,” explains Hermann. “Understanding, creating and communicating values are the key challenges in pricing.” Using the example of the iPhone, the cost has always been above the market average for a smartphone, yet the success of the product indicates it must obviously bring value to the customer. “Value drives price,” concludes Hermann. According to internal studies at Simon Kucher, only one-third of companies can say they have real pricing power. So, two-thirds are exposed to the sensitivities of the customer. “The result is that value-to-customer and pricing power is created by differentiating your product, changing the way customers perceive your products and your price, and changing the mindset and confidence of your own people in your company,” says Hermann. Closeness to customer “88% of hidden champions say that closeness to the customer is their biggest strength, even more than technology,” says Hermann. Simon-Kucher found that 38% of employees at hidden champion companies had regular contact with customers, while large corporations only had 8%. In retail, it is difficult to understand value perception because there are many competitors selling the same thing. This makes retail’s soft parameters, such as the store layout, service and friendliness, more helpful in understanding value perception. The challenge then becomes how do enterprises effectively communicate their value offering. “Hidden champions are true value leaders with their intense closeness to customers. They achieve a more profound understanding of a customer's needs; their continuous innovations create higher value, and they integrate customer needs and technology much better than the average company.” Gerrie Smits: Speaker and author Gerrie believes we’re getting customer-centricity all wrong. From his 25-plus years of experience in helping companies prioritise customers as well as how to deal with the changing digital world, he has found a common thread of issues: “Technology is getting in the way, companies are seeing customers as a target, and teams are siloing their responsibilities and not wanting to take on other responsibilities,” says Gerrie. “Companies are getting tech just for the sake of it, not because there is any use for it. If you’re going to invest in tech, make sure you have a competitive edge.” According to US business leaders, the number one skill a company needs to have to succeed in the digital world is empathy. “Technology is fantastic if you know what to do with it. My clients are driven by technology, and that’s not customer-centric.” When it comes to companies seeing customers as a target. “I’ve never met a company that doesn’t say they’re customer-centric - obviously,” says Gerrie. But there is a large difference between intent and action. “For example, Amazon has always said they are obsessed with understanding the customer. Yet still, they got it wrong when, in 2022, they reportedly lost $10 billion from dismal sales for their voice-activated Echo. “What brands need to understand is that there is only a small part of me that is your customer. The rest is me as a human being,” says Gerrie. “Seeing your audience as buyers, you are not fulfilling the whole potential.” Concluding Price Points Live 2024 In closing, our panel speakers joined Suyin on stage to answer a round of interesting questions and to share their final thoughts. “To drive loyalty, one must understand what your customers value,” said Natalie, while Doug shared that although pricing is vital to brand loyalty, it is not the only factor. Answering a question about how smaller players in e-commerce can grow and succeed against large enterprises, Natalie says, “It’s like Prof. Hermann said: It’s about focus. You have to know what your strengths are, and then you have to execute really well.” The world of e-commerce is set to make $6.3 billion in global sales in 2024, which is expected to increase to $8 billion in 2027. However, what’s more interesting is the amount of e-commerce users which is set to increase to 3.2 billion by 2029 - a third of the current world population. More shoppers don’t necessarily mean more revenue and sales, so it is safe to say that brands and retailers need to focus their efforts on pricing, innovation, unique marketing and frictionless experiences if they want a segment of the ever-growing pool of e-commerce users. With these insights and go-to strategies for elevating the success of brands and enterprises, Omnia is excited to see what the e-commerce landscape will be for our customers and other growing e-commerce companies. We’d like to thank all of our speakers - Natalie Berg, Dr Doug Mattheus, Prof. Hermann Simon, Gerrie Smit, Cor Verhoeven and our own Sander Roose - and our host, Suyin Aerts, for their knowledge and time spent at Price Points Live 2024. Watch keynote presentations here.

Dynamic Pricing, About Omnia, E-Commerce

05.03.2024

Transparency in e-commerce: Leading the conversation at Price Points Live 2024

Europe’s e-commerce and pricing event of the year is returning in 2024, as Omnia Retail gears up for another exciting edition of Price Points Live. As leaders in e-commerce pricing across Europe, Omnia Retail is perfectly positioned to bring together experts and leaders in retail, pricing, marketing and branding to share insights and knowledge. Taking place at the modern Capital C building in Amsterdam on 7 March 2024, the building’s majestic glass dome ceiling sets the tone fittingly for this year’s main topic: Transparency. Whether it be transparency in pricing, marketing or e-commerce practices, our panel of speakers bring more than a century of collective knowledge and experience to the table. Joining us is Prof. Hermann Simon, the co-founder and chairman of Simon-Kucher who is returning to Price Points Live for a second visit. Known as the world’s leading expert on pricing and growth consulting, Prof. Simon is an award-winning author. Also on this year’s stage is Natalie Berg - an analyst, author and podcast host - who will add value to the conversation on all things global retail. Dr Doug Mattheus, a business executive and consultant, will be bringing his 35-years of knowledge and experience in marketing, retail and branding. Lastly, Cor Verhoeven is a Group Product Manager at one of Europe's largest marketplaces, Bol.com, specialising in pricing and assortment insights. He’ll be bringing his entrepreneurial spirit and his 10-plus years of e-commerce, product management and marketplace experience to Price Points Live. Our speakers will be brought together by the charming Suyin Aerts, who is also a returning panel member. Challenges in today’s world of e-commerce What are brands and enterprises facing in e-commerce in 2024? From branding to pricing to consumer behaviour, the e-commerce arena has experienced more phases and changes in the last four years that it did in the previous decade. Let’s discuss some of the industry’s key trends and issues as of today. Growing competition and price-war strategies As e-commerce grows and oversaturates each vertical, consumers have more choice and power. This is not necessarily a bad thing, however, it does mean that brands and retailers start employing more competitive pricing strategies that ultimately lead to price wars between competitors and a race to the bottom. This undercuts the value of products and only results in losses for each business involved. This has been evident with smartphone brands like Samsung and Huawei who competitively lower the prices of their smartphones to achieve higher market share. It’s also common between wholesale retailers like CostCo and IKEA or large online marketplaces like Amazon that employ tactics to get their vendors to sell their products lower than on any other marketplace. Increased customer expectations For decades, the relationship between retailers and consumers had been dominated by the former. Customers had only a few options for where they trusted to purchase their groceries, shoes, school supplies, winter essentials and everything in between. Today, that relationship has been flipped on its head as consumers enjoy the pick of the litter in just about every retail vertical. As this trend has developed, consumers have come to expect faster shipping, better prices, higher quality, and more benefits for their loyalty. This will naturally affect a brand or retailer’s pricing strategies as they try to maintain customer retention and even attract new customers with promotions, benefits from loyalty programs and clubs, and bundles that appeal to shoppers. Changing customer loyalty What makes a customer loyal to a brand? At what point does a customer’s loyalty erode? And, what are the factors that could cause this to happen? For most customers, it’s a balancing act between quality and cost. However, in 2024, brands and enterprises must face other factors that could affect customer loyalty: Sustainability efforts. A 2023 McKinsey and NielsenIQ study found that products with ESG claims (environmental, social or governance) accounted for 56% of the total sales growth during the five-year period of the study, from 2017 - mid-2022, showing, for the first time, that brands with some kind of sustainability mention are growing faster than those without. This is all due to changing customer loyalty and the very parameters that shape and shift that loyalty. Social changes may be another factor. For example, in the sporting goods vertical, participation in social sports like pickleball and paddle tennis have increased by 159% while lacrosse, skiing and track declined by 11%, 14% and 11% respectively. Stubborn inflation The issue that has plagued global e-commerce since 2021 is still having its ripple effects on the industry in 2024. In the first quarter of 2024, the EU has already cut GDP growth expectations for the year from 1.3% to 0.9% as interest rates remain high while consumers still grapple with a 40% increase in gas and food prices that peaked in 2023. With this reality, pricing has never been more important nor more sensitive to the consumer. McKinsey’s latest ConsumerWatch report shows that shoppers were buying less items at the end of 2023 compared to the previous year’s period, with personal care dropping 3%, household items dropping 3% and pet care dropping 5% which results in AOV (average order value) loss. The importance of transparency in pricing software The use of dynamic pricing in e-commerce has grown exponentially in the last decade, however, that does not mean every software provider offers the best-in-class platform. Not every pricing tool is made equally. Transparency is something that has not been prioritised as a core tenet of pricing software, which has often allowed for a murky relationship between a brand or enterprise and their own pricing strategies. For a user of pricing software to experience the full potential of a pricing tool, they need to be able to build, test and edit each pricing strategy with clarity and ease. They need to be able to understand how and why a pricing recommendation has been made. They should be physically able to see every pricing strategy simultaneously at play without convolution or confusing coding jargon. While this may seem obvious, some pricing platforms have found that withholding pricing knowledge from a customer is the way to go. How is Omnia enhancing transparency? When Omnia set out to build its new pricing tool, named Omnia 2.0, its main goal was to create a next-generation platform that would enhance a user’s flexibility, user experience and transparency. Why was this necessary? The reason is two-fold: Pricing for SMBs and enterprises can be overwhelming, time-consuming and confusing. For enterprises, as assortments become larger and competitors thicken the competition, pricing may become more complicated. “As the ability to run detailed and complex pricing strategies has become mainstream, it has snowballed into the next level of challenges: Complexity overload,” says Omnia’s CEO Sander Roose. By developing our one-of-a-kind Pricing Strategy Tree™ coupled with information dashboards that give a God-like view of the market and every strategy you have at play, pricing becomes what it should always be: Transparent, flexible and simple. “Omnia 2.0 successfully cuts through the clutter,” says Sander. Another development that enhances transparency for users of Omnia 2.0 is the “Explain Price Recommendation” feature which provides a full explanation of how the price advice of a particular product came to be. This not only enables full control over how and why prices may change but it increases the customer’s pricing maturity. “The ‘Price Explanation’ visually tracks the path through the Tree to show the logic and how the price advice came about,” explains Sander. Join us at Price Points Live 2024 “Although at Omnia we believe it’s still day one in terms of building the ultimate pricing platform we are building towards in the long-term, we are very proud of how the Omnia 2.0 next-generation pricing platform gives our users of and customers ever growing superpowers,” says Sander. Join our exclusive annual event by reserving your seats on our Events page or simply email your dedicated Customer Success Manager who will assist you. We’ll be seeing you in Amsterdam!

Pricing Strategies, Pricing, Consumer Behaviour

15.02.2024

Unleashing Superpowers in Pricing: How Omnia's Visual Decision Tree Approach Revolutionises Dynamic Pricing

Omnia Retail’s origin and purpose In 2012, my co-founder and I had conversations with category managers from established online retailers in mature e-commerce categories, such as consumer electronics, and learned that they were spending a lot of time each week manually looking up prices of their competitors on comparison shopping engines and were still running behind with repricing the products in their assortment. Propelled by e-commerce, product ranges were increasing in scope, and the heightened transparency of online pricing resulted in frequent price fluctuations. It became increasingly laborious and time-intensive to maintain competitive pricing as it required manual gathering of pricing data, calculation of optimal price points, and implementation of adjustments. This challenge led us to founding Omnia Retail. Over the years, we saw that as other retail categories matured online, they struggled with the same problem. Similarly, over the last few years, brands have become more serious about their direct-to-consumer (D2C) channels. Brands selling a product against the initial Recommended Selling Price (RSP) for the whole product life cycle leads to insult pricing and the need to change their prices, yet again, to align with the market. As a result, we now see that brands are starting to struggle with the same problem that retailers experienced over a decade ago. Simply being passionate about the challenge and using our prior retail and e-commerce knowledge, we applied our engineering expertise to solve this problem for retailers and brands. It was only later - when our company had grown to a size where everyone couldn’t fit on the same lunch table anymore - that we started reflecting on why we were so invested about solving this challenge. This very reflection led us to establishing Omnia’s purpose explicitly: “We give retailers, brands and their teams superpowers by unleashing the full potential of pricing through market data, insights and automation.” The most central concept here is the word “superpowers”. On a basic level, it refers to automating the tedious and time-intensive tasks that thousands of our users at retailers and brands had to manually do before: looking up prices of competitors, making calculations, and implementing changes. This already removes a lot of tedious work and frees up time to focus on more strategic and creative work. However, that is only one of the basic layers of “superpowers”. Another more exciting element is that we enable our users to do things that were never possible before, even if they would have all the time in the world to spend on pricing. In terms of insights, an example is providing dashboards that provide our users with a “God-view” of the market: fully understanding their own price positioning and understanding what their key competitors (or resellers) are doing. Regarding pricing automation, it’s about having nuanced and advanced strategies, understanding how they are set, impacting results in terms of price positioning and ultimately sales, and contribution margins. Elements of success for dynamic pricing software implementations Through the more than a decade of serving retailers and brands with pricing software, we have seen that certain elements lead to success and ensure the best returns on dynamic pricing implementations: Clearly defined pricing objectives: Begin by setting clear pricing objectives, emphasising the importance of starting with a clear end-goal in mind. Without clearly defined objectives one can have the greatest pricing platform in the world, but there is no guidance on how to use it, and how to measure success. It's essential to recognise that pricing objectives may vary across different parts and levels of the business and are likely to change in response to external factors. Therefore, the pricing platform must accommodate for these varying objectives to remain effective. Securing engagement and support: Securing the engagement and support of team members with direct involvement in pricing is crucial whether it’s as their core responsibility, such as dedicated pricing managers, or as part of their wider role like category managers and buyers. If these individuals struggle to implement the pricing strategies they aim for in the system, or if they cannot explain the prices suggested by the system, they may resist adopting the dynamic pricing software or, at the very least, lack the motivation to leverage the platform's potential fully. Continuous improvement: Rapid cycles of learning and enhancement drive ongoing improvement. This process is supported by ensuring all operations occur in the software's front-end. Any hardcoded rules established by a pricing software vendor in the back-end will hinder such a learning cycle. Moreover, maintaining transparency about the operational logic and performance metrics is essential. From these elements of success we have learned at Omnia, we derived two essential design principles for developing our price management platform: flexibility and transparency. Flexibility to remove barriers to adoption, improving results and ensuring control. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops. As the ability to run detailed and complex pricing strategies has become mainstream, it has created the next level of challenges: complexity overload. Omnia 2.0 successfully cuts through the clutter with its revolutionary visual pricing logic with the Pricing Strategy Tree™. It gives complete pricing flexibility and control, coupled with transparency. The power of flexibility: Removing barriers to adoption, improving results and ensuring control Flexibility is a core principle in our design philosophy, enabling our clients' users to execute any desired pricing strategy across all parts of their business. We have seen a vast array of pricing strategies being used and broadly speaking, they are driven by differences in objectives at the highest level, the need to differentiate on objectives on lower levels, and differences in definitions. On the highest level, the main differentiation we see is between maximising revenues - with the constraint that a minimum contribution margin needs to be reached - and maximising contribution margin. Traditionally, we saw pure e-commerce players being primarily focused on the former, while more traditional omnichannel retailers were more focused on the latter. With the changing economy and higher interest rates, the importance of being profitable in the present, we now see pure e-commerce players also shifting more towards margin maximisation strategies. While on the highest level, a retailer or brand might have a margin maximisation strategy, virtually, they will always need to differentiate on the lower level as well. Take for example a racket sports retailer. Although overall profit maximisation might be the main objective, the retailer might be focused on penetration (maximisation of sales, given a minimum margin constraint) in a market where they recently launched, as well as that being the main objective to establish itself in a nascent category like padel rackets. Finally, we have learned that retailers and brands have differences of definitions and that their chosen software should support that, rather than enforcing a rigid rule or definition. Take the example of a stock-based strategy, where a company wants to automatically become more aggressive when stock coverage becomes too high or take the opportunity to steer toward margin when stock coverage becomes too low. The definitions of what’s too high and too low differ not only between companies, verticals and markets but also within a company and on different parts of its assortment. It’s crucial for pricing software to be able to provide that flexibility and give the power to the user, not only to ensure that the retailer or brand can reach its objectives but also to ensure that there are no barriers in the adoption of the pricing software. If business users - like category managers - are not able to implement the strategies, they will be inclined to resist the implementation, putting the dynamic pricing implementation project at risk. Pricing software must be able to support flexibility, but it’s even more crucial that everything is fully supported in the front-end of the user-interface (“the portal”). If there are rules or constraints hardcoded within the back-end, a common practice of some pricing software vendors in today's market, it leads to a lack of transparency and limits the pace of learning (testing with strategies). At Omnia, we’re proud to have this flexibility in our software, with not one line of customer-specific code while serving hundreds of retailers and brands since 2012. The examples previously mentioned demonstrate how the principle of flexibility is integrated into the pricing automation part of the Omnia platform. However, our commitment to flexibility extends throughout the entire platform. For instance, we don't confine our customers to predetermined calculation schedules. Instead, they have full autonomy to set the timing for pricing data collection and dynamic pricing calculations. Additionally, they have the capability to initiate calculation runs manually at any moment from the front-end, such as when assessing the impact of strategy modifications. These calculations are efficiently completed within minutes, even for extensive product assortments. Transparency to keep control while on auto-pilot, create buy-in from internal stakeholders and facilitate learning loops Automation has the potential to save time and improve results. However, when implemented poorly, automation may lead to a lack of control. From the early years, this has been our belief, and preventing our dynamic pricing software from becoming a black-box has been a core design principle. Even in our earlier years, the Omnia software had a “Show me why™” button that took the user by the hand in terms of how the software arrived at a particular price advice. Transparency in pricing software ensures control while being on auto-pilot. An element of this transparency is how your strategies will affect the prices for all products such as the number of products that received “price advice”: prices up, down, equal, price difference vs various benchmarks, and so on. One level deeper is the need for dynamic pricing users to understand the impact of every element of their pricing strategy. For example, one could have a very elaborate pricing strategy, but if anywhere in the strategy there would be a pricing rule “always adjust to the lowest price in the market”, there would be a high chance that the rule will set the prices for the majority of your assortment, and most likely down. Understanding how elements of your strategy impact the eventual prices set links to another significant benefit of transparency: improving results by enabling learning loops. When implementing dynamic pricing you can achieve surprisingly strong results by implementing a pricing strategy once, and then never touching the system again. However, we see that customers who use our software more continuously and are evaluating and testing new approaches achieve the best results. This is only achievable with a pricing tool that creates maximum transparency, facilitating those learning loops. The Pricing Strategy Tree™ as embodiment of flexibility and transparency Our previous pricing platform, Omnia 1.0, was very flexible. However, our most advanced enterprise customers using complex pricing strategies could end up with a long list of pricing strategies. Although relatively easy to build up incrementally, this could make it hard to grasp the strategies running and the logic behind them. In numerous instances, consultants specializing in pricing strategy assisted our customers by creating decision trees to map out and advise on their clients' strategies. This inspired us to use a decision tree as the main interface when building pricing strategies. Although we already had the idea of a Pricing Strategy Tree on our roadmap, acquiring German pricing strategy company Patagona GmbH at the end of 2021 gave us an unfair advantage. Patagona had developed a Pricing Decision Tree to build strategies in their Pricemonitor product. We evaluated this concept with our customers and based on their invaluable feedback, we developed the Pricing Strategy Tree as one of the core elements of our next-generation platform, Omnia 2.0. The new platform was launched in the Summer of 2023, with new product features being added monthly. Not only does the Pricing Strategy Tree lead to more transparency in terms of letting our users understand what’s running, we see that in practice it also makes it easier and simpler to create strategies. That is because it’s a visual drag-and-drop interface, but also because we embedded functionality; such as copy-and-pasting of selected branches within the tree (typically set-up for one market or format) and copy-and-pasting of entire trees across countries or formats. The latter is particularly relevant for our global customers to be able to roll out pricing strategies to additional markets with just a few clicks. To drive transparency even further, the Pricing Strategy Tree proved the ideal canvas for additional functionality: path tracking through the strategy tree, strategy branch statistics of the tree, and naming of tree branches. The path tracking is an evolution of the “Show Me Why™” in Omnia 1.0 called “Explain Price Recommendation” in the Omnia 2.0 platform and provides a full explanation of how the price advice of a particular product came about. This is a typical question for a business user as a category manager or buyer. The “Price Explanation” visually tracks the path through the tree to show the logic and how the price advice came about. “Strategy Branch Statistics” covers another use case, one that was never possible in our previous Omna 1.0 platform: It highlights how elements of the overall pricing strategy impact the eventual prices set. It does this by showing how many products are repriced by each branch in the tree, the average price difference and percentage difference of the price advice vs current price points, as well as the number of products priced up and down. One important benefit of this is that it gives our users insight into which branches are most dominant in setting the eventual prices. Remember the example of having an elaborate pricing strategy with a rule somewhere to “always adjust to the lowest price in the market” in the transparency section above. However, the value of Strategy Branch Statistics goes beyond that. It also provides users insights into the performance of a particular strategy branch, thereby facilitating the important learning loops discussed above. Another functionality we have added to the Pricing Strategy Tree™ canvas is the naming of branches of the tree. Although the tree already makes it easy to show the logic applied, the naming of branches makes it even more practical for users and co-workers to understand what happens in a particular branch by describing it in natural language, for example “Follow the lowest price point of key competitors when stock coverage is too high”. The naming of tree branches also lays the foundation for the steps we plan to take providing more insights in the performance or effectiveness of branches. “We have seen several pricing tools, but the pricing strategy tree plus “show me why” is a super unique selling point and best implementation of dynamic pricing we have seen so far.” International enterprise office supplies retailer. AI is a means, not an end: A case for blending rules, AI, and goal-based pricing We believe that AI as a powerful technology can greatly contribute to the “superpowers” in our purpose. Think about automated import mapping, creating reports based on natural language, surfacing conclusions from data and charts, and so forth. We are also convinced that AI will provide more and more value in the future core area of price setting. However, given the importance of transparency and flexibility, we firmly believe that the future of pricing setting won’t be AI only - on 100% of the products in 100% of the cases - but rather a combination of pricing rules and AI. In terms of intelligence in price setting, AI is a means not an end itself. The core need that we see at the retailers and brands across our customer base is more focused on moving away from setting granular business rules - with the aim of reaching specific objectives - to rather focus on setting the objectives themselves at a higher level and letting our Omnia pricing platform optimise for that. As a company focused on and committed to delivering value to our customers, we naturally plan for this need with more and more goal-based “nodes” (blocks) in the Omnia Pricing Strategy Tree™. Goal-based nodes can have a combination of complex AI running under the hood, for other goal-based nodes less complex statistical rules, depending on the need. The first example of such a goal-based node with AI under the hood is our Amazon Buy Box AI block whereby our user sets the Amazon Buy Box win probability certainty and the AI - based on large amounts of historical data - tries to land exactly at the right price point to reach maximum margin while keeping the win probability as a constraint. This is very different from the previous approach in our software and, to our knowledge, the current state of Buy Box optimisers in most channel management software which has usually been going step-by-step down until you win the Buy Box and then up again to increase margin. That approach is simply too slow and there are too many variables with influence that have changed in the meantime. Although we envision that larger and larger parts of the assortment will be priced by such goal-based nodes in the future, we believe they will always be combined with business rules on part of the assortment (again, it will be rules and AI). For example, our users may want to apply hard constraints (such as upper and lower boundaries) which can differ on different parts of the assortment. For promotions, retailers and brands will want to set hard price points during a certain time frame. Those are just some examples of why the goal-based nodes need to be combined with business rules. The crucial thing is that the principles of flexibility and transparency continue to be crucial when combining rules and AI. You need one single interface where rules and AI can be seamlessly combined, applied by business users, and it remains transparent how and why prices were set. Again, the Pricing Strategy Tree is the ideal concept that automatically ensures this. While this may seem to be a trivial design prerequisite, we see that other pricing software vendors that have begun making first steps with AI in their platforms often are violating this principle. There are vendors that offer “AI-only” with no capability to combine it with rules. We have seen vendors with a separate “AI-version” of their product, next to the old rule-based version of their product to let customers choose one of the products. Then, finally, there are vendors that perhaps are actually more of a team of pricing consultants, as they have to hardcode rules in the back-end, as well as requiring a lot of manual intervention from the team of the vendor for the algorithms to at least provide decent results. The latter case also leads to very long implementation times and learning loops that are too slow, as we learned when taking over customers of these vendors. “With that pricing tree, the flexibility is almost endless.” Pricing Team Manager of the largest beauty pure e-commerce player in Europe. Unleashing superpowers with Omnia 2.0 At Omnia, we believe we are still in the early stages of developing the ultimate pricing platform we aim for in the long term. Yet, we're immensely proud of how the Omnia 2.0 platform is already giving our customers superpowers by enhancing their capabilities more and more. We have made huge leaps in terms of dashboarding, and are constantly evolving those dashboards on a weekly basis thanks to the great feedback from our customers, and the way we have decoupled the visualisation layer from the data layer, enabling us to make fast interactions with little development time. We are clearly on the path of having that “God-view” of the market from the introduction above. Perhaps an even bigger leap has been the core topic of this article: the introduction of the Pricing Strategy Tree in Omnia 2.0, which combines ultimate flexibility and transparency, and we believe is the ideal concept to combine business rules with (partially AI-driven) goal-based pricing. We couldn’t be more proud of the feedback we have received from our customers, and the market as a whole, since the launch of Omnia 2.0 in the Summer of 2023. And we are very excited about further growing the superpower of our users by adding more intelligence to the Pricing Strategy Tree and the entire Omnia 2.0 pricing platform.

Dynamic Pricing, Pricing Strategies, E-Commerce

22.08.2023

How Established Brands and DNVBs Are Finding Success in E-Commerce

Is there anything that pairs better than e-commerce and direct-to-consumer (D2C) sales? With e-commerce, companies remove the inconvenience of having to go to a physical store, and products are shipped right to the consumer’s doorstep. D2C sales models are the perfect pairing: with all middlemen removed, the seller has total control over the customer experience. The only middleman we see is the person delivering our package. In 2023, both established brands and digital native vertical brands (DNVB) are pursuing D2C strategies across a huge range of e-commerce verticals. In this article, we’ll highlight three especially interesting and competitive verticals in e-commerce – Electronics, Sports and Home & Living – and look at the current state of D2C businesses across these areas. Trending Verticals in E-commerce Worldwide e-commerce revenue is projected to reach $4.11 trillion in 2023, with the highest-selling verticals being fashion; electronics; and toys, hobby and DIY. Omnia is especially interested in analysing verticals with multiple retailers selling the same or comparable products that consumers research heavily online. These verticals offer significant dynamic pricing opportunities, since price fluctuations are constant and competition is high. Let’s look at an overview of three verticals that check these boxes. Electronics Consumer electronics continues to be one of the reigning e-commerce champion verticals, with sky-high sales over the last decade and further growth as work from home becomes a more established workplace vision for some professions. It is the second-most popular e-commerce category behind fashion, with expected revenue of $910 billion in 2023, or 22.1% of all online sales. Sports Sporting goods are a fast-growing e-commerce vertical, with 43.7% of sports products being bought online. The sports category is an interesting case, however, because of its high Average First Order Value (AFOV). Businesses with high AFOV need to make a profit on every transaction, because repeat purchases are not as common as other verticals. The AFOV for sports businesses is extremely high, but it has one of the lowest levels of 12-month growth in Customer Lifetime Value (CLV). The sports vertical is continuing to grow in the post-pandemic landscape, with businesses in the US, UK and Europe seeing a boost in revenue and traffic in the first quarter of 2023 compared to the end of 2022. Home & Living As you can see in the chart above, the home category, like the sports vertical, has a high AFOV and a low rate of repeat purchases, putting pressure on businesses to achieve a sufficient profit margin on each product. Home goods have faced some challenges post-pandemic, as people spent less time at home and less money on home improvement. The vertical has been slower to bounce back than other categories in terms of year-on-year revenue change, but businesses in the UK and Europe did see a boost to Q1 2023 revenues compared to the end of 2022. Current State and Outlook of D2C in E-commerce Direct-to-consumer (D2C) brands are continuing to grow worldwide, with nearly two-thirds (64%) of consumers making regular purchases directly from brands in 2022. This D2C wave is present in a wide range of markets: in the US, D2C is forecast to grow to $213 billion USD by 2024; in Germany, D2C revenue was already valued at €880 million at the end of 2021; and in India, total D2C sales was $44.6 billion USD in 2021. There are two types of brands that sell D2C: Digital native vertical brands (DNVB) – Companies that were born online and have a strong digital presence. These companies often sell niche products directly to consumers through e-commerce platforms and social media, bypassing traditional retail channels. Established brands – Companies who have built an established presence, reputation and customer base through various channels, including traditional retail, advertising and other marketing efforts. These brands may have a strong online presence as well, but their roots are often in traditional manufacturing and distribution. In the US, 40% of established brands are already implementing a D2C growth strategy. It’s a headline-grabbing topic of conversation, but how significant is the role of D2C in the wider e-commerce landscape? Estimates from Insider Intelligence said that D2C sales would account for 1 in 7 e-commerce dollars in 2022. And while DNVBs are often the brands capturing media attention, established brands are projected to account for 75.6% of D2C e-commerce sales in the US in 2023. In fact, the D2C online sales for established brands have had a higher growth rate than DNVBs since 2021, although both types of D2C brands still show strong growth. Challenges for D2C Brands Every operator in the retail space faces its own unique challenges, but D2C brands are a unique case. They retain more control over their customer relationship, products, pricing and supply chain dynamics, but they also hold responsibility for the entire end-to-end experience and whether their product makes it into the hands of consumers. Challenges for D2C brands in e-commerce include: Customer Acquisition Costs: Competition for digital advertising space is high, and as a result, the cost of advertising on social media platforms, search engines and other channels can be quite expensive. This can be especially challenging for D2C startups and small businesses with limited marketing budgets. Supply Chain Management: D2C brands typically manage their own supply chain, which can be complex and time-consuming. From sourcing raw materials to manufacturing and shipping products, there are many moving parts to manage. Delays or disruptions at any point in the supply chain can impact product availability and customer satisfaction. Competition from Established Brands: As mentioned earlier, established brands with existing customer bases and sizable marketing budgets can be formidable competitors for DNVB brands. These brands often have more resources to invest in marketing and customer acquisition, and they may have stronger brand recognition and customer loyalty. Customer Experience and Service: D2C brands are often held to higher standards when it comes to customer experience and service. Customers expect a seamless, personalised experience when shopping online, and any issues with shipping, returns or customer service can lead to negative reviews and damage the brand's reputation. Scaling Operations: As D2C brands grow, they may struggle to scale their operations while maintaining quality and consistency. This can be especially challenging when it comes to managing inventory, production, and shipping logistics. D2C Maturity in Key E-Commerce Categories: Electronics, Sports and Home Let’s return to the three e-commerce verticals we discussed earlier. Each of these has its own level of maturity, as well as successful D2C brands, both established and DNVB. Electronics The consumer electronics vertical is relatively mature when it comes to e-commerce D2C sales. Over the past decade, there has been a significant shift in the way consumers purchase electronics, with many people choosing to buy products directly from brands online rather than through traditional retail channels. Established brand: Apple Apple has long used D2C retail operations to drive customers into its “walled-garden ecosystem,” and has made clear its plans to continue investing in D2C. It’s clearly working: the company was able to triple its market value to $3 trillion between 2018 and 2022. DNVB: Anker Innovations Anker, a Chinese mobile charging brand, is considered a pioneering DNVB. While they also sell via Amazon and other marketplaces, a majority of their sales still come from D2C. Sports The sports vertical has been growing more mature with D2C sales, as has been evidenced by the number of new DNVB brands as well as established brands taking major steps to ramp up D2C efforts. Nike, for example, announced in 2021 that they would stop selling sneakers at American shoe store chain DSW, another in a long line of breaks with traditional retail. News stories like these are signals that, with Nike as one driver, the sporting sector is developing and maturing quickly, changes that retailers will need to adapt to. Established brand: Nike Nike has an established presence in traditional retail channels, but the company’s D2C operation, NIKE Direct, has been extremely successful in both e-commerce and brick-and-mortar. In 2022, it accounted for approximately 42% of the brand’s total revenue. DNVB: Peloton Peloton is one of the most successful examples of sporting DNVBs, having been born online before growing across different distribution channels, customer segments, geographies and categories. Home & Living The home and living vertical, which includes product lines such as furniture, cookware, bedding and more, is a strong D2C market due to its low barriers to entry and lack of strong retail competition. Established brand: Ikea Ikea has always been a direct-to-consumer brand, but is not a DNVB due to its brick-and-mortar origins. In the wake of the pandemic, Ikea’s online channels had more than 5 billion visitors and an increase of 73% in e-commerce sales during FY 2021. DNVB: Westwing Westwing was founded to be a “curated shoppable magazine”, where consumers could find beautiful home & living products online. The company is now present in 11 European countries and generated €431 million of revenue in 2022. D2C Brands and Dynamic Pricing Aligning prices with retailers for your entire product assortment is no small feat, which is why dynamic pricing software is so essential for brands who utilise a D2C sales channel. As Roger van Engelen, Principal at A.T. Kearney, told Omnia in a 2018 interview: “In my opinion, brands need to have dynamic pricing before they start selling directly to consumers because it will prevent them from agitating their retail customers. This, in turn, protects brands from triggering a price-markdown war, which helps protect brand price perception.” Keep in mind that most major retailers are already using dynamic pricing software for their e-commerce shops and to ensure products are competitively priced. As a brand, the software can help you follow a market price even within strict limits. No one wants a market-wide price race to the bottom, or to anger retailer partners. To stay better aligned with your partners and pricing strategy, and to start gathering better data on your shoppers, try Omnia Dynamic Pricing free for two weeks.

Dynamic Pricing, Pricing, E-Commerce

05.05.2023

Comparison shopping engines: How to optimise your presence

We live in a world of endless choice, and while the number of options can be exciting for shoppers, it can also be overwhelming. Comparison shopping engines (CSEs) have emerged as a valuable tool for shoppers to make informed purchase decisions and for e-commerce brands and retailers to increase online visibility and sales. But CSEs are not all the same; some, like Google Shopping, are huge generalist sites covering any product you can think of, while others are vertical shopping sites focused on specific categories. The most popular sites also vary by country, and each population uses them differently. In this post, Omnia discusses what consumers use comparison shopping engines for, the top sites by country, some benefits and challenges of selling on CSEs, and what we expect to see in the future. Consumers use comparison shopping engines to reduce choice overwhelm and find the best price As our global economy continues to accelerate, consumers are faced with an increasing number of choices and opportunities. This means that many consumers are overwhelmed by too many offers that they have difficulty evaluating. This is how CSEs first appeared in the 1990s: influential digital institutions wanted to create a solution that would keep internet users in contact with available products, assisting the shopper in making a purchase while reducing confusion and overwhelm. Comparison shopping engines have now become a significant piece of the tool belt for e-commerce businesses looking to increase their online visibility and boost sales by going head-to-head against the competition. CSEs allow customers to quickly view different products from multiple vendors, compare features and prices, and make informed decisions about what to buy. CSEs are often some of the highest ranking websites in their respective regions, and for brands and retailers selling on CSEs, the sites can increase visibility among shoppers who may not have otherwise found the business or products through other marketing methods. With Google, for example, Google Shopping results and ads appear either above the search results or on the right side of the page, guaranteeing users will see the products first. What consumers want out of a CSE One study cited in the International Journal of Advanced Computer Science and Applications asked respondents to define which characteristics of a CSE would determine its quality: 81% wanted the CSE to find a lower price offer 80.2% wanted the CSE to be easy to use 76.8% wanted the CSE to be accurate in finding the right offer 70.2% wanted to have access to additional information about the offer and/or supplier 58.7% wanted the CSE to also have ratings, comments, and evaluations from other buyers That first statistic is consistent with other studies and the conventional wisdom that CSEs are used first and foremost to find the best price, which makes sense considering that they are also referred to as “price comparison websites” CSEs are used across the world, but the most popular sites and categories vary No matter the country, there are shoppers looking for the best deal, so CSEs have a worldwide presence. Some of the most popular CSEs in European markets include: How CSEs are used varies by location, age group, income level, and other factors. In a study in the UK, for example, shoppers in the 35-44 age range were the most likely group to have used a price comparison website, with 75% saying they had shopped on a CSE before. Source: Statista CSE comparison: Google Shopping and Amazon Google’s CSE arm is Google Shopping, and it’s one of the biggest comparison sites worldwide. Users shop across the platform more than 1 billion times per day, with 36% of all product searches originating on the site. Meanwhile, 49% of all product searches originate on Amazon, which has more than 1.7 million sellers for shoppers to compare. There is a key difference between the two, however, since Amazon is a marketplace. While marketplaces may include some comparison features, such as filters and sorting options, they are not primarily designed to be comparison engines. Amazon has a vested interest in getting customers to the checkout button or, even better, buying their own branded products on the site. Google sees its role differently: In 2021, Google Commerce President Bill Ready said the following on a podcast: “We’re not a retailer, we’re not a marketplace… What we do want to do is make sure that on a Google surface, the user can discover the best products, the best values, the best sellers, and then seamlessly connect to those sellers. Most of the time, that actually means clicking out to that seller’s own website; it is not our goal to necessarily keep the user on our platform.” This is interesting to note for brands and retailers selling on either site, and other CSEs in general, as it indicates the key differences between the goals of the platforms themselves. While any CSE will still monetise the process through ads, transaction fees, or other channels, some such as Google may not take on as much of the responsibility of getting the shopper all the way to the purchase point. Because of this, Google Shopping may be a unique case that does not fit perfectly into either the marketplace or CSE bucket. Benefits and challenges of selling on CSEs While each comparison shopping engine comes with its own pros and cons for brands and retailers, some of the key benefits and challenges to consider are consistent across platforms: Benefits: Expanded visibility: Listing products on CSEs enables retailers and brands to increase their visibility to potential customers who are actively searching for products. Improved conversion rates: CSEs often attract customers who are further along in the purchase process, meaning that they are more likely to convert into buyers. Increased sales: As a result of the increased visibility and improved conversion rates, retailers and brands may see an increase in sales. Cost-effective advertising: Unlike other forms of advertising, CSEs often operate on a cost-per-click (CPC) model, which means that retailers and brands only pay when someone clicks on their listing. Challenges: Increased competition: CSEs are highly competitive marketplaces, with many retailers and brands vying for the attention of shoppers. If some competitors with the same product offer are out of stock, have fewer or worse reviews, or have different delivery options, then the ones leading in these areas can win the best position on the CSE. Those products will be more likely to be chosen by consumers who care about the quality and trustworthiness of the offer. Cost: While CSEs can be cost-effective, the CPC model can quickly add up, especially for smaller retailers and brands with limited marketing budgets. Product data management: Retailers and brands must provide accurate and up-to-date product data to CSEs, including pricing, availability, delivery options and product descriptions. This can be time-consuming and requires ongoing maintenance. Limited control: CSEs can have their own guidelines around product data, and retailers and brands may have limited control over how their products are presented on the platform. One interesting factor that can be both a benefit and a challenge is consumer trust, as it is dependent on the reputation of the specific CSE in general or in a particular market. In the UK, for example, a government study found that while most consumers trusted CSEs at least a fair amount across most measures, trust levels were much lower in two key areas: Half of consumers did not trust CSEs to ensure data is not shared with third parties without permission Four in ten did not trust CSEs to treat all suppliers equally On the other hand, some comparison sites have built up a high level of trust in their markets. Check24, for example, has been operating since 1999 and is highly trusted in Germany. Price is not the only competition factor on CSEs While price is the determining factor of a product’s visibility on a comparison search engine, vendors will not only compete on who has the cheapest price. As we explored earlier, there are other factors that influence the quality and trustworthiness of an offer for consumers. When developing pricing for CSEs, sellers should consider the following factors in their strategies: 1) Filters Sellers should filter who they would like to compare product offers with and who they will adjust prices in relation to. Not every competitor will be as important to each seller; for example, even if a seller has a very competitive price, if they are a small retailer or a newcomer with an unknown name and no reviews, they won’t appear to be as trustworthy to a consumer compared to a well-known retailer the consumer trusts for fast and secure delivery. The seller may want to skip adjusting prices to these companies. 2) Market knowledge It’s important for sellers to know their market and differentiate pricing strategies between assortments and categories. For example, if you sell sporting t-shirts and sporting shoes, each market and product may have a different set of competitors, so a market analysis will be a crucial starting point. 3) Timing of price adjustments If you adjust your prices in the morning at 8am and your competitor(s) adjust theirs at 9am, then your offer will already be outdated after an hour. You can learn this through market observation, which is made simpler with Omnia’s data. 4) Price elasticity Price elasticity tends to be quite high on CSEs, so be aware and, if possible, analyse data for the platform to build the right pricing strategy for your products. Omnia has a feature in place to calculate price elasticity, as well as a process for elasticity accuracy in our software. 5) Seasonality Any seasonal factors that impact your product assortment should be taken into account when setting a pricing strategy. Special sales events like Black Friday will start with a pricing strategy weeks before, while also seeing increased competition. The same goes for Christmas shopping, when sellers need to keep delivery dates in mind for shoppers who want their products by Christmas eve, and how prices might change along with this. Seasonality shapes consumer behaviour and shopping needs throughout the year, so it is a good idea to have important dates and periods prepared for the whole assortment. 6) Channel alignment Aligning the offers you provide on the CSE with all other sales channels will be important for consistency. Considering the specific conditions of each marketplace and CSE in price calculations will lead to different prices. However, having automation and an overall pricing strategy, with rules such as rounding to a particular digit, will help properly represent the vendor in the market and easily master all different channels. The future of comparison shopping: Where do CSEs go next? With the world of e-commerce changing so rapidly, what can we expect of comparison shopping in the future? Increased use of AI and Machine Learning: Comparison shopping engines will increasingly leverage artificial intelligence (AI) and Machine Learning to provide more personalised and targeted search results to shoppers. This will result in more accurate product recommendations and better user experiences. Deeper integration with social media: Comparison shopping engines may integrate more deeply with social media platforms such as Instagram and TikTok to allow shoppers to make purchases directly from these platforms. This could result in an increase in impulse purchases and a greater focus on social media marketing for retailers. More focus on the changing customer experience: CSEs will need to continually adapt to provide a seamless, up-to-date customer experience. This could include developing mobile-specific features and interfaces, such as voice-activated search and augmented reality shopping, as well as loyalty programs or new payment models. Shifting competition: CSEs will face new types of competition as brands and retailers rethink their own selling models. Will more brands choose to sell D2C? Will retailers use their own experience selling branded products on marketplaces to produce their own labels? As costs rise amid inflation and other world events, retailers and brands will look for alternatives to increase profits, which may create competition for marketplaces from new angles. Greater emphasis on sustainability: As consumers become more environmentally conscious, comparison shopping engines may need to emphasise sustainability in their search results. This could include highlighting products with eco-friendly certifications or partnering with brands that prioritise sustainability. Growing regulatory attention: Comparison shopping engines may face increased scrutiny from governments, particularly in the areas of data privacy and antitrust. This could result in greater transparency requirements for the engines and stricter rules around data collection and use.

Dynamic Pricing, Pricing, E-Commerce

28.04.2023

Pricing: An approach to prosperous business development

Isn’t it a scary thought that 75% of S&P 500 incumbents will no longer be listed on the index by 2027? Due to slow or nonexistent evolvement, Standard & Poor’s data show that the evolution of corporate success has been dwindling for more than 50 years, stipulating that the average lifetime of an enterprise has decreased from 61 years in 1958 to just 18 years in 2011. Adaption and evolution are pertinent to the success of any enterprise, and no case of this being true is larger than the digitization of shopping. From malls to iPhones, the development of e-commerce has been the funnel for the start and the end for countless brands and retailers. As e-commerce experiences its largest growth spurt in the last three years since 2020, creating the most competitive landscape the industry has ever faced, one factor for e-commerce success has remained strong and true: Price is the number-one profit driver. As correctly stated by Prof. Hermann Simon, the world’s leading expert on pricing and the founder of Simon-Kucher & Partners, just a 1% increase in prices can yield up to 10% in profit. In this article, Omnia will discuss the importance of pricing for an enterprise’s long-term success and will display why a pricing strategy, coupled with a pricing software solution, is simply smart business development. In inflationary times, pricing is the cornerstone for enterprise success For decades, as one of the 7 P’s of marketing - a basic blueprint for retail and brand owners to launch successful products - pricing took a comfortable middle-child spot without enough attention being paid to it. The impressive and explosive trajectory of e-commerce in the last five to ten years has changed that. However, it isn’t just the growth of e-commerce that has directed the light onto pricing, but the very nature of its competitiveness and oversaturation. Consumers have become king, experiencing more options to shop and more capabilities to compare. The retailer no longer enjoys the peace of mind of knowing the consumer has to come to them - quite the opposite. As the balance of power shifted to the consumer, brands and retailers began rubbing their hands together to strategise on how they can capture the customer once more. As the other P’s (product, place, people, process, promotion and physical evidence) became less prominent as shopping moved to a web shop, pricing has become the top factor for consumers when choosing or abandoning a particular brand or retailer. In 2023, following the effects of covid lockdowns, supply chain issues and record-high inflation, pricing is more influential than ever: McKinsey reports that price is at the top of the list of consumers’ motivations to change their spending behaviours. US consumers are switching brands and retailers now more than they did in 2020 and 2021 (33% versus 46%). Furthermore, in PwC’s 2023 Global Consumer Insights survey, 96% of consumers said they intend to adopt cost-saving behaviours over the next six months and 69% have already amended spending on non-essential items. With price becoming so pertinent to consumer spending decisions in inflationary times, it becomes that much more vital for brands and retailers in e-commerce to stay ahead of market changes and conditions while driving revenue and profit upwards. On the other end of the spectrum, it’s not simply consumer buying behaviour that has propelled the importance of price: If one analyses the last decade of e-commerce, it is the powerful monopoly of marketplaces like Amazon, Google Shopping, Zalando and eBay, as well as large D2C online stores, that have developed a sense of control and manipulation of pricing in multiple categories. From electronics to personal care and everything in between, vendors and D2C small-to-medium businesses (SMBs) are contending with lower prices on these giant platforms that they feel pressured to meet or beat. And, without expertise and the right tools, how can they? Amazon has 1.9 million SMBs worldwide as third-party sellers on its marketplace, and owns a 38% majority of the US’s e-commerce market share, showing just how influential one marketplace could be over the pricing of multiple categories. It then becomes imperative that enterprises have access to scraping data and robust pricing rules and technology to remain competitive in an industry largely dominated by marketplaces. Talk to one of our consultants about dynamic pricing. Contact us Mobilising pricing power Considering how competitive and concentrated the e-commerce arena has become, with marketplaces like Amazon and Google Shopping dominating market conditions, while the D2C stream increases by double digits, how does an enterprise create a forward-thinking, data-driven pricing strategy? How does an enterprise know when to action that 1% price increase so fondly spoken of by Prof. Simon? A Bain & Company global study shows that of the 1,700 retail leaders surveyed, 85% say management teams need to make smarter pricing decisions and only 15% believe they have effective price monitoring tools. The gap is considerable. However, as a McKinsey study suggests, incorporating AI-based pricing into retail pricing and promotion can add a valuable Dollar impact of between $106 million - $212 million, which may go a long way in easing the frustrations of the aforementioned business leaders, as well as their margins. In addition, Boston Consulting Group (BCG) shared in a study of theirs that it may take as little as three months to see up to a 5% increase in profit by implementing optimised pricing. As Prof. Simon also said, “Profits are the cost of survival and the creators of new value,” but, are retail leaders ready to maximise this value that’s right in front of them for their brand and their customers? According to the same Bain & Company study, implementing “new pricing capabilities” can increase the average profit by between 200 - 600 basis points: The crux of mobilising pricing power is knowing that it is not a once-off solution to fixing dismal profit margins, high sales team turnover and waning customer loyalty. Leadership needs to view pricing as the relationship is cannot get out of - and that’s a good thing. Developing pricing muscle and pricing maturity is a multi-year journey with an investment in data, automated processes and talent. Building longevity in value When one thinks about the kind of brain power, talent, hard work and almost indispensability a company may possess to reach the S&P 500 list, it seems inconceivable that a concept as elusive as adaption and evolvement could be its downfall. This goes to show how a simple mindset shift could be the deciding factor of stagnation and dissolution or growth and profitability. McKinsey shares that digitization “has less to do with technology and more with how companies approach development” and that when well executed, “it can unlock significant value by compressing timelines and eliminating duplication or inefficiencies.” As e-commerce technology advances and becomes more intelligent, it is unthinkable that one of the most critical and unpredictable factors - pricing - is not maintained manually. However, not only is the automation of pricing informed by competitor data and market insights necessary to demonstrably meet commercial goals, it is the partner in pricing, not just the software, that is needed.

Dynamic Pricing, Pricing, E-Commerce

23.01.2023

What is Price Skimming?

Price skimming is a pricing strategy that can facilitate a higher return on early investments, influence the branding and appeal of a product, and allow a brand to target specific segments of a given market. Brands use price skimming to optimize revenue and margin across the lifecycle of a product, skimming off market segments. Furthermore, it helps maintain a better ROI regarding research and product development. Customers who are most loyal or seek premium products are more likely to pay top price. The subsequent skimming allows lower price points to attract the rest of the market. In this guide, you’ll learn: What is price skimming? Price skimming strategy Price skimming vs penetration pricing What are the advantages and disadvantages of price skimming? Ways to compete against predatory pricing and gain e-commerce sales What is Price Skimming? Price skimming is a pricing strategy often related to innovative and high-demand products. Brands set a high price ceiling for new products due to market analysis and consumer demand. The top layer of loyal customers buy at high prices. A retailer then pivots to accommodate new layers of consumers by slowly lowering the price over time. Retailers continue in skimming pricing until it levels-off at a base price. Retailers initially set prices high due to demand and then slowly “skim” the price down as the novelty of the product decreases and accessibility to it increases. Samsung uses price skimming strategy in regards to its mobile phones. When customer demand is high due to a new release, the price is set to attract the most revenue. After the initial fervor and hype wanes, Samsung adjusts price points to suit more consumers in the market. Samsung initially leverages price skimming to take market attention and share away from their main rivals. For example their Galaxy phones were priced to take share away from the iPhone. Price Skimming Strategy Price skimming involves targeting top-level consumers, those who buy at premium prices. Lowering price ensures a brand aligns price points with more customers. Nike, a serial manufacturer and retailer of shoes and clothing, applies price skimming to popular trainer releases. This is done by charging premium prices for new products and limited releases. Brand’s at the top of their market like Nike, have no trouble setting prices high. High prices are warranted by the demand for its trainers and loyalty to the Nike brand. Months after a release, Nike lowers prices to accommodate more layers or subsets of customers, those who are more willing to buy the product at a sales price. The dynamic between online and offline sales adds another layer of strategy. Retailers need to align in-store and online prices, for the Ropo Effect (research online buy offline) may increase in-store sales. Price Skimming vs Penetration Pricing Successful retailers remain agile regarding pricing strategy, for setting prices low or high can be fortuitous. Price skimming and penetration pricing differ in application despite being equally useful. Penetration pricing involves setting a lower price point as compared to market competitors. It allows a brand to gain exposure in a crowded market, quickly gaining market share via consumers looking for sales prices. Penetration pricing also helps attract new users, introduces brands to a market, competes with market leaders, and helps in acquiring market share. Often, the strategy is paired with price monitoring software for optimal timing and performance. Related Reading: Why Price Is the Most Important P Price Skimming Advantages 1 - Supply and Demand & ROI Premier products necessitate preparation and early investment. High price points in combination with low supply, for example the introduction of the PS5, helps recuperate earlier investments and ensures an overall better ROI. As the products availability increases over time you would then expect to see the price decrease as the demand decreases. For example, Apple invests a lot of money into technology and research. That warrants the premium pricing of its iPhones. The high prices akin to price skimming allows Apple to reinvest the higher return on investments back into the brand, which helps strengthen its branding. 2 - Brand Image “Sneakerheads” may pay more than 10x the retail price for a pair of popular trainers. Ownership equals prestige, novelty, and limited accessibility to them. Price skimming inspires consumer feelings and behavior that sculpts a brand’s image. The Adidas brand’s Predator football boot has gone through many iterations over the years due to its popularity. The soccer boot was first introduced in 1994. Last year, Adidas released the Predator 20. 3 - Market Analysis Retailers celebrate price skimming because it segments customers for deeper market analysis. Skimming allows marketers to segment customers into groups. Analysing what percentage of a given market paid premium prices is useful information to use for future products and pricing strategy. At the moment, Sony may consider price skimming in regards to its PlayStation 5. Early adopters and brand fanatics gladly paid premier prices for Sony’s newest release. However, data reflects a trend. Sony lowered the price of its previous PlayStation products over time. Sony sold more PlayStation 4 consoles in the third and fourth year after its release than the first two years on the market. It’s likely that Sony, observing a rising trend in gaming combined with its previous sales data of PlayStation consoles, initiated a price skimming strategy. (Source: https://camelcamelcamel.com/PlayStation-4-Console/product/B00BGA9WK2) Related Reading: Amazon Success Strategies 4 - Pricing Strategy Price skimming is an element of a larger pricing strategy. Some brands leverage price skimming for ROI and market analysis, but skimming price can be beneficial as a way to further inform a brand’s broader price strategy. For example, Nike had very modest sales goals in mind upon releasing the very first Air Jordan trainers. At the time, a “sneakerhead” or the thought of paying hundreds of dollars for a pair of trainers were nonexistent. The subsequent cycle of setting premium prices for new releases followed by loyal customer purchases created Nike’s brand mystique. Price Skimming Disadvantages 1 - Pricing Objectives Price skimming recuperates early investments and creates a mystique around a product or brand. But, it can potentially alienate early adopters too. Emotional appeal can help or hinder a brand. Lowering the price of a previously high-priced item may irritate early adopters. The lowered price affects early adopters, and it also means that more people are likely to own a product. That lessens its sense of prestige and exclusivity. Consider long and short-term goals along with possible reactions from loyal customers. In 2007, the price of that year’s must-have gadget, the iPhone, was lowered from $599 to $399. This enraged early adopters to the point that Steve Jobs had to make a public apology and offered $100 Apple store credit to any iPhone owner who felt “cheated.” Related Reading: How to Build a Pricing Strategy 2 - Reality Check Price skimming is an incredible pricing strategy available to those offering high-demand products. Luxury brands, like Gucci and Louis Vuitton, command high prices for its highly sought clothing and accessories. These brands are at an advantage in having more leverage in setting high prices that rarely come down. A major disadvantage of price skimming is that many brands don’t have the ability to implement it. However, Dynamic Pricing software delivers the data to make real-time pricing decisions a lot easier. 3 - Relative Competition The decision to wage price skimming is often relative to a retailer’s competition. Setting prices high can inspire customers to buy from competitors. Price changes rarely go unnoticed by the competition! Consider launch prices related to Xbox and Playstation products: Annually, Xbox and PlayStation are compared. And, price is always a main focus. Any pricing maneuver from Sony is sure to be closely monitored and countered by Microsoft (and vice versa) for years to come. Utilizing retail tools, such as Pricewatch, enables you to get real-time data pulled from a competitor’s website as well as shopping search engines. Conclusion Price skimming is another tool retailers leverage to gain market share and crush competitors. Used in combination with sophisticated pricing software, skimming prices can be tremendously advantageous. Recover a greater return on initial investment, position products to attract premier buyers, gain greater awareness regarding customer segmentation, and use data to inform future pricing strategies. Curious to learn about some other pricing strategies? Check out some of our other articles below. What is Value Based Pricing?: A full overview of how price and consumer perception works together. What is Charm Pricing?: A short introduction to a fun pricing method What is Penetration Pricing?: A guide on how to get noticed when first entering a new market What is Odd Even Pricing?: An explanation of the psychology behind different numbers in a price. What is Bundle Pricing?: Learn more about the benefits of a bundle pricing strategy What is Cost Plus Pricing?: In this article, we’ll cover cost-plus pricing and show you when it makes sense to use this strategy. Here’s What You Need to Know About Psychological Pricing (Plus 3 Strategies to Help You Succeed): Modern day pricing is so much more than a numbers game. When thought about correctly, it’s a powerful way to build your brand and drive more profits. How to Build a Pricing Strategy: A complete guide on how to build a pricing strategy from Omnia partner Johan Maessen, owner of Commercieel Verbeteren.

Dynamic Pricing, Pricing Strategies

14.04.2020

3 Pricing Strategies that Incorporate Product Popularity

We’ve just announced a new data service called Product Popularity Scores. This new data service is an add-on to your Pricewatch export that shows the product popularity scores for different price comparison websites in NL and BE. It’s designed to give you a better idea of what’s popular in the market so you can make more informed strategic choices when it comes to buying, marketing, pricing, and more. We wanted to give some inspiration into how you can actually use this service to create better pricing strategies. Below are three examples of pricing strategies that you can enhance with Product Popularity Scores. What is a Product Popularity Score? Product Popularity Scores are insights about the popularity of different products. At Omnia, can give product popularity information for a number of comparison shopping engines (CSEs). We don’t provide a “score,” per se, of product popularity, but rather provide information like the number of out-clicks a product has or who the most popular retailers are per comparison shopping engine. The type of data can vary depending on the comparison shopping engine you use, but in all cases it’s interesting to know how products react on different CSEs. Different product popularity strategies Product popularity insights are extraordinarily useful data points to incorporate into any of your pricing strategies. Here are three ideas on how to get started with this data. 1: The high-runner strategy The high-runner strategy combines two major pieces of information with your internal strategy. These two pieces of information are product popularity on the market, and product price elasticity. A high-runner is a product in your store that is extremely popular and which is sensitive to price changes. Depending on your category there may not be very many of these products in your assortment, but they tend to sell frequently. An excellent example of a high runner product is a recently-released smartphone. With the high-runner strategy, you use the power of these products to draw people to your store. This means discounting heavily on these products and marketing them aggressively so they appear favorably in comparison shopping engine search results. This pulls people to your store and builds consumer confidence that your store offers the lowest prices on high-demand products. Once a consumer has added this high-value product to their cart on your site, they’re unlikely to leave. This is when you can present them with different, inelastic products as a cross- or up-sell. These fully-priced products are where you can recoup your lost margin on the high-runner products. Take the smartphone example. If a shopper has entered your store and placed the cell phone in their cart, you might consider showing them a phone charger or phone case as additional suggested purchases. If the price is significantly lower than the main product they’re buying, consumers typically have no problem adding the inelastic companion item to their carts as well. 2: Bundling Product bundling is a pricing strategy that most retailers are well aware of. With bundle pricing, retailers will offer several different products (or services) as a package deal. This package is sold to consumers at a slightly discounted price than it would cost to buy the products separately. An example of a bundle in the outdoor clothing category Bundling is common in many categories, and you may use a bundling strategy already. But product popularity scores can let you make even smarter bundles. One way you might use bundling is to make your high-runner items even more attractive. If you price aggressively on the high-runner items, you can pull traffic to your site. You can then use bundles as a way to sell even more product once you have the traffic. Another way you can use bundles and popularity data is by creating bundles of popular products and using the bundle to optimize for price. In the traditional high-runner strategy, you discount each popular product individually and use adjacent products to recoup the lost margin. But what if you bundled the most popular products together? If you see that the most popular products in the market could combine well together, you could create a bundle of these high-ticket items and sell it at a slightly higher price than you could if you discounted each product individually. While you can still discount the products individually to draw people into your store, offering the products together gives you some room to improve your margins. Consumers may be willing to pay for the convenience of the bundle, especially if it’s an extremely large bundle that would require significant time investment to recreate. Example of a bundle built around one major high-runner item: a Nikon camera. It would require a significant amount of time to find all of these products separately. 3: Stock-based pricing A third strategy you can enhance with popularity score data is a stock-based pricing strategy. Stock levels and product popularity are inherently connected. If a product is popular, you’ll want to have more of that product in stock. If a product sells less frequently, less stock is required. In our blog about stock-based pricing strategies, we outlined four simple scenarios: When you have high stock levels, follow a pricing strategy as normal When you have high stock levels, decrease your prices When you have low stock levels, increase your prices When you have low stock levels, decrease your prices If you add popularity score data to these strategies though, you can make your pricing more nuanced. If you have low stock levels of a very popular product, for example, you can increase the price by a larger percentage than you would for products that were less popular. Final thoughts Product popularity scores are interesting data points that let you enrich your pricing strategies with even more nuance. This data is remarkably insightful and can help you come up with creative ways to sell more products or earn more margin.

Dynamic Pricing, Pricing Strategies

27.03.2020

What is Stock-Based Pricing?

Last week, as a response to the coronavirus, we offered some pricing advice to our customers: use stock levels as a way to prevent unintentional price drops on your products. To give some more background on this pricing method, we decided to create a blog post outlining what stock-based pricing is, why you may want to use this pricing method, and a few different strategies to consider while implementing it. Keep reading to learn more about this versatile pricing method and how you can use it strategically. What is stock-based pricing? Stock-based pricing is a pricing method. With this method, you can choose to use stock as a factor for a product’s price. In the graphic below you can see stock-based pricing at work in its most traditional setting. On Monday, when stock levels were high (as indicated by the blue bar), the price for this product (indicated by the blue line) was somewhat low. By Tuesday and Wednesday though, the stock levels dropped, and the price increased as a result. By restock on Thursday the price decreased again. As stock numbers dipped on Friday and Saturday, the price increased once again. Why use stock-based pricing? Stock-based pricing combines well with other pricing methods, and is a great way to enhance your overall pricing strategy. It also gives you some more control over what happens in your store as stock levels change. Even if used alone, stock-based pricing will help protect margins and can make your store more competitive. When you make a pricing rule, instead of making rules on actual stock levels, you want to set rules on stock coverage and stock age. Stock coverage is stock level divided by sell through. It's a more insightful metric because stock levels mean very little without relating to sell through. In Omnia, the field to use for the sell through is units sold in the last four weeks. Stock age is the number of days since the last stock increase or resupply. If you don't use both of these metrics, your dynamic pricing tool may begin to immediately discount on new products. At the start, the stock may be high, but the sell-through may be zero. Examples of stock-based pricing strategies Stock-based pricing can work into many different kinds of strategies. In some ways it should be an element of any well-rounded pricing strategy. If you’re just getting started though, there are four simple ways to use stock based pricing in a dynamic pricing tool. When you have high stock levels: use your standard pricing strategy This strategy is a “business as usual” strategy. When you implement this rule in your dynamic pricing tool, the tool will follow your standard pricing strategy as long as stock levels remain high. When you have high stock levels: decrease your prices Do you have some unwanted inventory that you’d like to get rid of? This is a great chance to use stock levels as a trigger to decrease the price. This strategy can be used any time of year if you have overstock, or simply just want to pursue an aggressive pricing strategy. When you have low stock levels: increase your prices In most cases, it is perfectly acceptable to increase your product price if there is a limited supply in stock. The main reason to do this is to prevent running out of stock too quickly on high-runners. This is especially useful during the coronavirus pandemic when global supply chains are unstable. This strategy also follows the basic law of supply and demand, and is something consumers understand inherently. That said, it might be worth packaging this strategy around a limited-edition product that has extra, more expensive features. When you have low stock levels: decrease price The final basic stock-based strategy is to lower your price when your stock levels decrease. This may sound counterintuitive, but if there is product that you want to clear out, this may be a strategy to consider. This strategy is great for end-of-season sales or holiday-themed products, for example. Advanced stock-based pricing The above scenarios are only the beginning of what you can do with stock-based pricing. Below are two more “advanced” pricing methods. Use seasonality When it comes to seasonal products, low stock may not be a good trigger to increase prices. In the case of these products like winter jackets, outdoor sports equipment, home repair supplies, and more, the response to stock levels will vary by the calendar month. Say you’re selling winter coats. If your stock is low in November, it might be a great trigger for a price increase. But if your stock is low in April or May and your price increases, you risk missing out on sales or damaging your price perception. If you are selling seasonal goods, you can have your dynamic pricing system automatically check if your stock rotates at a healthy pace. Is your stock rotating too slow? The system will slightly decrease prices. Are you selling too fast? The system can slightly raise prices to add some extra margin. By using this strategy, you maximize your bottom line margin on a SKU level and prevent going into the end of season sales. Do you need to update the seasonality of these products every few months? Not necessarily. Your dynamic pricing tool may have seasonality embedded into its pricing rules. In Omnia, you can provide the end of season date in your feed and the tool will automatically factor this into its price advices. Add sales data Combining stock-based pricing with sales data from the previous week (or month) can be useful for planning your pricing and stock strategy. If you see that sales are consistently higher on Mondays, for example, you can adjust your prices and stock levels on that day according to your commercial strategy. If your goal is to be a premium retailer with small-batch orders, you may limit your stock on Monday and increase your prices accordingly. If you want to follow a more aggressive pricing strategy, you may increase your stock for the Monday flow and decrease your prices. Final thoughts Stock-based pricing is a great supplement to any existing pricing strategy. During the coronavirus outbreak as the market becomes more dynamic, it’s especially useful to protect the stock levels of your high-runner products and prevent unintentional shortages in supply.

Dynamic Pricing, Pricing Strategies

09.09.2019

How Reference Pricing Keeps Your Private-Label Products Agile

For most products sold across multiple retailers, the process for dynamic pricing and market monitoring is relatively painless. All you need to do is provide the GTIN code for these items, then your dynamic pricing system can search the web for that GTIN code. And while you probably have plenty of these “matchable” products — products from different brands that you can “match” based on GTIN codes — what do you do about the private label products you produce and sell exclusively in your stores? When the system can only find the GTIN for a product in one store, how can you make sure the price of that product still stays as agile as the market? This is where reference pricing becomes a crucial part of your dynamic pricing strategy. And if you’re a retailer who sells these products, this post is for you. Keep reading to learn more about reference pricing, how to implement it in your dynamic pricing tool, and how to reap the benefits of this powerful tactic. What is reference pricing? A reference pricing strategy uses the prices of similar products on the market to help you determine the price for your private-label products. If your company sells private label light bulbs, for example, which can’t be found elsewhere on the market, a reference pricing strategy lets you monitor the market prices of similar light bulbs across other retailers so you can adjust your price to market levels. Why is reference pricing important? Any retailer who creates unique products in-house can use a reference pricing strategy. And the benefits are numerous, such as letting retailers: Sell more private label products Keep private-label products competitive online Protect brand image and online price perception Control market positioning for private-label products Keep price in line with relative value towards comparable products In short: it’s a sensible strategy that lets retailers (and brands, in some cases) manage the prices of their private-label items online. How does reference pricing work? Reference pricing starts with deciding which products on the market are most similar to your private label products. If you make a smart light bulb, you will need to decide which manufacturer produces a lightbulb that is most similar to yours in terms of features and overall value. This is the hard part because it requires a certain amount of manual labor. But once you determine which products are most similar to your own, the process becomes much easier. All you need to do in your dynamic pricing system is link your product’s GTIN codes to the other product’s and determine how you want your private-label item to relate to this product. Your pricing system will then follow this branded product one-to-one, and whenever the price changes on that branded product it will update your own product price. Some systems (like Omnia) will take it a step further and even update your product prices automatically. This saves you the stress of manually doing the price updates and makes sure your products are constantly aligned with the branded product online. How to set up a reference pricing strategy Creating a reference pricing strategy is relatively easy, but it does require a certain amount of “grunt work” before you can fully benefit from the practice. Though we briefly described how reference pricing works above, in this section we’ll dive deeper into the steps you need to go through for a successful strategy. Step 1: Determine which branded products are most similar to your private-label products, and collect the GTIN codes of these products To start, you need to uncover which product you want to use as the reference point for your private-label price. This is the hardest part of the process because it involves manual labor. Think about what your product does. Consider your product features. If you have a private label smart light bulb, features you might consider are: The type of bulb Light power Energy efficiency Average lifespan Number of colors Security Connectivity Weight Size Voltage The more specific you can get, the better. The above list is by no means exhaustive for a lightbulb manufacturer, but it does provide a good starting point for determining the important factors that you’ll compare your product on. Once you’ve decided which features you want to use as a reference, you need to go through competitor products to determine which one is most similar to yours. This will be your reference product. Once you know which item will be your reference point, you can find the GTIN code for that product. Step 2: Determine the value gap between products After determining which branded product you’ll use as a reference point, you’ll need to decide how you want your private label product to relate to it in terms of price. For example, say you want your private label product to be seen as the more cost-effective alternative to a name-brand product. You’d then obviously price yourself slightly lower than the reference product. But the degree to which you price yourself lower depends on your commercial strategy, the nature of the product itself, and the capabilities of your dynamic pricing tool. Read more → How to Build a Pricing Strategy To decide this, you’ll want to get all relevant product stakeholders in the room. Here are some questions to help facilitate your discussion. What is your commercial strategy? What is your desired price perception? How does your goal price perception relate to your reference product’s price perception? Step 3: Create pricing rules in your dynamic pricing system So you’ve determined your reference product and how you want to appear in the market relative to that product. Now you need to turn those ideas into concrete rules in your dynamic pricing tool. Every dynamic pricing tool will be slightly different in this approach. If you already have a software provider, you should ask the company how to set this up. If you’re still shopping around for a solution, this is something to consider in your purchasing decision. Step 4: Implement, test, and improve your strategy Once your pricing rules are in place, you’re ready to go live with reference pricing! Let your system run as normal, then update your prices accordingly, whether that’s by hand our through automated price updates. Final thoughts Reference pricing is critical for retailers (and some brands) who produce their own products and want to keep those product prices aligned with the overall market. And while it might seem intimidating at first, after the initial task of deciding on your reference prices and setting pricing strategies, your dynamic pricing solution can easily manage your prices. Curious about reference pricing, but want to learn more from a human expert? Reach out to Omnia today to chat with one of our consultants. Click here to get in touch today.

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