How can Pricing become a Key Success Factor for your e-commerce?

How did we do it before the internet?

You walk into your favorite store, take a brief look at the displays, touch a few items to feel the texture. Suddenly, you find your crush, grab it, try it on to see if it suits you well. You love the item, the only thing that separates you from it is the price tag. You return it and check how much the item is worth. Ouch! It's expensive. It's not a good deal... So you give up on this purchase and leave the store disappointed. Sounds like a very old story, doesn't it ?

What the internet has changed in our purchasing behaviors

Today, we follow our favorite brands on Instagram, Tik Tok... we spot a product and find out where it is sold in seconds.

For the same product, we have an infinite number of purchasing options : e-merchants, marketplaces that sell identical products at different prices.

Google's consumer barometer below shows how much time is spent researching a product online before a purchase decision is made.

As you can see from this chart, for only 21% of online purchases, consumers started their research right before that purchase. For all other online purchases, the search started hours, days, or even months before the act of purchase!

Price, a key factor in the purchase decision

So how many products and prices do you think a consumer sees before landing on your website and buying something? Hundreds to thousands on average.

Let's look at some statistics:

How can you use Pricing to your advantage?

Don't let these numbers scare you. Instead, see it as anopportunity to gain an advantage and increase your sales !

Pricing  in e-commerce can act as a traffic-generating marketing tool, influence comparison engines and increase your conversion rates.

There are many pricing strategies.

Here we will detail different pricing strategies that may prove to be the deciding factor you were looking for to win the online competition

Cost-Based Pricing Strategies

This method requires the company to know all of its unit costs for each product in its catalog and then set a target profit margin per product.

The formula is as follows:

Unit costs

Here are most of the common costs in e-commerce :

This may seem obvious, but it is really shocking to see how many e-merchants do not know in detail their unit costs

The target profit margin

Now let's take a look at the second part of the equation, the target profit margin.

AND this is where most e-merchants become too greedy

The crucial task is to find the right profit margin that will maximize your profits without causing you to lose customers.

There are 2 pitfalls to avoid:

To determine the right price positioning, two major factors  must be taken into account that play an important role in the price/demand relationship:

For example, when you sell a diamond necklace, you know that price is not the most important criterion for buyers and that they don't have a real point of comparison. However, in a sector like consumer electronics, where competition is fierce and products are identical, players with relatively high prices have very little chance in the market.

Market-Based Pricing Strategies

If you're not the only player in the market, or if you're not selling a unique product, you should definitely keep an eye on your competitors. There are around 860,000 e-commerce companies active in the industry. In this huge jungle, each company is in direct competition with at least 15 to 20 other companies.

That's why online retailers can't ignore the competition in the market. As we mentioned above, consumers care a lot about price and they compare prices all the time.

Pursuing a competitive pricing strategy doesn't mean undercutting your products and lowering your prices and margins to a minimum. Leading a race to the bottom is not beneficial for anyone.

One of the main benefits of market-based pricing with strong competitive pricing intelligence is that it also allows you to detect opportunities for price increases that maintain a competitive advantage.

Let's take a look at this example: 3 retailers sell the exact same casserole. The former, the most competitive, sells it for £171.08. The second and third sell it for £210.00.

In this scenario, the first retailer could detect this opportunity to increase their price through competitor price monitoring software like Price Observatory and increase their price just below their competitors. It would thus increase its margin while remaining the most competitive on the market.

Dynamic Pricing Strategies

Dynamic pricing is a highly cost-effective e-commerce pricing strategy in which marketers set flexible prices by taking into account costs, target profit margins, market demand, and competitor pricing.

Dynamic pricing allows you to set the optimal prices, at the right time, based on demand and the market in real time while taking into account your business objectives.

Having tons of data is great. But, the key is to convert data into actionable insights.

Dynamic pricing and re-pricing software, like Price Obervatory, collects competitors' prices and immediately adjusts your prices based on their changes and your margin goals.

You can define rules such as:

Dynamic pricing bots work all day long, and your prices will be changed in real-time based on market fluctuations and the rules you set. With this tool, you are able to react to every move in the market, and your prices always remain competitive or optimized.

Dynamic multi-channel pricing

For sellers who sell on marketplaces, there are also features that allow you to generate different prices per marketplace.

Thus, you can define rules for each marketplace based on the prices of competitors present on these marketplaces in order to send an allotted or optimized price for each marketplace. This strategy is very powerful because it allows you not to lower your price unnecessarily on marketplaces on which consumers make their price comparisons while staying on the marketplace.

pricing dynamique

Consumer Pricing Strategies

In all aspects of e-commerce, focusing on your customers is essential. When pricing your products, you need to be able to answer two questions:

Based on the responses you get, then segment your audience to target each group with the right products and prices. Use real-time data and purchase history to accurately identify customer segments.

After you've finished segmenting, set each group's willingness to pay (WTP) for your products. You can conduct WTP research yourself or seek professional help.

Price discrimination

Price discrimination is a tailor-made approach to consumer-based pricing in e-commerce. This strategy allows the same item to be sold at different prices to different buyers. It works on three levels:

  1. First degree: Consumers are charged the maximum of what they are willing to pay for a given product. For example, auction or auction sites. A customer can pay a lot more for a similar item depending on what they are willing to pay.
  2. Second degree : Consumers can choose their price discrimination. For example, they may be offered a lower price if they buy a product in larger quantities.
  3. Third degree : Products are priced differently depending on the customer segments.

This involves taking past and real-time customer data

Bundle Pricing Strategies

Bundling products is simple. It involves selling a range of products together at a discounted price compared to buying each item  individually

For example, many products require accessories. Some are required (like a lens cover on a camera that usually comes with the camera), but some are optional, like a tripod for a camera.

Grouping these products together is a great way to increase average order value, as customers are likely looking for similar items. Someone who buys a DSLR camera is likely to be interested in another lens or tripod.

Market Penetration Pricing Strategies

Penetration pricing is a marketing strategy used to enter a market by slashing prices to attract competitors' customers to their homes. Example: Free on the Box market.

Companies also use this strategy when they want to highlight a new product or service.

Pricing Strategies with Loss Leaders

The pricing strategy with loss leader products involves pricing a few products at a lower level than the market in order to attract customers to your website or store.

Once customers are on your website and convinced that your prices are in the right place, they will be more likely to buy your other items (at regular prices) as well.

This technique is widely used in mass distribution because consumers cannot buy each product on different sites and compare the prices of each product, but it also works in other sectors, such as cosmetics, DIY, etc., on which the consumer has several potential purchases to make.

For example, an electric toothbrush is a great appeal product. This electric toothbrush costs £99.

While we don't know the manufacturing costs, we can assume that they make most of their profits on replaceable brush heads.

When you think of an electric toothbrush, you don't tend to buy them often. And so brands can afford to sell them at a loss. Because they know that they will easily recoup their lost profit costs thanks to accessories that need to be changed much more regularly for oral hygiene.

So, if you want to implement a loss leader strategy but are worried, think about complementary products that you can highlight and that people will need to come back to your store for an additional purchase.

Price Skimming Pricing Strategies

E-commerce price skimming involves setting high prices during the launch phases. This means that companies can take advantage of the "novelty" effect of their product and maximize their profits from the start.

The takeaway from price skimming is that there are consumers who want to be the first to get a product. They love the feeling of exclusivity.

If you want to implement price skimming, use phrases like "exclusive offer" or "limited availability", "be the first to get your hands on", "pre-order", "preview"... in your marketing text to emphasize the urgency of the call.

Apple is the best example of a price skimming strategy. During the run-up to the release of a new iPhone, there are rumors and buzz even before the release announcement .

Once the time for the announcement comes, there has already been enough excitement generated to increase customers' appetite for purchase.Future iPhone owners camped out in front of the store to be among the first to get their hands on the new model. Others would pay weeks before

In conclusion, build your own Pricing Strategy

Pricing, when taken seriously and treated in a smart and creative way, turns into a secret and highly effective marketing tool.

The approaches we have shared here are not exclusive. You don't have to pick one and forget about the others. On the contrary, like most marketing and growth strategies, they work best when integrated into a blended strategy.

These strategies are also not exhaustive. You can find others, or even invent them. Be creative!

Define your business goals, needs, and interests. Then, decide which of the above strategies would work well with your goals. Combine them into a single pricing strategy that will fit your needs.

Finally, pricing is not a static task and requires a continuous effort to optimize and refine it as your eCommerce business grows. Just like any other ecommerce operation you need to manage, there will always be room for improvement and it won't be an easy task. But, fortunately, there are tools like Price Observatory that offer advanced solutions for e-tailers and brands  that allow you to define optimized pricing strategies adapted to your business.

For personalized advice on the pricing of your products, do not hesitate to contact our team of experts on our Price Observatory website.

Contact us for a demo, a real-world test or information

Omnibus EU Directive impact on Pricing Strategies

The Omnibus Directive : a term that resonates more and more in e-commerce circles, but despite its importance, many retailers and manufacturers do not know it precisely or have doubts about how to take it into account in their pricing strategy.

In this article, we'll dive into the world of the Omnibus Directive, explaining its background, purpose, and providing practical tips for staying compliant.

What is the Omnibus Directive?

The Omnibus Directive (EU) 2019/2161 is a European regulation aimed at modernising and harmonising consumer protection rules in the European Union in the digital and e-commerce age. However, it applies to both physical warehouse and online businesses.

 The new rules of the Omnibus Directive came into force on 28 May 2022, as specified in Article 10 of Ordinance No. 2021-1734.

Its objective is to ensure greater fairness and transparency regarding the commercial and pricing practices of merchants, retailers and marketplaces.

The main points of the Omnibus Directive concerning Pricing

1. 1. Price Transparency and Total Price Display

One of the main components of the Omnibus Directive concerns price transparency and the obligation to display the Total Price of a product or service.
The Total Price must be displayed at the beginning of the purchase process and must include all taxes, surcharges and shipping charges.

2. Transparency Regarding Promotions, Strikethrough Prices and Price Changes

In addition, in the context of a price reduction, a promotion, or sales, the Omnibus Directive makes it mandatory, alongside the updated price, to display the Reference Price, i.e. the lowest price offered in the last 30 days. The purpose of this regulation is to  allow customers to clearly assess the discount made and to strengthen confidence in the accuracy of the information provided.

Professionals have the freedom to choose how to display the discount (absolute value, percentage, strikethrough price, etc.).

NB: There are two exceptions to this rule: perishable goods and progressive Early Booking for travel, for example.

3. Transparency Regarding Personalized Prices

The personalized prices applied by certain sites based on consumers' purchasing behavior should be clearly displayed. For example, offers based on recent purchase history, such as Amazon's  with its recommended product carousel, should clearly state the original price, as well as the percentage and amount of the discount.

Risks of sanctions

Violators of these rules face  up to two years in prison and a fine of €300,000 for misleading commercial practices. The DGCCRF will be responsible for ensuring compliance with these rules during its inspections, in particular during large-scale price reduction operations such as sales or "Black Friday".

Best Practices for Brands and Retailers

Now that we have a better understanding of what the Omnibus Directive means in terms of pricing, let's take a look at some best practices that brands and e-tailers can adopt to comply with this regulation while offering an optimal customer experience.

1. Price Transparency from the Start

Make sure that all pricing information  is clearly displayed at the beginning of the purchase process, including taxes and shipping costs. Avoid hidden fees that might surprise customers at checkout

2. Clear Return & Refund Policy

Set up a  transparent  and easily accessible return and refund policy. Consumers need to know exactly what they can expect in terms of returns and refunds if something goes wrong with their purchase.

3. Verified Reviews

Be sure to only submit customer ratings and reviews that are verified by a reliable system to ensure that the reviews posted are from consumers who have used or purchased the products. Control and verification procedures must also be displayed and easily accessible by the consumer.

4. Protection of Personal Data

Make sure your website complies with GDPR data protection regulations. Obtain explicit consent from users to collect and process their personal data, and ensure that robust  security measures are in place to protect that data from breaches.

5. Transparent Communication with Customers

Be transparent in your communications with customers. Provide clear information about the products and services you offer, and respond quickly and effectively to any questions or concerns raised by customers

What are the impacts on Pricing strategies and Dynamic Pricing tools?

1. Use Price Intelligence Tools

Price monitoring tools are used to monitor the prices charged by competitors and/or resellers and to monitor their compliance with the rules as well as market fluctuations. By using these tools strategically, businesses can adjust their own prices based on market trends while remaining competitive.

2. Implement a compliant Repricing Strategy

 Repricing, or dynamic price adjustment, is a common practice to stay competitive in a fast-paced business environment. However, it is important to ensure that price adjustments comply with the regulations for advertising price reductions. By using intelligent algorithms and taking into account price intelligence data, companies can automate the repricing process while ensuring compliance with the Omnibus Directive.

Brands, on the other hand, can ensure that their resellers comply with its rules.

3. Ensuring Transparency and Integrity

In all pricing and repricing actions, transparency and integrity must be prioritized. Consumers must be able to trust the prices displayed and be assured that they are not victims of misleading marketing practices. By complying with regulations and taking an ethical approach to pricing, companies can build consumer trust and ensure their reputation in the marketplace.

The benefits of a more transparent pricing strategy

An Omnibus Pricing Strategy has a multitude of benefits for e-commerce, including :

  1. Improved price transparency and reliability : By accurately displaying discounts and complying with regulations, companies increase transparency in their pricing practices.
  2. Increased customer trust and satisfaction : Clear and honest pricing fosters customer trust, which can lead to better customer satisfaction and retention.
  3. Retention and acquisition of new customers : Ethical and transparent pricing can attract new customers while retaining existing ones, due to the increased trust it generates.
  4. Avoidance of deceptive pricing practices : By complying with the Omnibus Directive, online retailers avoid misleading practices that could damage their reputation.
  5. Promotion of fair competition : Fair pricing practices promote healthy and fair competition in the marketplace.
  6. Highlighting quality and value : By presenting prices based on real data, companies emphasize the quality and value of their products or services.
  7. Encouraging ethical practices : Pricing in line with the Omnibus Directive encourages companies to adopt ethical and transparent pricing practices.
  8. Contributions to sustainable growth : By building trusting relationships with customers and promoting fair competition, companies can foster sustainable business growth.

At Price Observatory, we offer advanced solutions for e-tailers and brands that allow you to adapt to the Omnibus Directive, ensuring  your company's compliance while applying an optimized pricing strategy.

E-merchants, stay competitive while complying with price regulations in an efficient way, thanks to our Dynamic Pricing module from Price Observatory

Brands and Manufacturers, monitor your resellers' promotional practices with our powerful, reliable and easily accessible price monitoring tools

For personalized advice on the pricing of your products and the Omnibus Regulations, do not hesitate to contact our team of experts on our Price Observatory website. Contact us for a demo, a real-life test or information

Like Apple, test the pricing strategy of the decoy effect

In the complex arena of e-commerce and web marketing, there is a subtle but incredibly effective strategy: the lure effect or the lure of price. This pricing technique is based on the deliberate addition of a significantly less attractive option among the alternatives offered, with the aim of making the other options more attractive by comparison. It is a game of mirrors where consumers' choices are distorted by the presence of a clearly less advantageous option.

In this article, we explain how it works and how to use it well through concrete examples.

Some brands, such as Apple, Spotify, Pathé... know how to use this effective technique in a subtle way to maximize their profits while respecting their consumers.

1/ Manipulate consumers by adding a decoy price option

The decoy effect cleverly exploits certain flaws in our cognitive psychology. When we are faced with several options, our brains naturally look for points of comparison to assess their respective value.

Adding a significantly more expensive option creates a benchmark that influences our perception of what is reasonable and affordable. It's as if this extravagant option acts as a yardstick, implicitly determining what is acceptable in terms of price for a given product.

This is because consumers tend to change their shopping preferences when they are offered a third option. This means that if the customer clearly prefers option A, which is cheaper than option C, he can change his mind if he is offered another option B in the meantime, between A and C in terms of price but significantly less advantageous than C. This effect has been studied in neuromarketing as one of the most effective cognitive biases to apply in e-commerce.

2/ Professor Dan Ariely's experience about the decoy price effect

In his book "Previsibly Irrational," behavioral economist and professor Dan Ariely demonstrates how a major magazine used this technique to increase its subscription sales.

Consumers were offered three types of magazine subscriptions:

  1. An exclusively online subscription for €59
  2. A paper subscription only for €125
  3. A subscription combining online access and paper format, also priced at €125

At first glance, Option 2 seems like an aberration. Why opt for a paper-only subscription at the same price as an offer that includes both paper and online access?

Faced with these 3 options, 16% of consumers chose option 1 at €59 and 84% chose option 3 at €125; Not surprisingly, none chose option 2.

However, the real revelation of this experiment appears when the decoy price is removed from the equation. When the latter option is removed, consumer preferences often change significantly. What was once considered a value proposition suddenly becomes less appealing, while initially overlooked options suddenly take on prominence.

Faced with only 2 options, 68% of consumers chose option 1 at €59 and 32% chose option 2 at €125.

It is therefore clear that the intermediate option was not superfluous; it made option 3 more attractive to consumers.

3/ Decoy Price examples from everyday life

An obvious example of the decoy effect is the packet of popcorn or candy at the movies.

When there are only two options, small or large package, the customer will conclude that the large package is more expensive and they don't want to eat as much popcorn. He will therefore buy according to his needs.

Small package → 3€ Large package → 7€

However, by offering a third prize, the decision changes. What for?

Small package → 3€ Medium package → 6,50€ Large package → 7€

The new price, the lure, will trick consumers into choosing the most expensive product, when they don't need it, because they feel like they 're getting a good deal and making a better purchase. This strategy is part of psychological pricing, because it is based on the interpretation of prices that buyers make, rather than on the real value of the products

4/ Which products does the Decoy Price Effect work with?

The decoy effect is effective with:

5/ What are the techniques to make the Decoy Price effect work?

6/ The risk with the misuse of the Decoy Price pricing technique

The main risk with this pricing technique is that buyers become aware of the scheme. This can damage brand image and cause the consumer to abandon their purchase. This technique should therefore be used with caution and fairness while respecting the consumer. For example, by offering an intermediate option that is clearly less advantageous, but not completely absurd either

In conclusion

The decoy effect is much more than just a marketing trick. It is a powerful tool that shapes our perceptions and influences our purchasing behaviors in ways that are often unsuspected. Understanding how price lure influences our decisions can allow e-tailers  to design more effective pricing strategies and maximize sales, while respecting consumers and avoiding overly underhanded and manipulative marketing tactics.

For personalized advice on the pricing of your products, do not hesitate to contact our team of experts on our Price Observatory website. Contact us for a demo, a real-life test or information

The 10 Pricing Rules Every Brand Should Know

As a manufacturer, it's up to you to set the prices of your products and your MAP Policy (minimum advertised price) This decision is crucial, as it directly affects your profitability, competitiveness, and market position. That's why understanding the fundamentals of pricing is essential to thriving in a dynamic and competitive business environment. Here are the 10 pricing rules all brands should know

1. Know your market

Before you set your prices, understand your market, your competitors, and consumer expectations. Analyze your competitors' trends, buying behaviors,  and prices to define an effective pricing strategy. Price Observatory gives you access to the price trends of your market, the evolution of price changes by periods, seasons, years. All the prices in your market are logged over 2 years.

2. Identify Perceived Value

Customers pay for the perceived value of your products, not just their production costs. Identify the unique features of your products and communicate them in a way that makes consumers understand their superior value. Detail these features in your product descriptions and make sure your distributors use the right texts.

Pay special attention to  photos of your products to increase their perceived value. In the same way, make sure that your resellers use the most up-to-date images of your products.

Price Observatory allows you to check with one click that all your resellers are up to date in the images and texts you have defined for your brand.

3. Establish your financial goals

Be clear about your financial goals, whether it's in terms of margin, market share,  or profits. Your prices should be aligned with these goals to ensure thelong-term profitability of your business. Repricing tools must take into account these financial objectives, including margin targets.

4. Adopt a Dynamic Pricing Strategy 

Don't set your prices statically. Take a dynamic approach by adjusting your prices based on market fluctuations, competitors, seasons, and promotional events to maximize revenue. Our data collection tools can allow you to track trends in price changes in your market. You can also use this data to inject it into your internal or outsourced tools to determine the best prices for your products through a system of rules or AI.

5. Be Flexible

Offer different options (prices, packs, combinations, etc.) to meet the varied needs and budgets of your customers. This will allow you to reach a wider audience and increase your sales (decreasing prices according to quantity, Bundle, Pack, Lots, Promo, Variation of the same product, etc.).

The Price Observatory tool allows you to automatically collect prices, promotions, strikethrough prices but also decreasing prices, product combinations and batch sales from your distributors and competitors in order to compare your data with theirs.

6. Keep an Eye on Your Competitors

Set up a price watch of your competitors' prices and adjust yours accordingly. Being aware of market movements will allow you to stay competitive and maximize your market share. The features offered by Price Observatory allow automatic monitoring of product references from other brands equivalent to yours. Price Observatory also allows you to track the prices, promotions and stock of private labels.

7. Control Your Distribution Network and your MAP Policy

All of these features are available in our Price Observatory price intelligence tool.
See information for brands and manufacturers.
View feature documentation for brands and manufacturers here

Having a real-time view of the prices, promotions and stock of your distribution network is essential to enforce your MAP policy and knowing how your products are evaluated is also essential to avoid bad buzz and sales drops.

8. Don't Underestimate the Psychological Effects of Pricing 

Prices have an emotional impact on consumers. Use psychological pricing techniquessuch as high prices, fair prices, "charming" prices (e.g. €9.99 instead of €10), and bundles to influence buying behavior. A high price is automatically associated with a notion of value and scarcity. However, all of this is purely psychological. For example, everyone believes that diamonds are expensive because they are rare. Diamonds are now among the most common gemstones on earth,  yet they are the most expensive gemstones.

9. Offer Purchase Incentives

Use promotions, discounts, and loyalty programs to encourage customers to buy your products. Special offers can boost sales and strengthen the relationship with your customers. Always set an expiry date for your promotions and emphasize the rarity and exceptional nature of your offers in order to encourage people  to take action by creating the fear of missing out on a good deal

10. Continuously Evaluate and Adjust

Pricing is an ongoing process. Monitor your pricing performance, collect  customer feedback, and adjust your strategy accordingly to stay competitive and profitable. Price Observatory's monitoring tools and BI analytics will allow you to generate accurate reports on each pricing action. Customizable dashboards are essential indicators for Key Account Managers (KAMs), Web Marketing Managers and E-commerce Managers.

By following these 10 pricing rules, and with our monitoring tools,  you will be able to maximize your revenue, strengthen your position in the market and ensure the long-term success of your brand.

For personalized advice on the pricing of your products, do not hesitate to contact our team of experts on our Price Observatory website. Contact us for a demo, a real-life test or information