Episode 7 - The Future of Competitive Pricing for Ecommerce
Don't race to the bottom! Learn more about how dynamic pricing can make you more competitive AND profitable.
Increases your sales growth & profit margins by uncovering your rival’s prices & tactics.Learn More
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- The Redundancy of the Price Match Guarantee (00:00)
- Let’s Dive In (00:26)
- Introduction (01:19)
- Algorithmic Trading as the Future of Ecommerce (02:38)
- AI Is Coming, Sooner Than You Might Think (04:25)
- Economics 101 Principles for Pricing (06:26)
- Changing the Game Through a Hybrid Approach (08:12)
- It’s Not a Race to The Bottom (10:57)
- Competitive Price Monitoring and Rules Based Adjustments (11:53)
- Multiple Parameters Dictate Dynamic Pricing (13:35)
- The Future of Competitive Pricing Strategy (15:45)
The Redundancy of the Price Match Guarantee (00:00)
"Yeah, I think price match guarantee will be redundant. The reason why you would apply a price match guarantee is that you don't really have the bandwidth to monitor your competitor prices to price against them, but you just kind of you know, to be honest, it's a little lazy to let your consumers do the price benchmarking for you. So they just tell you the cheapest price. So you basically reprice yourself against the cheapest price for the particular consumer."
Let’s Dive In (00:26)
That was Burc Tanir, CEO/Co-Founder of Prisync. And he's talking about getting rid of the redundancies of price match guarantee and putting dynamic pricing on your website. As you know, one of my favorite topics in this three part mini series on pricing and discounting strategy.
Today, we're going to hear from Burc on best practices for competitive pricing and dynamic pricing.
So I want you to sit back and relax and let's go on a journey to The Future of Ecommerce.
Thank you very much for our sponsor of this episode Prisync. Whether you have the same suppliers as your competitors, or simply similar products, you're going to want to know how they're pricing them and how that might affect your pricing and your sales.
Prisync allows you to monitor your competitor pricing as well as set pricing rules based on stock availability of your own store and your competitors stores in order to control the price point in which you're selling and therefore the profits. Yes, I'm talking dynamic pricing on your store. When you use this tool, it really can maximize your profit.
So in order to understand the future of competitive pricing and then dynamic pricing, as where we're heading in this industry, we need to take a look back at the past and I really like how Burc has paralleled the pricing strategy of many Ecommerce stores with the algorithmic trading bots of the finance markets. Let's have a listen.
Algorithmic Trading as the Future of Ecommerce (02:38)
"I really love the context of stock markets. When, when I, when I try to elaborate, when I try to demonstrate the value of our tool. So like like in, in the previous years, maybe talking in decades in the last few decades, I think stock markets evolved in the very same way that Ecommerce will be evolving in the coming years or so. So basically people trading via manual calculations in the very beginning, then they started to incorporate some computational power and then it becomes simply algorithmic trading.
I really see a future in Ecommerce where algorithmic trading will be the main actors of, I think I read something like that in the, in the last few weeks. I think currently the robots are making the majority of the trades in the stock markets worldwide. And if we translate it into Ecommerce I think, that will also be the case.
So don't, don't only think about pricing strategy. Please consider online merchandising as a whole, when I'm talking about algorithmic trading, I really believe and think that again, this might be biased and this might be too personal. I really believe that any robotic let's say decision making process in e-commerce can be automated in the coming years because we already have the technology, but we simply don't have the, the, the, actually let's say mainstream applications after, and we are trying to become one in that, in that direction.
So I believe that any, and also this, this should be adopted for all sizes of, by all sides of Ecommerce companies. So I'm not talking about a premium technology that can be adopted by only 1% of the markets at premium prices, but I'm also talking about a democratized way of software as a service technologies that can be also accessed by smaller, medium sized businesses."
AI Is Coming, Sooner Than You Might Think (04:25)
And for a second, let's take a look into Burc's mind on the broader e-commerce landscape and the future, especially pertaining to AI. And I got to tell you, this is my belief too, and I think it's coming sooner than you could imagine.
"So I believe that and any, any particular Ecommerce product listing on an Ecommerce website and all its let's say product display, starting from the pictures themselves started including the product names, descriptions, et cetera, can be written, can be actually published by an artificial intelligence. And also the, the, the, the, which products to be published can be such a decision. And the pricing is actually just, just one part of that decision-making process. So I'm seeing a potential feature in Ecommerce where the whole online merchandising approach sorry, operation will be done by robots. So just like algorithmic trading in stock markets."
Yes, it's coming. AI will take over the world, starting with your own website. Could you imagine, instead of having to hire people for marketing, copywriting, choosing products, supply chain management, all of that stuff could be managed in one place, through one or multiple AI trading mechanisms that understand the outside market, your current market and the decisions to make.
The first person to crack that nut will certainly be the one to make the most money. And yeah, the big players they're doing some of this already, but it will be democratized. You will have opportunity as a smaller merchant to take advantage of AI and the power that it offers for making smart choices with your business.
Let's get back into it with Burc, as he discusses, let's call them the old ways of typical pricing that you as a merchant or as a retailer, or even as a supplier might be using in order to determine your price point for your products.
Economics 101 Principles for Pricing (06:26)
"Even, even today, some of those principle are still applied. So pricing is basically, you know, economics 101, which can also operate towards 102, 201. I mean, it's not that simple, I know, but even if you have some economics, 101 economics studies in, in your head, you can like primarily start from cost-based pricing. So obviously if you are doing this business, I mean, if you are doing any business that you are doing for commercial purposes, for profits, you should have your cost of goods sold in mind. So you should be at this pricing of products like some degree higher than your cost of goods sold.
So I think that the most dominant pricing strategy across the markets, I mean, this is probably the majority of the businesses out there regardless of the industry. So they have a certain cost of goods sold and then they add a, at a target profit margin on top of text which will fulfill their a year out goals, et cetera.
And then they simply spray and pray. So this was probably the most old school, but still most widely applied tactic. And I think companies started to notice that, like you said, price transparency is now a thing in the, in the consumer space. So the customers are simply spoiled by choice because maybe back then they were not spoiled by that many of choices. So when you market your product to a consumer, they will buy it or not.
And there, they were simply not going to go to a competitor or something. So you, you had a shot and you could have achieved tons of conversion, but in today's let's say internet we have, we have tons of, let's say opportunities to dig deals deeper so we can become simple simply like professional deal hunters, score the web, see the cheaper prices, et cetera."
Changing the Game Through a Hybrid Approach (08:12)
"So just because of that, just setting a target profit margins on top of cost of goods sold is not relevant any longer because you know, you might be, you might be in most cases you might be overpricing your products so that no one will actually buy from you. Or in some cases you might really underprice yourself. Like I mentioned, so that you will be leaving tons of money on the table.
So people started to notice the importance of let's say, competitive pricing. So actually this brings us to where, where our dynamic pricing engine runs today. So it incorporates some elements of cost based pricing plus competitive pricing. And obviously the other aspect is pricing elasticity, which is again, economics 101. So people should be also figuring out whether their demand is increasing or decreasing when they change their prices in any, in any particular direction.
And obviously also not necessarily this is a zero or wanting, but they should also investigate the, the, the, the degree of increase or decrease in demand in, in response to their price changes.
So I believe the most applicable and the most Roy positive return on investment positive approach in today's Ecommerce market is an hybrid approach, which incorporates the basics good old school cost-based pricing strategy as the basis of everything. It also incorporates certain competitiveness by you know, making sure that you have a nice, competitive, sweet spot in the market, but also while being competitive, we shouldn't be always racing to the bottom and we shouldn't necessarily undercut our prices when it's not necessary by simply checking out our pricing elasticity. Because if you, for example, discount a particular product, your sales volume is not going to increase. So it doesn't really make sense to decrease that price.
In short cost-based pricing came first, then we also started to figure out competitive pricing matters as well, but to make it more, let's say sophisticated and to make it more effective, we also wanted to add pricing elasticity to stay on top of those competitive strategies, which brings us to probably the, the, the, the, the ultimate pricing strategy that works today."
Oh I love this. And I think you can see the natural progression of pricing strategies. And I think you might be wondering right now, okay, so we're tracking our competitor pricing. Doesn't that mean that we're just going to have to do more aggressively lower prices, discounting and stuff like that. And I think that's what a lot of people's concerns are as they raced to the bottom. Burc explains how you can actually do the opposite by finding the right price points, to increase prices as your competitors fall short.
It’s Not a Race to The Bottom (10:57)
"It doesn't necessarily force you to race to the bottom. So when, when people actually considers when people consider tools like a us, they always think that they will start benchmarking their prices against each other. And then when a competitor discounts, they will also be forced to make a reactive discount and so on and so forth. So, yeah, this is one end of the spectrum.
And depending on your strategy, this might be tested out, but in some cases, and in majority of the cases where we really proved our return on investment, our clients notice that their prices were actually two lower than their competition for a few of reasons.
So for example, in one case, our customers are simply before using pricing. They price their products with a cost-based pricing strategy. So in some cases they might actually have a cost advantage versus their competition."
Competitive Price Monitoring and Rules Based Adjustments (11:53)
"So they might be having the same product, maybe at a, at a 10% lower cost than their competition. So when they all apply the same, let's say market average profit margin. On top of that cost, they might turn out to be cheaper than their competitors.
So unless they really start monitoring the markets via tools like pricing, they will never learn about it. So they might be actually leaving tons of money on the table, but by applying this dynamic pricing rules that I mentioned, we might actually, even in some cases increase the price of our competitor or sorry, customers automatically.
So when, when you go back to the rule, I mentioned like if you define a rule, like I want to be 5% cheaper than the cheapest of my competitors with at least 10% profitability. So this little rule might simply increase your price. If your prices, if your prices were originally 10%, 15% cheaper than cheapest of your competitors."
And this is certainly the first step in competitive pricing monitoring, and rule based, adjusting on how you might have dynamic prices on your own site, but it's going to get a lot better from here with so many different factors that go into calculating the optimal price point.
Let's have Burc explain his vision for the future of pricing strategy, but also for the future of his tool Prisync. And again, you can check out Prisync at https://ecomtech.link/prisync. I do highly recommend you consider this tool for any competitive intelligence, competitive pricing that you might need to increase profit margins and sales for your store.
Multiple Parameters Dictate Dynamic Pricing (13:35)
"The way we see our dynamic pricing engine is actually always in, in, in development. So competitor prices is actually just one parameter that would eventually dictate the prices for an Ecommerce company.
So at the moment, we are only considering that in our dynamic pricing engine. So obviously, like I said, we like really care about cost of goods sold to make sure that our clients are setting both competitive and profitable price points, not just a competitive for the sake of increasing their sales volumes without caring about the profit margins. So, no, we are not in the play.
We are definitely after both competitive and profitable prices, but other than just focusing on competitor prices in our product roadmap, for example, and this is actually also the direction of the like dynamic pricing technology in the global landscape. We want to incorporate any particular let's say, parameter that you might imagine for a, for a product price.
So it might be the time of the day. It might be the month of the year. It might even be the weather conditions. It might be obviously the stock availability and stock accounts of your products, because obviously if you actually carry a heavy stock on a product, your inclination towards a heavy discounts will be higher than the case when you only have a few items in stock. So if you only have a few items in stock, you don't necessarily need to make any discounts at all. So you should stick with the original prices. So, you know, before you are running out of stock, you make sure that you actually sell those products at the most premium prices.
So we are actually now thinking in that direction, we are all in talks with our clients to see what other criteria that they would like to automatically incorporate into their pricing strategies. We are trying to partner up with relevant companies in that space, and we are trying to gather that relevant data points, other relevant data points than a competitor pricing from Ecommerce platforms like Shopify, Magento, et cetera, that we are integrated to. And hopefully that will actually create a one hell of a great, great dynamic pricing engine in the coming years or so."
The Future of Competitive Pricing Strategy (15:45)
I love it. I love this vision from the past of simply cost of goods sold plus margin, all the way to dynamic pricing that takes into consideration competitive intelligence data, looking at what other stores are doing and what their prices are, and whether their products are in stock, out of stock, as well as how much inventory you have in stock, your own conversion metrics and data across your site and across platforms.
You can see that the future of pricing strategy is going to be taking all these factors in at the same time and spitting out a different number today than tomorrow. Possibly looking at, like you said, time of day, looking at distance from our warehouse and all of those things to offer people the right price. And while some of this may seem taboo today in the 10 and 20 year future, I believe it will be the norm.
So I think if you're thinking about how to improve your store and your business, you need to be thinking about how to move towards a dynamic pricing model, become more competitive with your prices and understand what your competitors are doing to cost you money or make you money by accident, I'd assume and make sure that you're just competing in the market.
That's it for me on this episode, in our third part of this series, we will be diving deep into discounting strategies and looking at how to optimize those so that you're not just giving away random percentages or prices off of your store. I hope you enjoyed this episode. If you did, you could leave a review on your favorite platform, wherever you might be listening from for the entire show notes of this episode, you can go to https://ecomtech.link/podcast.
I'm your host, Derric Haynie, and I will see you in the future.