E-commerce Pricing: How to Scale and Grow

E-commerce pricing is a strategic tool for scaling product categories. Category managers require constant access to data and analytics to establish prices that balance the needs of the business, customers, and the market.

In our article Evaluating an E-commerce Product Category: Identifying Key Indicators for Analysis in 2024, we discussed how to understand where your category currently stands compared to the market. Here, we explore key data points you need to establish the optimal price. But first, let’s begin with some theory.

Contents:

What Is the Market Price?

How Can You Determine a Product’s Optimal Selling Price?

Competitive Pricing: Market Price Analysis

Suppliers: Monitoring Partner Prices

Product Repricing: Scaling Through Automation

What Is the Market Price?

The market price is the prevailing price at which goods, services, or assets are bought and sold in a free market, influenced solely by market factors such as the balance of supply and demand. The market price serves as a reference for determining the optimal selling price.

The optimal selling price is the price at which revenue and sales volume are maintained or increased, while expenses are kept at an acceptable level for the business.

The relationship between market price and optimal selling price is an important factor for e-commerce.

How Can You Determine a Product’s Optimal Selling Price?

A category manager needs to be well-versed in price elasticity of demand to identify the optimal price.

Price elasticity of demand measures how sensitive demand for a product is to changes in its price.

The formula for calculating demand elasticity is: 

Demand elasticity = (Percentage change in quantity demanded) / (Percentage change in price)

Types of demand elasticity:

• Elastic demand: When the percentage change in quantity demanded exceeds the percentage change in price (i.e., elasticity > 1). With elastic demand, consumers react significantly to price changes.
• Inelastic demand: When the percentage change in quantity demanded is less than the percentage change in price (i.e., elasticity = 0). With inelastic demand, customers do not react much to price changes.
• Unitary elasticity: When the percentage change in quantity demanded equals the percentage change in price (i.e., elasticity = 1). This means that the percentage change in quantity demanded is exactly proportional to the percentage change in price.

By understanding the type of demand elasticity that a product has, you can identify the price points where you can boost the category’s sales volume and profits.

However, while demand elasticity is crucial, it is not the sole factor influencing the formation of the optimal selling price. Other factors to consider include:

• Competition
• Cost price
• Availability of the product on the market
• Brand loyalty of the seller
• Presence or absence of exclusive selling conditions for the retailer
• Sudden changes in the economic situation, etc.

In this article, we focus on competition and cost price, while others will be discussed in subsequent pieces in our series on scaling a product category.

Competitive Pricing: Market Price Analysis

If the same product is offered by several retailers simultaneously, the customer is likely to choose the offer with the lowest price. This represents the simplest behavioral scenario, and in e-commerce, customers can quickly compare the price of the same item across different online stores.

If you have conducted competitive pricing analysis and have information about market demand, you can effectively manage prices, increasing sales and your market share. Essentially, online retailers sell around 20% more goods at market prices than at prices that ignore rivals.

And here arises the main question: How can you track competitors’ prices if they constantly change? The good news is that in recent years, the market for price monitoring solutions has been rapidly developing.

Let’s consider the Pricer24 platform to see how automation helps category managers save time on analyzing large volumes of pricing information.

1. Data collection without human involvement. The Pricer24 Price Crawler continuously scans competitors’ online stores, matching product pages with your SKUs. The price scraper regularly traverses websites and gathers competitor price data.
2. Price analysis. Collected data is visualized in reports, which can be easily customized using filters according to your current task:

• Monitoring for real-time analysis of competitor prices
• Price comparison to compare your prices with competitors’ prices for products, categories, brands, or segments
• Price change tracking to assess price fluctuations and analyze price history for a specific period

Let’s examine the most interesting price analysis features provided by Pricer24.

Price Comparison

The Price Comparison report shows how your price positioning relates to competitors’ prices.

This report reflects the number of market offers that are higher or lower compared to yours, allowing you to quickly identify problematic areas.

To understand which brands and products  have higher prices in your online store compared to competitors, apply the brand filter. If you need to view all products where your price exceeds the market price, double-click on the Grand Total cell.

MSRP monitoring

You can monitor competitors’ compliance with MSRP by checking which products are priced below the brand’s recommended retail price. This information can then be provided to vendor with a request for action.

Price Fluctuations: Before and After

Pricer24 also provides the option of tracking dynamics of price changes in the market. In the Price Fluctuations report, you can see when and by how much the prices of your SKUs have changed on competitors’ websites. You can set your own fluctuation level, which will be highlighted in the report.

Suppliers: Monitoring Partner Prices

Optimizing procurement is another important step towards scaling your product category. By comparing supplier prices, you can find the best offers and increase sales profitability.

This process can also be optimized using tools for automating data collection and analysis, significantly speeding up the search for lower procurement prices.

For example, Pricer24 scraping software can regularly collect data from supplier price lists several times a day using various methods:

• Retrieving prices via API from distributors’ B2B websites
• Extracting data from emails received from distributors
• Accessing suppliers’ Google Sheets

Additionally, Excel price lists can be uploaded manually into the system. All this data from different sources is aggregated, consolidated, and segmented so that you can conduct analysis across different segments.

Here’s a typical use case: Say you are running out of a certain product and you need to quickly determine which partner is currently offering the most favorable terms for ordering it. The Price Comparison report, searchable by product, can answer this question in seconds. You can see which suppliers currently have the product in stock and at what price.

Furthermore, you can segment the data as you wish according to your analytical tasks, filtering by brand, category, or new items.

Product Repricing: Scaling Through Automation

Automated product repricing enables continuously setting competitive prices that maximize business profitability given the market situation.

For instance, dynamic pricing in Pricer24 can take into account various factors:

• Competitor prices. Example rule: The price for Brand A products should always be $1 lower than Brand B equivalents.
• Market scarcity. Example rule: In case of product unavailability among competitors, increase the price by 20%.
• Overstocking. Example rule: If the quantity of the product in the warehouse exceeds 100 units, decrease the price by 5% to stimulate sales and reduce stock levels.
• Currency exchange rate fluctuations. Example rule: If there is a 5% increase in the dollar exchange rate against the local currency, the product price should be increased by 3% to offset the higher procurement costs.
• MSRP. Example rule: The minimum price for Brand A products should be 5% lower than product prices of the largest competitor, but not lower than MSRP.

With Pricer24, category managers can configure pricing strategies considering these factors and set separate rules for exclusive products (for example, a base markup of 5% for the entire category and 10% for exclusive SKUs).

Automating product repricing in an online store helps with effectively responding to market changes and scaling successful sales strategies to other categories.