Adjusting the Prices of an eCommerce while Maintaining Profit Margins Is Possible

Editor's Note: Take a look at our featured best practice, Pricing Strategy (38-slide PowerPoint presentation). Pricing Strategy is a core pillar of Marketing and Product Strategy. It is 1 of the 4 Ps of Marketing (also known as the Marketing Mix - Product, Price, Placement, and Promotion). As such, knowing how to properly price your product is extremely important to the commercial success and viability of [read more]

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Maintaining the profit margins in an eCommerce with dynamic pricing

For an online pricing strategy, one of the most complicated tasks is maintaining the profit margin. Digital sales have given us a wide range of options and, above all, of competitors against which we have to fight and match to stay in the market. This is precisely why it’s necessary to make continuous changes and modifications that must be closely monitored to not incur losses in your eCommerce business.

Dynamic pricing strategies allow online brands and retailers to keep their prices constantly updated so as not to miss out on any sales opportunities. This frantic activity does put your earnings at risk, though. Setting limits, designing a strategy that’s faithful to your business objectives, and having on a good pricing tool to rely on are the three ingredients that will allow you to achieve the highest profits at all times. Let’s see how these ingredients work together to maintain profit margins by matching online prices.

Design a pricing strategy by measuring all factors

As we said at the beginning, one of the main ingredients that will allow you to maintain your profit margin is setting limits. Putting caps on continuous price drops is vital to avoid falling into conflict zones. Depending on the market, the type of business, and the catalogue of products on sale, we can work with one margin or another. In either case, the production, structural, logistic, and distribution costs, etc. are a fundamental consideration when setting prices using a conventional strategy. Well, we mustn’t forget that these should also be considered within the dynamic pricing strategies that we’re using.

The relationship between these limits and the objectives of the eCommerce business are closely interdependent. They can be shifted up or down depending on your sales prospects. What factors come into play when applying discounts?

• The production cost
• The sales price
• The desired profit margin
• Any added taxes
• The sales forecast in potential units

All of these directly affect the final sales price seen by the consumer and, therefore, the base on which the discount is applied. With online price readjustment, you can’t exceed the cost line if profits are to be maintained.

How can technology help on this journey?

The most advanced pricing tools have to align themselves with achieving the objectives of the eCommerce business. After all, this should be a tool that allows them to activate their sources of growth and automate those more cumbersome processes – especially since these are usually coupled with greater human effort and time that could be invested more productively in the business.

Pricing software should allow an eCommerce business to set limits based on its needs with as many scales as are necessary to offer the highest percentage of security in the implemented strategy. The pricing tool from Minderest has achieved this thanks to its high degree of customisation. By adjusting its many variables, you can mark both the lower and upper limits for the product price, grouping them by catalogue category, type of offer, or the applicable profit margin.

For eCommerce businesses with a large range of products and extensive catalogues, this characteristic is one of the most valuable. Online supermarkets and large retailers like Decathlon, Leroy Merlin, and Carrefour can confirm the success of this pricing tool thanks to the control that it allows them to have over the profit margin for each and every one of the products they sell.

Staying afloat in the war over the cheapest prices

The paradigm of online sales has started what’s already known as the discount war. All eCommerce businesses sell the same product cheaper than their competition, resulting in a downward spiral of prices that often becomes unsustainable.

The online shopper is a consumer that’s already accustomed to comparing prices, dealing with the impact of thousands of pieces of advertising and content every day, reviewing the different options before making a decision, and, also, assessing the other aspects of the eCommerce business before carrying out their purchase. It’s a mistake on the part of online stores to believe that the cheapest option will always be chosen since the price isn’t the only factor to consider in an online transaction.

The true weapon in this war of prices and discounts is knowing how the consumer acts, understanding how they make their decisions, and anticipating what they need as often as possible to offer it to them at the right time, while understanding the context in which the purchase will take place.

Executing a pricing strategy adapted to these needs of the user and of the business itself should be one of the goals for all eCommerce businesses this year. The market continues along its path and changes very quickly but, in the end, the goal remains the same: to get a piece of the pie and enjoy the greatest profit.

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