[White Paper] Pricing Scenarios:
Five Proven Profit Increasing Rules for Retailers
In this white paper, we show how online stores can increase its revenue with specific pricing rules examples. Use your data with the rules below, set your inventory prices more effectively, and increase the economic efficiency of your business!
We show no specific numbers to avoid any harm for your business: With no data on your business goals and market data they can not only be useless but cause an opposite result to the expected. Use your numbers!
Below all the gross margin scenarios, you’ll find a list of the data you need to consider for efficient rules creation, and a list of useful materials you can read to learn more about pricing, pricing strategies, and algorithms.
Stock Management Scenario
This scenario goal is to track the moment when specific items are disappearing from the competitor’s stock. It allows the retailer to set a higher price and earn more.
are in stock
within market thresholds and
launch a promotion
prices by X%
This scenario is the most obvious way to increase a retailer’s profits.
It is not always possible to predict out-of-stock for competitors’ products: They may have already planned the next delivery from a supplier. It’s especially important if competitors using sales predictive solutions.
In the formula, the retailer also needs to consider the warehouse turnover objectives to avoid price raising for unclaimed goods.
Minimum Margin Scenario
This scenario goal is to follow the lowest possible market price (follow the key competitor with the lowest price), yet keep the minimum allowable margin.
to competitor’s minimum price
or higher than minimum allowable margin
equal to minimum allowable margin
In a vacuum market, the retailer will always make a profit.
In real life, customers who are looking for a minimum cost, will find it. If a retailer’s price is higher than a competitor’s, this category of shoppers is more likely to make a purchase in a competitor’s shop.
Turnover Goal Scenario
This scenario needs to be applied only when turnover goals are achieved and help store to earn more. It’s important to apply other scenarios we’ll describe in the next whitepaper.
are achieved
by X%
or remaining at the same level
Allows you to consistently achieve several business goals: Turnover, and therefore, gross margins.
Consecutive achievement of the goals is as risky as buying the simplest New Year’s garland: If the first light bulb is burnt out, the others will not glow either.
Bestseller Scenario
This scenario works with the most popular and seasonal products, it uses psychological pricing and customer loyalty.
or seasonal item
reasonable price increase 5%
A psychologically reasonable price increase is a price growth that allows the retailer to earn more while keeping sales quantity on the same level. Often, retailers increase prices within 5% but the actual allowance depends on the specific target audience portrait. If the target audience is determined correctly, the product with a psychologically acceptable markup will be perceived by the buyer as more valuable, and the retailer as more reliable.
The retailer needs to know its target audience clearly to understand exactly how shoppers will perceive the price.
KVIs Scenario
The retailer needs to know its target audience clearly to understand exactly how shoppers will perceive the price.
to the minimum key competitor’s price
price increase for other item’s prices
The minimum prices for the KVI-items will form the buyer’s trust. Other retailer’s prices will be accepted as valuable even if their prices are slightly higher than the market.
KVI positions determination can be quite resourced and expensive: Elasticity research, marketing polls, sales dynamic comparison for different commodity groups, etc.
As you can see now:
Each of the scenarios above requires micro-level adjustments from the retailer. That’s why we did gave no specific numbers. For example, the very first of the scenarios, “Stock Management Scenario”, needs the retailer to know its key competitors.
Necessary Data
For effective scripts usage, the retailer needs a high-quality, actual and correct data. It needs to be collected without errors on marketplaces and the competitor’s websites at the time pricing need to be done.
The retailer needs to have the following information to work effectively with pricing scripts:
-
Product data: stock availability, price, cost, KVI-positions.
ItemStock attributeKVI tagCost, $Multicooker Redmond RMC-M92Sin stockYES95LCD TV Samsung UE43KU6000in stockNO700Notebook Apple MacBook Air 13'low in stockYES925
-
Business goals data: minimum markup, planned markup, turnover and margin plan, etc...
ItemStock attributeKVI tagCost, $Minimal
mark-up, %Planned
mark-up, %Planned
turnover, unitsPlanned
margin, $Final
price, $Multicooker Redmond RMC-M92Sin stockYES9512181503000115LCD TV Samsung UE43KU6000in stockNO70036753375745Notebook Apple MacBook Air 13'low in stockYES925581209000999
-
Competitor’s data: prices, stocks, promotions.
ItemStock attributeKVI tagCost, $Minimal
mark-up, %Planned
mark-up, %Planned
turnover, unitsPlanned
margin, $Final
price, $Competitor 1 priceCompetitor 2 priceCompetitor 3 pricePromo attributeStock attributeMulticooker Redmond RMCM92Sin stockYES9512181503000115120111115markdownin stockLCD TV Samsung UE43KU6000in stockNO70036753375745750735720giftlow in stockNotebook Apple MacBook Air 13'low in stockYES9255812090009999951019999no promoout of stock
By integrating this data into the scenario and analyzing a performance of the latest, the retailer can understand how the product’s price affects its sales, what is the influence of the key competitors on sales; create a Price Index report to track the effectiveness of retailer’s pricing and the impact of its competitors more effectively.
Pricing Scenarios Tools
The simplest pricing scenarios tool is an Excel spreadsheet. But, since this tool has more flaws than advantages, it is much more effective to use special pricing services.
The Price Management product, a part of the Competera Pricing Platform:
- Integrates all the collected internal and external data and visualizes it.
- Sets product prices according to the preset script rules.
- Detects anomalies and opportunities to optimize pricing—for most scenarios the retailer needs to use threshold scenarios to keep the correctness of pricing.
To calculate the ROI of such tool for your business, do not hesitate to contact our pricing experts.
Useful resources
- Article and free online course on Pricing Strategies
- How to collect data: build or buy pricing solution
- What is Agile PricingTM?
- How to explain pricing strategies in a way even child will understand
If you want to know which of the above pricing rules will be effective for your online store, chat with our pricing experts—they will answer all your questions.
In this white paper, we talked about pricing scenarios that help retailers earn more. In the next white papers, we will talk about scenarios that help to increase turnover (sell more products), get a share of the competitor’s market and more favorable supplier’s conditions!
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