Pricing strategies in e-commerce
- 09 March 2021
If you analyze pricing strategies in e-commerce, you can discover some trends. Certain brands are always the cheapest on the market, while others tend to reduce the prices of newly launched products only after a specific period of time.
The differences can also be found in the method of product distribution – some brands offer their products in many different online shops, and others can hardly be found on the listings of price comparison websites.
In large part, this is because companies adopt different pricing strategies. In today’s article, we will present you with the most popular pricing strategies – penetration pricing, skimming pricing, low pricing, high pricing, and premium pricing. You will also learn how each of the adopted strategies influences price changes in e-commerce.
Price positioning from the manufacturer’s point of view
Every company should make an informed decision on its price positioning, as any inconsistency in this area can cause dissonance among the customers. The adopted pricing strategy should influence not only the prices themselves but also the quality of the delivered product and the way in which it is distributed and promoted. According to Hermann Simon, the world-famous expert in the area of marketing, communication and pricing strategies, you can identify the following price positions:
- luxury price position
- premium price position
- medium-price position
- low-price position
- ultra-low-price position
Price positions in e-commerce
The choice of a specific price position has an impact on the availability of the products of a specific brand in e-commerce and expectations towards the company’s distributors. Online shops should know what is the price positioning of each manufacturer.
In the case of products with luxury price positioning, finding information about their prices in e-commerce is really difficult, and the distributors are chosen very carefully. For example, Rolls-Royce cars could only be bought in four cities in Germany. When you sell luxury products, customer experience in physical stores is extremely important, and that is why up till now, online sales of luxury goods were very limited. Although the situation is slowly changing, it is still difficult to find luxury products in online shops as manufacturers cannot risk price erosion.
If you can find a lot of product offers in e-commerce, this usually means that it has medium, low, or ultra-low price positioning. Usually, their distribution is much broader, and online shops compete with each other by price. It is especially the distributors of such products who should think about competitor price monitoring, as these markets are usually more dynamic. This means that the systematization of this process is necessary to always be up to date.
Pricing strategy as one of the key factors of sales
The adopted price positioning is vital to sales. The attractiveness of the offering, the quality of the product, marketing communication, and confidence in the brand are key factors for the customers.
Below, we would like to present you with some of the most popular pricing strategies that can be observed in e-commerce, especially when a new product is launched.
Penetration strategy – popular when entering a new market
A penetration strategy is when you intensify sales thanks to setting lower prices. The aim of this strategy is to gain the biggest possible share of the market. It is particularly popular when launching a new product. This is when manufacturers sometimes decide to set low prices. One of the biggest advantages of this pricing strategy is the rapid increase in market share after setting affordable prices in comparison to the competition.
A perfect example of the penetration strategy was the entry of Huawei products into the European market. The company gained a big market share by offering relatively low prices and good quality at the same time.
Skimming is a pricing strategy sometimes also referred to as creaming. A product is launched at a high price and is dedicated to customers with low price sensitivity. The customers are usually well-off, and they want to get the new product as quickly as possible. After some time, the price of the product decreases, and it becomes available to customers who are more sensitive to prices.
The most popular example of such a manufacturer is Apple. We recommend reading our article: How does Apple use being a luxury brand? to see how the skimming strategy works in practice.
Low pricing strategy
This strategy is most often used on markets with highly competitive products or products that are easy to substitute. The low pricing strategy is characterized by setting low-profit margins in favor of increasing sales volumes.
High and premium pricing strategies
The high pricing strategy is another interesting strategy that is often adopted when introducing a luxury product into the market. The product is launched as an exclusive good. It is presented as a top-quality item that is highly desired and adds prestige to the buyer. Only wealthy people can afford it. The launch of the product is preceded by extensive marketing activities.
The best examples are clothing and fashion products that belong to world-famous fashion designers. The premium pricing strategy is very often adopted in the automotive industry, by brands such as Mercedes, BMW or Audi. This strategy is also popular in the segment of jewelry and accessories. It has also been used by the IT industry.
Proven tools for price management in e-commerce
Developing an effective pricing strategy is possible only after gathering adequate data. If you want to adopt an appropriate pricing strategy for your products, you should first conduct market research, get to know your customers’ needs, and obtain useful information about the competition. Dealavo provides modern online tool for monitoring the offering and pricing strategy of your competition.
Tools for price and promotion monitoring are useful for manufacturers who want to check if their prices on the market are consistent with their positioning. Thanks to the transparent panel, they can immediately notice any deviations from the suggested prices.
What is more, it is also a useful tool for online shops, which can use price monitoring to see if their offering is competitive in comparison to other players.
To test all the features of the Dealavo system, request a demo of the product.