What is pricing power?
11/24/2022 - Pricing strategy
Pricing power is an e-commerce’s ability to change its prices without affecting the level of demand. A company with high pricing power can increase prices and not lose market share. This is possible with an appropriate pricing strategy. Other factors are also influential, such as the perceived value of each product. We explain how you can increase your brand or retailer pricing power and optimise your profits.
Factors that condition an e-commerce’s pricing power
Pricing power is intrinsically linked to the elasticity of demand. It is influenced by external factors, market movements, and internal aspects of the company. The following three key factors determine how consumers respond to different prices.
Products with few or no rivals in the market
When there are few or no alternative products on the market, the market leader can increase prices without reducing demand. Consumers will be willing to pay more because the items are hard to get.
Likewise, when there is a shortage of raw materials, it encourages an increase in the pricing power of the companies that own them. A notable example is the hike in fuel prices due to the increased oil scarcity in the first quarters of 2022.
Perceived value
The value users attribute to different products also affects their willingness to pay — the price they are prepared to pay. This mainly applies to luxury or exceptional quality products, which are assumed to be higher-than-average-priced. As a result, luxury brands have a higher pricing power than others. In addition, the target market they aim for often has higher purchasing power. To avoid losing this position, they must follow a consistent pricing strategy and highlight the quality and authenticity that differentiate them from other brands in their marketing campaigns.
Brand trust
Ultimately, the volume of loyal users and brand fans will also help to boost the pricing power of an e-commerce business. These consumers tend to remain loyal to the brand they trust despite price changes. Brand trust is often stronger when it comes to essential, everyday products or services, or solutions that fulfil a vital need, such as software for a self-employed person. However, you should study price changes carefully to avoid upsetting your fans or damaging your brand image.
Higher pricing power can help you maintain a stable income level, maximise profits and deal with times when inflation is higher.
Don’t forget to set the right prices. It is essential to have a pricing tool to help with this task. The most advanced software performs an in-depth analysis of competitors’ prices. It then recommends the best prices to implement a dynamic pricing strategy that adapts to the constant changes in the market. This software will help increase your brand or retailer’s profitability and pricing power one step at a time.
Category: Pricing strategy
