How to avoid price wars
09/14/2023 - Pricing strategy
Price wars can cause financial losses for eCommerce, lower quality products for users, and reduced competition. However, price wars between sellers are becoming increasingly common due to the rapidly expanding online market, and the fact that consumers have access to price comparison sites. Improving how you manage your pricing strategy and constant analysis of price changes, and fluctuations in supply and demand, will aide decision-making. It will also help you avoid conflicts with other brands and retailers, and help you dodge the negative consequences of plummeting prices. We explain the keys to achieving this and how to differentiate yourself from your competitors without entering a price war.
Use data analysis to determine your pricing strategy
First and foremost, always avoid emulating your competitors. Copying other eCommerce and constantly lowering prices leads to a never-ending war. To counter this, study your competitors’ movements and perform A/B tests on your prices to see how users react. This will allow you to calculate the elasticity of demand, i.e., how buyers react when prices rise and fall. Use this information to classify products in your catalogue as elastic or inelastic. Then for example, you could just raise prices on items with inelastic demand to cover or increase the profit margin.
Once you have collected this information, implement a dynamic pricing strategy to ensure price changes are continuous and agile, adapted to supply and demand. Today’s automated pricing tools collect and analyze thousands of proprietary and market data. They then apply price changes based on advanced pricing rules, making the process much easier. For example, you can fix a minimum below which prices cannot be lowered, even if competitors do so. This way, you always protect your profit margin and avoid entering price wars.
Design a strategy that aligns with your brand image
Always remember that a product’s price is intrinsically linked to its perceived value. Crashing the prices of certain items simply because competitors do, and entering a price war, can make consumers believe that these products are lower in quality. Another way to avoid price wars is to make your goods more attractive — highlight their quality and value as part of your marketing strategy. This is a way of justifying why the price doesn’t fall when competitors’ prices do.
The same is true for brand image in general, which is linked to the quality and values portrayed in your catalogue. You can also work to improve the corporate image of your eCommerce to position yourself above price wars, as with luxury or prestige brands. This includes everything from working on the aesthetics of your different sales channels, to offering a quality service with the best shopping experience. Working together on brand image and product value can help you achieve your ultimate goal: Customer loyalty.
Information holds the key to preventing price wars
Above all, staying informed about competitors’ movements and market changes is vital. It will help ensure you make appropriate decisions about your eCommerce pricing strategy. Information will be the key to applying dynamic pricing to your product portfolio in the best way possible. It will also help boost sales in this competitive market without starting price wars.
Category: Pricing strategy
