What’s pricing and how does it work?

Pricing is the set of techniques used to establish the prices for different products and services included in the catalogues of companies. It’s essential for the growth and success of retailers because the price is the main factor that determines whether or not consumers will purchase a product. To choose the most appropriate price at any given time, intrinsic factors, such as production costs, must be analysed as well as production costs, such as the level of competitiveness in the market. For this, eCommerce businesses can use automated pricing tools to optimise their decision-making process. As a starting point, we’ll explain the different elements you must consider when defining your pricing strategy. 

Pricing focuses on setting prices that attract attention and that add value for the customer while allowing the company to remain profitable and continue implementing its sales plan at the same time. In addition to these advantages, proper pricing is synonymous with:

• an increase in the company’s competitiveness
• an increase in the conversion rate and a higher sales volume
• an increase in the profit margin
• achieving a constant growth rate

How to define a pricing strategy

To achieve the benefits we mentioned above, the pricing team must carry out an in-depth study of the market as well as the company’s objectives in order to establish the most appropriate pricing strategy. This analysis must include information about the target audience, the competition, and the brand image. 

Identifying the target 

The characteristics of your products will determine if they’ll be aimed at one type of customer or another. You can classify your target by gender, age, location, etc. These factors will condition their willingness to pay or the maximum amount they’d be willing to pay for an item. This is a key factor if you want them to opt for your brand. This segmentation of the target audience also makes it easier to define the type of marketing campaign that’s going to accompany the prices established as an attraction for potential customers. 

Analysing the competition 

Because of the high level of competitiveness of today’s markets, you should always know the prices that your competition is operating with as well as their level of customer loyalty, in addition to analysing their price changes and the circumstances that have led to them. This will allow you to adapt and anticipate market trends. Monitoring the competition doesn’t have to be merely a preliminary step before launching new products, but must become a constant task in the evolution of the business.

Analysing the brand image 

Consider the image that you want to convey to your potential clients and the value that you attribute to your products before setting their prices. Factors such as the quality or exclusivity of the items generate higher expectations and allow you to increase prices without affecting demand. On the contrary, prices that are too low can give an impression of low-quality or mass-produced products without any distinguishing features. 

With all of this data, we can choose the pricing strategies that best suit the characteristics of the eCommerce business, such as at cost prices, prices based on perceived value, or dynamic pricing, where prices are adjusted to fluctuations in supply and demand. Given its complexity, to make the decision-making process easier, retailers can opt for assistance from experienced pricing experts with advanced tools to save time, save resources, and optimise sales.