Why E-Commerce Price Optimization is Vital to Operating an Online Store

The digital shelf makes your brand and products accessible to unlimited potential audiences. But to convert shoppers into customers, you must implement a price optimization strategy that caters to consumers while delivering profits. 

This article explores e-commerce price optimization and why it’s vital to operating an online store. Read on to learn more. 

What is E-Commerce Price Optimization? 

Unlike brick-and-mortar retailers, e-commerce stores enjoy unfettered access to anyone with an internet connection. However, this means e-tailers compete with other online brands domestically and globally. As the fight for consumer loyalty grows, so must your marketing and branding strategies, including price optimization. 

E-commerce price optimization is a pricing strategy built around determining the best price points for your products based on market demand. It’s an active, continuous process wherein merchants evaluate their pricing and how it compares to the competition. 

Traditional pricing models involve determining the desired profit margin and setting prices accordingly with few or no adjustments. In today’s omnichannel market, this strategy is no longer viable. As consumers research products and compare across multiple retailers and platforms, merchants must create price optimization methods that consider these new shopping behaviors. Shoppers want the best products for the best value, and that value changes according to demand and market fluctuations. 

That’s where e-commerce price optimization comes into play. A living price optimization strategy ensures you’re pricing products competitively while achieving set KPIs. 

Price Optimization Mistakes to Avoid 

To gain a competitive edge on the digital shelf, many merchants make pricing mistakes that inhibit their efforts and reduce potential revenue. Below we list common price optimization mistakes to avoid. 

1. It’s Not a Race to the Bottom 

You want to offer competitive pricing to draw shoppers in. But if you go too low too quickly, you’re missing out on potential income you’ve priced yourself out of. You must balance profitability and competitive pricing to maintain a sustainable profit margin. 

2. Don’t Drop Prices for Every Item 

Shoppers aren’t looking for the cheapest item every time. Discounted big-ticket purchases, like electronics, will likely appeal to most consumers. But pricing is less influential on the purchase decision for smaller items, like charging cords or cases for those electronics. Strategically lower pricing for key items and maintain typical pricing for other products. 

3. Avoid Stagnation

The digital shelf changes every second. And so do the optimal prices for your products. Avoid stagnation in your product pricing. Monitoring competition pricing helps you determine your product prices to maintain a competitive edge as consumer expectations change. 

Best Practices for Online Price Optimization 

Pricing optimization doesn’t have a silver bullet. It’s a strategy comprised of many moving parts, and all must work synchronously to drive your business toward the same goals. Below we explore the best practices for e-commerce price optimization and how and why to incorporate them into your strategy. 

1. Optimize according to Price Elasticity  

Price elasticity measures the sensitivity of the supply and demand of your product as they relate to changes in price. Demand falls for virtually every good when prices rise, but some products are affected more than others. 

Understanding the price elasticity of your products helps you determine which goods can withstand optimization and which products should remain at stable price points. For example, product type, category and seasonality can affect demand for certain products, while others require consistent prices to maintain consumer demand. 

Pricing optimization for elastic and inelastic products yields significantly different results, so merchants must collect and organize sales data to determine pricing strategies. 

2. Inventory Management 

Your inventory levels will determine your flexibility with pricing optimization. Lowering prices to secure your market share only works if you have the product volume to fill those increased orders. As inventory rises and falls, your pricing must decrease and increase. 

Implementing a solid inventory management system is critical to your digital shelf success. Inventory management ensures you’re always aware of your product volumes, so you can meet consumer needs and maintain price optimization that pulls in shoppers and helps you reach your revenue goals. 

3. Consider Seasonality 

Consumer demand fluctuates throughout the year for many products. Considering the seasonality of your products allows you to maximize your profits as demand rises while preparing for slower sales during the off-season. 

For example, retailers will charge full price for boots, jackets and other winter accessories during the year’s coldest months. When spring rolls around, these same items will be drastically reduced to clear out stock and capitalize on the final sales of the season. 

Merchants know some items won’t sell during certain seasons. Pricing according to seasonality ensures you’re earning profits during peak sales cycles that will support your business during the slower months of the year when demand (and pricing) drops. 

4. Accuracy Over Speed 

E-commerce pricing optimization requires merchants to balance aggressive competitive action with patience regarding market fluctuations. Online giants like Amazon and Walmart can pressure merchants to rush through pricing changes so they can compete on the digital shelf. 

However, merchants must look at data before making rash pricing decisions. Considering how your competition reacts to consumer demand and external factors, like supply chain variables, allows you to make calculated decisions regarding product pricing.

Too quickly lowering prices makes raising those prices in the future difficult, if not impossible. A slow approach helps you determine if your pricing strategy positively or negatively affects your bottom line. 

Evaluating pricing data and letting that information guide your decision-making allows you to make choices that lead to sustainable profits. 

5. Alternatives to Lowering Prices 

Price optimization includes more than lowering prices to beat out your competition. While lowering the price of specific items is part of e-commerce price optimization, optimization can be accomplished in various ways. 

For example, you can offer shoppers deals, discounts, or special offers. This approach is ideal for businesses catering to a broad customer base or those that carry a range of products. 

Price Optimization is a Continuous Process 

With 89 percent of consumers visiting multiple sites before making a purchase decision, it’s essential that e-commerce retailers hit all user pain points with their product content, including pricing. 

Each product and product category is unique concerning consumer demand and the optimal price. And as the market and customer wants and needs shift, your pricing strategy must adapt. 

E-commerce price optimization is a living, continuous process. The best price for an item may change from day to day. You must determine when to alter pricing and how those price changes affect your operations. Brands and merchants must stay aware of the interconnectivity of pricing, sales and consumer sentiment to maintain an e-commerce price optimization strategy that delivers. 

 Conclusion

Price optimization is central to the success of your online store. Understanding the intricacies of price optimization and executing it effectively helps you attract more shoppers, move more products and increase your profits all year. 

While price optimization is crucial to operational excellence, it’s not the only component of a successful digital store. Operating on an evolving digital shelf requires you to strategize every part of your online presence: product content, data aggregation and disbursement, and more. 

1WorldSync provides the solutions you need to win market share regardless of your product or market. Our tools set you up for success and provide the insights you need to guide your business forward and achieve your goals, whatever they may be. 

Contact our team to learn how 1WorldSync’s resources can help you optimize every component of your online store starting now.