New requirements for pricing in e-commerce and online retailing
The factors influencing pricing are the same online and offline: the optimal price is defined by product benefit, willingness to pay, the price-sales function, costs as the price floor, and competitors’ prices.
However, transparency, data availability, and the ability to change prices at the push of a button lead to opportunities and requirements in e-commerce pricing that should be considered along the pricing process.
1. Market and price strategy
From the customer’s point of view, a company should have comprehensible prices in all sales channels and at all touchpoints. This applies both within a channel and in a comparison of the various channels, for example online and offline. The high transparency of online prices – especially in the B2C environment – therefore requires precise thinking through of the sales channel strategy as well as the prices.
2. Pricing / product
In the interests of consistency from the customer’s point of view, the price architecture, i.e., the pricing of products in relation to one another, should be comparable in all channels. In contrast to the offline world, there are many innovative options for pricing individual SKUs that are based on two dimensions:
Dynamic pricing, also known as surge pricing or dynamic price management: Prices in e-commerce are determined on an ongoing basis using defined algorithms and are adjusted to market prices. The decisive factors here are which reference prices are used, how the adjustment rules for the company’s own prices are defined (for example, X percent above competitor Y), and how frequently these price adjustments are made.
AI-based data analysis enables hyper-personalized offers. These are, for example, product recommendations, bundles and prices. This strategy can be used to pursue various goals, such as increasing customer loyalty, higher up-selling or cross-selling, or more trial contacts.
Price transparency in B2C and B2B
The price transparency required for orientation to competitive prices is regulated by law in the B2C area in the Price Indication Ordinance.
The situation is different in the commercial, i.e., B2B sector: a merchant is considered to have more commercial competence, which is why the obligation to provide price transparency does not apply. Moreover, for many companies it would simply not be possible to quote just one price per item – the individual customer conditions are too different.
Würth’s online store enables customers to shop with the same customer experience as in the B2C sector – with the big difference that prices are only visible after logging in.
3. Pricing customer
Companies that use both online and offline sales channels should think about the roles of each channel and derive them from the general strategy.
Pricing (end consumer prices) is the responsibility of the retail partners and should be controlled by suitable condition systems.
4. Price enforcement
We know from our projects that the topic of price enforcement often requires a time lead resulting from the process steps for price labeling in stationary retail stores, for example. If there is no digital price labeling on the shelf, price tags must be generated, checked, printed, shipped and attached to the shelf. This process can take anywhere from a few weeks to over a month.
The situation is different in e-commerce and online retailing: prices can be entered within a few minutes. A/B tests (also known as split tests) can be set up and evaluated quickly and easily: Different prices for the same product are played out in parallel until enough data points are available to determine the “better” price.
In offline retailing, similar test designs are only possible at a few retailers. Price tests in a controlled environment usually take several months.
Roll & Pastuch has extensive project experience in the e-commerce sector and in online retailing:
- Development of a model for competition-based online pricing as well as a condition logic for B2B customers at a multichannel retailer in the field of business and office equipment
- Pricing franchise and e-commerce for the subsidiary of a multichannel retailer for pet food
Learn more about your pricing potential in e-commerce and online retailing
We will be happy to answer your questions and provide you with further information.
Christoph Krauss is a senior project manager at Prof. Roll & Pastuch – Management Consultants. He has more than 20 years of experience in marketing and sales with leading consumer goods manufacturers and in advising clients on sales, strategy and pricing. Mr. Krauss has focused in particular on clients in the B2C sector.
Kai Pastuch is Managing Director of Prof. Roll & Pastuch – Management Consultants. Before joining as Managing Partner, he was Director at a leading international strategy and marketing consultancy. As a graduate in business informatics, he also manages our software company nueprice, which specializes in the pricing of spare parts with the product of the same name. Mr. Pastuch has extensive project management experience from numerous projects for large international companies and German medium-sized businesses in the areas of price management, marketing, sales and strategy. In addition to numerous publications in renowned journals and the publication of the reference books Praxishandbuch Preismanagement and Big Deal Management, he is a sought-after moderator and speaker on all aspects of sales and pricing. As a practice-oriented manager, he likes to get personally involved in our projects and contributes his broad experience in workshops and steerings.