The growth of e-commerce has been exceptionally rapid in recent years. Although growth has slightly slowed down, the role of e-commerce will continue to be significant. Pricing in e-commerce plays a crucial role in the success of an online store, states Sniffie Software's CEO Tomi Grönfors.

Transparency in e-commerce pricing

Previously, consumers would first choose the store and then the product. In practice, they would go to a familiar store, and after investing time and effort to get there, they would make most of their purchases there.

With the growth of e-commerce and mobile devices, a whole new world has opened up for consumers. The shopping trip can be done via mobile, and information is easily accessible and comparable. Online, your customers often choose the product first and only then you (or your competitor).

This change in purchasing behaviour is both a fundamental challenge and an opportunity for e-commerce. Understanding it deeply is key to building better business. Online, competition is fierce, using all available means, including price and unsubstantiated promises. The EU's Omnibus Directive also addresses this by increasing price transparency.

How can pricing create value?

My background is in the world of marketing, so I love brands, great campaigns, and amazing ways to create customer experiences. However, I'm always pleasantly surprised by how eagerly our brand-conscious neighbours in Sweden's e-commerce industry discuss online pricing. Whether I'm talking to a fabulous Swedish design interior store, a fashion retailer or a pharmacy, pricing is always a hot topic. It is clear to them that online, pricing is often the most significant basis for purchasing decisions.

In Finland, this perspective gets much less emphasis, and it is often assumed that brands cannot compete on price. At this point, I always ask the same question: Is it really the case that you could double or triple your prices, and sales volumes would remain the same? The answer is always hesitant. The fact is, price matters to all of us.

Price is relative, and knowing the right price is impossible without testing. Actively working on pricing does not mean you have to be the cheapest in the market. You're likely to achieve better results, for example, on Google Shopping when your price is between the lowest and the average price.

Create a competitive advantage with strategic pricing

Start by defining the importance of pricing in your marketing strategy. Is the purpose of the price to strengthen the brand image and thereby increase profit, or is the goal to find a price that yields the highest volume and total revenue?

Once the importance of pricing in your marketing strategy is clear, it is time to determine which products are most important to your business and on what their value is based. When refining pricing, it is advisable to focus on key products.

Create a simple portfolio of products and divide them into three main categories from a sales and marketing perspective:

1. Products that acquire new customers

2. Products that generate significant sales from existing customers

3. Products that support cross-selling of the two aforementioned

Products that do not fit into these three categories are unlikely to create value for your customers or bring significant revenue. Especially in the current market situation, it is good to review products that only strain your balance sheet by being in stock.

By keeping these three categories in mind, your company can build a competitive advantage through pricing and stand out in the competition.

Manage product range and pricing with data

When building your product range and pricing based on measurable data, you ensure competitiveness, maximise returns, and strengthen your brand. There are many ready-made software solutions available on the market.

Here is a list of a few actions to get started.

1. Analyse how well your products sell

How do your products sell across different markets, channels, and customer segments? Even by doing basic exercises, you'll better understand how the weight of products in your business's volume is distributed.

2. How much do products affect overall profitability?

Analyse the profit of individual products for your company. Even if a significant portion of the company's turnover comes from a specific product, it might be wrong in the overall picture. Delve into each product's cost structure, considering production and purchase price, potential rebates, as well as direct and indirect marketing and sales costs. Ideally, you're also able to analyse how different price points affect the whole. Your analysis then covers the most important factors affecting profitability, such as demand, volume, profit, and cost savings from scaling.

3. What consumer profiles/segments connect these products?

This requires understanding the needs and preferences of different customer segments, their importance in customer marketing, and analysing their purchasing behaviour and decision-making processes. At the same time, you can see how selling certain products increases, for example, customer loyalty and satisfaction. What products bring new customers, which products are valued by loyal customers, and which products seem to grow your customer base.

4. Which products are new business builders and which are maintainers?

Ideally, you can easily identify products that attract new customers to your brand community, those that bring customers back, and those that support the overall product portfolio. By defining a specific pricing approach for these products, you can more easily decide how to price them.

While the analyses presented above may sound difficult, they often are not. Even a light analysis will reveal the 20% of products that likely bring the lion's share of your business's revenue. Similarly, those products that need to be competitive, those for which inventory monitoring and seasons must be actively followed, and those you may want to discontinue.

The most important factor to remember is that pricing is the only element of your business that has an immediate impact on your business's profit. Do yourself a favour and try changing prices to see how it impacts your e-commerce business. You might be pleasantly surprised and realise how significant pricing is online nowadays.

In the Crasman's Guest Pen series, e-commerce experts reveal their tips for developing digital commerce.

Tomi Grönfors is the CEO of Sniffie. Sniffie helps online and retail businesses monitor competitor pricing in real-time and reprice their products using pricing automation.