The growth of e-commerce has been exceptionally rapid in recent years. Although the pace has slightly levelled off, e-commerce will continue to play a major role. E-commerce pricing has a significant impact on the success of e-commerce, says Tomi Grönfors, CEO of Sniffie Software.

Transparency in E-commerce Pricing

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

With the growth of e-commerce and mobile devices, a whole new world has opened up for consumers. The shopping journey can be done with a mobile phone, and information is easy to obtain and compare. Online, your customers often select the product first and then choose you (or your competitor).

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

How Can Pricing Create Value?

My background is in the marketing world, so I love brands, impressive campaigns, and remarkable ways to create customer experiences. I'm always pleasantly surprised by how eagerly our brand-aware Swedish neighbours' e-commerce traders discuss e-commerce prices. Whether talking to a magnificent Swedish design interior store, a fashion retailer, or a pharmacy, pricing is always a prevalent topic. For them, it is clear that online pricing is often the most significant factor in purchasing decisions.

In Finland, this perspective is given much less weight, and it is often assumed that brands cannot compete on price. At this point, I always ask the same question: So, does this mean you can double or triple your prices and sales volumes will remain the same? The answer is always hesitant. The fact is that price matters to all of us.

Price is relative, and determining the correct price is impossible without testing. Active pricing does not mean you have to be the cheapest in the market. You are likely to achieve better results, for example, in Google Shopping, when the price is between the lowest and the average price.

Create Competitive Advantage Through Strategic Pricing

Start by defining the significance of pricing in your marketing strategy. Is the purpose of the price to reinforce the brand image and thereby profit, or is the goal to find a price that yields the maximum volume and total profit?

When the significance of pricing in the marketing strategy is clear, it's time to determine which products are most important to your company and what their value is based upon. It's worth focusing on key products when fine-tuning pricing.

Create a simple portfolio of products and categorize them into three main groups from the sales and marketing perspective:

1. Products that acquire new customers

2. Products that create significant sales for existing customers

3. Products that support cross-selling the two aforementioned

Products that do not fit into these three categories are unlikely to provide value to your customers or generate significant revenue. In particular, in this market situation, it's good to examine products that merely burden your balance sheet when kept in stock.

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

Manage Product Selection and Pricing with Data

When product selection and pricing are built on measurable data, you ensure competitiveness, maximize revenue, and strengthen your brand. There are many ready-made software solutions available on the market for this.

The following is a list of steps to get started.

1. Analyse how well your products sell

How do your products sell in different markets, channels, and customer segments? Even a basic exercise will help you better understand how the significance of products is distributed in the volume of your business.

2. How much do products affect overall profitability?

Analyse the yield of individual products to your company. Even if a significant portion of the company's turnover comes from a particular product, it may be inappropriate for the whole picture. Delve into the cost structure of each product, considering production and purchase price, possible rebates, and direct and indirect marketing and sales costs. Ideally, you will also be able to analyse how different price points affect the overall picture. Then your analysis will also cover the most critical factors of profitability, such as demand, volume, yield, and cost savings brought about by scaling.

3. Which consumer profiles/segments are linked by these products?

This requires understanding the needs and preferences of different customer segments, their significance in customer marketing, and analysing their purchasing behaviour and decision-making processes. You can also see how sales of certain products increase, for example, customer loyalty and satisfaction. Which products attract new customers, which products do loyal customers value, and which products seem to increase the growth of your customer base.

4. Which products are the new business builders and which are sustainers?

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

Even though the analyses presented above may seem complex, they are often not. Even a light analysis will reveal the 20% of products likely to generate the lion's share of your business revenue. Similarly, those products need to be competitive, those for which inventory tracking and seasons need to be actively monitored, and those you wish to phase out.

Above all, it is essential to remember that pricing is the only aspect of your business that has an immediate impact on your business's profit. Do yourself a favour and experiment to see how changing the price affects your e-commerce business. You might be pleasantly surprised and realise how crucial pricing has become in today's online environment.

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

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