Seasoned marketers know the importance of starting a pricing intelligence strategy early on, not only to stay ahead of the competition but ultimately to increase revenue and profit. Let me clarify first that every aspect of the marketing mix — product, price, place, and promotion — has its level of significance. However, it can be argued that price is the one that requires the most painstaking attention and analysis. One mistake in the pricing of any product can lead to loss of revenue or loss of reputation.
5 Steps to Implement a Successful Price Intelligence Strategy
You might argue that focusing on improving sales through promotion and product upgrades is more important, but market leaders see the opportunities that the right pricing strategy can offer to the overall business strategy.
RSR (Retail Systems Research) found out in their Pricing Benchmark Report that 43% of retail winners or leaders in the e-commerce retail industry focus more on increasing profit margins.
What is Pricing Intelligence?
Pricing intelligence is synonymous to Competitive Price Monitoring. It simply refers to the process of keeping abreast with the prices, pricing techniques and methodologies in the market. Pricing intelligence is not a new concept. Even before the boom of e-commerce, businesses had been doing competitive price monitoring by sending their staff over to check out the competitors’ prices.
With more and more businesses going online (e-commerce is a trillion-dollar industry according to eMarketer), the dynamics in competitive price monitoring has also changed dramatically. No longer do employees walk the aisle of the competitor’s stores. Instead, companies go online and gather all the data they can. What sets modern pricing intelligence apart from other pricing models is that it makes use of data mining tools and techniques.
Because of this, price intelligence is more accurate and more extensive as it involves every nook and corner of the internet. And when we speak of online retail companies, we are talking about a trillion-dollar industry which is expected to become 3.45 trillion by the end of 2019, from $2.84 trillion in 2018. Market predictions say that it will reach $4 trillion by 2020 and $4.88 trillion in 2021.
Why is Pricing Intelligence Important?
The main reason why pricing intelligence is important is that it will give you an edge over competitors. You will know the market trends promptly and act on them before most of your competitors do.
This video explains how price intelligence to help retailers make more money.
A lot of businesses are therefore missing out on the opportunities that pricing intelligence can give, some of which are discussed below:
1. Pricing intelligence contribute to an effective pricing strategy
With a comprehensive pricing intelligence program in place, you can create a pricing strategy that is effective and dynamic. I mentioned before that the wrong pricing strategy can translate to either loss of revenue or loss of reputation.
If you price your products too low but your target market is willing to pay more, you are leaving a lot of money on the table. Setting a very low price can also damage your reputation as customers might think that your products are of low quality.
Pricing your products too high can also turn off potential customers, leading them to buy elsewhere. This also leads to loss of revenue.
As you can see, pricing is an intricate aspect of any business. Price your products too high, and your customers might end up leaving. Price your products too low, and your products will seem less valuable. Pricing intelligence allows you to take a look at the market-level pricing so you will end up setting just the right price for your products.
2. It is Large Scale and Timely
You already know how huge the e-commerce industry is. Counting the number of e-commerce stores is difficult to do and RJMetrics claims that they are the first one to do it. Let’s take a look at how many e-commerce websites are there, according to different sources:
RJ Metrics: According to this business intelligence company, e-commerce websites make up 10% to 12% of the internet and that there are approximately 110,000 e-commerce websites that are generating meaningful revenue.
This graph shows the number of e-commerce websites that are earning significant revenue as signified by their Alexa rank.
Pipe Candy: On the other hand, Pipe Candy says that it is tracking about 860,000 e-commerce companies in their database, although they estimate is that there are two to three million e-commerce websites in the world, China not included.
Shopify: 800,000 stores use this e-commerce platform. This means that there are 800,000 e-commerce stores, not counting those that use a different e-commerce platform.
Imagine tracking and monitoring the prices of these websites manually. Or let’s say that your competition is only 10% of the total number cited by RJ Metrics, which is 1,100 e-commerce site. Manually checking the prices of each competitor will take a lot of time and human resources. By the time your staff is done gathering all the data, the prices set by your competitors would have changed already.
This is why pricing intelligence which is typically done with data mining tools and techniques. These tools can check each competitor website and gather all the information you need on time.
5 Steps to Implement a Successful Price Intelligence Strategy
Step 1: Determine Your Goals
Developing a pricing intelligence strategy should become an important part of every business plan. Later on, I’ll be outlining three steps on how to do this. For now, however, we must get this out of the way first. Before anything else, you need to define your business goals.
You might be thinking: Business goals? It’s simple: Make money. It’s not that simple though. There are business considerations that should determine how you price your products. Jenny Wholly, a pricing coach and Miriam Christof of JustJump Marketing has outlined these goals for us when they hosted a pricing workshop for entrepreneurs and startups:
- Increase profitability
- Improve cash flow
- Market penetration
- Larger market share
- Increase revenue per customer
- Beat the competition
- Fill capacity and utilize resources
- New product introduction
- Reach a new segment
- Increase prospect presence
- Increase prospect conversion
The first business goal on the list is consistent with the focus of market leader as found out by RSR. Remember at the beginning of this article where I cited RSR who found out that 43% of leaders in the e-commerce retail industry focus more on increasing profit margins?
This graph shows that more retail winners or market leaders see pricing as an opportunity to improve profit margins, compared to industry laggards.
Now that your business goals are defined, it will be easier for you to create a pricing strategy with the help of competitive price monitoring or pricing intelligence.
Step 2: Get To Know Your Target Market
Knowing your target market is repeatedly being advised by business experts, whether in terms of marketing and promotions. The same is true when it comes to pricing – you have to know your target market and how they will react to your pricing and any price changes.
2.B Price Sensitivity of Customers
When we talk about price sensitivity, we are talking about how your customers will behave when there are changes in the prices of your products. In a business standpoint, this can be seen as price elasticity or the percentage change in the number of products sold when there is a 1% change in price.
Put simply, we are asking the question: How will sales fare if you raise the price of your product by 1%? To determine the answer, you need to look at these factors:
- Customers’ ability to search: You have to learn if your customers can easily compare your product with that of the competition. Will they be able to search for other suppliers easily and compare prices? Is this product category easily accessible or does it cost the customers time and effort?
Aside from this, also consider what alternative products your customers can buy instead if they don’t choose yours. Will they be able to search for alternative products easily too? Knowing these will help you determine your prices.
- Customer economics: The buyer of the product may not be the decision-maker, and this should be taken into account among other things. For example, if you are selling toys, the buyer might be a child, but the decision-makers are the parents. If you price your product too high, will the parents approve even when the child likes it?
Is the buyer the user of the product too? In the case of toys, the buyer might be the parents, but the user will be the children. If the buyer does not see any value in the product since he or she is not the user, then pricing the toys too high might turn them off.
You also need to know if there’s a portion of your target market that further sells your products at a margin. If most of your target market are re-sellers, then increasing your price by a small percentage can affect their profit margin drastically and they might end up looking for a different supplier.
- How do the customers view the competition?: As the owner or manager, you are of course partial to your products. You think of them as better than your competitors. But what do your customers think? Learn how they see the competition. Know how they are comparing you with others.
If you how your customers differentiate you from competitors, you will know whether or not a change in the price can affect buyer decision. For example, if you find out that your customers think that your products are of higher quality than your competitors, they might not mind a slight increase in the price. However, if the only differentiating point you have is low prices, then customers will no doubt buy from another store if you set even the slightest price increase.
2.b Think About How Customers Value The Product
In an interview with Elle.com, Fergie had said, “For me, it’s not about price. It’s about necessity, quality, and usefulness. Like, I have my Wet N Wild 666 lip liner. It’s 99 cents and always has been. I started using it when I was in high school, and it’s great.”
If you are the owner of Wet N Wild 666 lip liner, you’ll know that Fergie sees value in your product and even if you change the price from 99 cents to $1.50, she will still buy it.
You can learn how your customers value your product through market research and you can also get feedback from the sales department. Routine market research will help you get the pulse of the whole target market, including those who are not yet your customers. You will know if they see your product as an added value to them. The same is true with the feedback from your sales team. They know the selling points of your products, why people buy them, as well as the reasons why people don’t buy your products.
Step 3: Identify and Monitor Your Competitors
Pricing intelligence is all about monitoring the prices set by your competitors, so you must know who your competitors are. As I mentioned in the blog about the importance of analyzing competitors’ prices in online stores, knowing the enemy is half the battle won.
So who are your competitors? they are the companies that have the same product offerings as you. These are your direct competitors. If you are selling athletic shoes, for example, your competitors are:
- Stores that are selling athletic shoes.
- Stores that are selling sneakers.
- Stores that are selling any type of footwear.
Important reminder: Some companies fall under the indirect competition category. Indirect competition is companies that don’t sell the same products as you, but they are competing with you digitally. This means that they can still affect the target market’s buying decision since they can get people’s attention by producing more digital content than you. For instance, if a potential customer searches for “athletic shoes” online, aside from direct competitors, sellers of sporting goods and outfits will also come up in the search results. Aside from the pricing strategy, you also have to step up your content marketing strategy to be able to compete.
Step 4: Select a Competitive Pricing Tool to Manage Your Pricing Intelligence Program
When you know your target market and your competitors, you are ready to put this knowledge into practice and develop a pricing intelligence strategy. This is the most crucial part since according to RSR, they see a disconnect between the data gathered and the urgency to which they are being applied.
In this graph, it is shown that 53% of those who employ price intelligence use it to update prices regularly.
Despite this, a large portion of the respondents is still not using the data gathered through price intelligence in a time-sensitive manner. This is considered a missed opportunity since real-time competitor price comparisons is very effective.
4.a Competitive Pricing Tools
There are hundreds of competitive pricing tools in the market, and here are some of them:
- 360 Pricing
- Web Data Guru
Any of these tools work best with proxies for competitive pricing since they crawl competitor websites to gather the data you need. Most website publishers have an allergic reaction to tools or automation bots and they will instantaneously block you once they detect bot activity. Proxies can help you avoid getting blocked, and at the same time, they protect your business from cybercriminals lurking on the internet.
4.b Choosing the Right Price Intelligence Tool
Whatever price intelligence tool you choose, there are certain factors you need to consider. You can’t just simply pick out a tool without looking into it first. Here are some factors you need to look at:
- The fine print: All companies have terms of service and privacy policies which are commonly ignored by customers. However, you must read the fine print before selecting a price intelligence tool. You need to know what the tool has to offer, and if it fits your company’s needs. For instance, you would want to customize the competitors to be targeted, and if the tool doesn’t allow this type of customization, then it’s not for you.
Some providers have hidden charges, and reading through the terms will make you aware of these.
- Integration with your existing systems: If you are thinking about using a price intelligence tool, chances are that you already have some system in place in your business. Perhaps you already have a business analytics tool or a social media management tool and you need this to be able to work with the price intelligence tool of your choice. There’s also the e-commerce platform you’re already using which has to work with the intelligence tool.
It’s therefore important that you look at the tool’s ability to integrate with your existing systems because if it doesn’t, then you may have a hard time matching and analyzing all the data gathered through different tools.
- User-friendly interface: The next thing you have to look at is the tool’s interface. Does it look friendly and easy to use? Is everything you need accessible in just a few clicks? Nothing is more frustrating than paying for something you can’t use immediately because you need help from technical support.
- Customizable search: Select a tool that will enable you to set specific competitors to monitor, and make sure that this is clearly stated as a feature. A price comparison tool is next to useless if the tool automatically selects the companies to track instead of allowing you to set certain criteria. You can’t be so sure that the companies it automatically tracks are direct competitors of your business.
Step 5: Decide on a Pricing Strategy Based on Your Price Intelligence Program
The purpose of employing a price intelligence strategy is ultimately for you to come up with a pricing strategy. While we can’t tell you what’s the best strategy for you since it depends on several factors including the data you gather from the price comparison tool, we can give you some suggestions to choose from.
Here are some pricing strategies you can explore after you get to know your target market, identify your competitors and analyze the data obtained from the price intelligence strategy:
- Economy pricing
- Premium pricing
- Penetration pricing
- Price skimming
- Psychological pricing
- Promotional Pricing
- Value pricing
- Competitive pricing
These are the most common pricing strategies that market leaders are implementing. As you can see, cost-plus pricing isn’t on the list despite it being used rampantly by startups. Cost-plus pricing is a method in which sellers simply add a markup to the product’s unit cost. You don’t need a price intelligence tool for this. Take for example the athletic shoes you’re selling. If each pair costs $30 to make, you only have to add a specific markup, say 50%, which makes its selling price $45 for each pair.
The problem with cost-plus pricing is that it doesn’t take into account the demand for the product and the customer’s perceived value of the product. What if the customers consider the product as high quality and are willing to pay more? This pricing strategy might work for a few companies, but with intense competition in the market, cost-plus pricing has lost its effectiveness in the majority of industries.
Pricing intelligence or competitive price comparison is a necessity for businesses these days. Starting a pricing intelligence strategy is important as it helps increase your profit by enabling you to come up with an effective pricing strategy. To recap, in order to begin a pricing intelligence strategy, these are the things you need to do after determining your business goals:
1. Know your target market.
2. Identify your competitors.
3. Select a competitive pricing tool
4. Determine your goals
5. Decide on a pricing strategy
As opposed to doing this process manually, employing a pricing intelligence software can give you an extensive and timely report on competitor prices and can even help you manage the prices of your products.
Whether you have thousands of competitors and hundreds of products, a pricing intelligence tool can help you manage all these. As with any automation tools, your price comparison tool may need the protection of proxies to avoid getting blacklisted.
Limeproxies offers proxies at affordable prices. You can protect your business without breaking the bank! With virgin proxies and dedicated IP addresses, Limeproxies provides you with the perfect proxies for competitor price monitoring. We are offering a three-day money-back guarantee so your hard-earned money is safe with us.