E-commerce Pricing Factors and Strategies that Works the Best
Blog: MattsenKumar Blog
A reputed news daily reports “Amazon sold more iPhone on the first day of Great Indian Festival than in entire 2019”. While Amazon is the epitome when it comes to offering an enamoring customer experience but it was the unbelievable pricing of these phones that made people be a little extravagant.
Customers today are skeptical about getting in business with stores that have bad customer experience but if the price parity is big, they are choosing otherwise. Price has always played a role and it continues to be a key decision influencer for sellers too that is why 50% of all sellers who sell on Amazon are selling on other platforms too.
Is Price Still an Important Factor?
The Internet is congested with guides that helps sellers find the perfect price for their online catalog. The studies very-well cover the nuances related to shipping and government taxes but they fail to consider the customer’s viewpoint. On the contrary, customers today want their products to be delivered at the earliest, they want it to come with easier return and instant refund policies. Customers are not shying away from paying extra for these luxuries.
Here are some statistics and facts that prove, a part of all the commotion, pricing continues to be an important decision influencer:
- 46% of online shoppers will choose price over loyalty
- 78% of e-commerce stores are investing in Price Benchmarking
- 20% of e-commerce traffic comes from websites that offer a price comparison
- Stalwarts like Amazon, Noon.com, and Flipkart keep an eye on their competitor’s pricing
- Premium sellers constantly track their contemporaries on other marketplaces too
- Sellers are constantly bugging marketplaces to minimize commission so that they can offer better rates
What are the Constituents of the Final Pricing and how they Influence it?
To understand the impact of pricing and discover solutions to how it can be leveraged for improving e-commerce conversion, one needs to understand the constituents of final pricing first. Here’s all that combines to make up the price we see on varied online catalogs:
Marketplace Commission: Be it Amazon or Noon.com all of them charge sellers a commission on every unit sold on their platform. This commission starts as low as 1% and goes up to 30%. Home appliances and electronic gadgets have the least commission ranging somewhere between 0.1-8%.
Taxes: Government taxes like GST or Sale-tax are also labeled on every product sold online. Just like the offline market, these taxes are included in Max Retail Prices displayed on products. While categories like books are exempted from taxes in India, the entertainment segment comes under the biggest tax slab of 28%.
Shipping charges: Marketplaces divide location based on distance from the warehouse. Shipping charges vary based on the delivery location, size, and nature of the product. Fragile and big products generally invite higher shipping charges.
Handling charges: Handling charge is also added on products because marketplaces often pick products from sellers, store it at their warehouse, and ship it as soon as an order arrives.
Packaging charges: As mentioned big and fragile products have higher shipping charges, they also have higher packing charges. In exchange for these charges, marketplaces ensure that products are delivered in the best condition.
Interesting Read: E-commerce Conversion Rates & Catalog Management- The Direct Correlation
How Marketplaces Use Pricing as a Marketing Tool?
We all have stumbled upon “similar products” and “more items to explore” tabs while browsing through products on varied online sites. These tabs often recommend products to us that are either at the same price or lower price range. Marketplaces have mastered the art of recommending products that suit the need of customers and also drives the sale.
More often than not these recommendations are driven by price; products of the same category with lower pricing are recommended to ensure conversion happens. Such smart and effective use of available data is helping online stores push their revenue and customer loyalty.
Theme Based Bucketing
Let’s admit it, we all have looked for “under $10” and “under 999INR” tabs on the homepage of Amazon and other popular stores during Prime and other festival sales. These buckets tend to offer the best products at the best price.
Yet another marketing campaign that is driven by pricing; such tabs not only highlights products on discount but also offer additional benefits like:
Easier product discovery: Using these theme-based bucketing, customers can find the most relevant and affordable product with great ease. By offering faster product discovery, online stores can retain customers and see an increase in customer lifetime value.
Conversion: When products are sorted by their price and offers on them, it gets easier for customers to find the right product and buy it. Such smart bracketing saves customers from visiting comparison sites because of the fear of missing out on incredible deal kicks in and customers end up completing the sale.
Refer to the image below to see an example from Amazon’s homepage. The homepage is filled with theme-based buckets; such bucketing allows customers to find a product that suits their budget and also offers an exceptional browsing experience.
How to Create a Theme-Based Bucket?
To create price based buckets, e-commerce players will have to invest in catalog enrichment. Product enrichment is the process where professionals visit every product manually and put attribute values. These attribute values can be anything like “price under $10” or “waterproof watch”.
When products are labeled with Yes for “price under $10”, then that specific product starts reflecting in buckets that contain product priced under $10. Such buckets can be made for varied items across categories. Online stores are creating buckets like “refurbished products”, “entertainment zone” and “emergency supplies”.
The average conversion for online stores is somewhere between 2-8%. While the nascent platforms can convert only 2% of their traffic, popular platforms have a higher conversion rate of 6-8%.
The low conversion rates highlight the fact that not every customer is visiting online stores with the intent of buying products. Often these users are looking for products, they will buy on a special occasion or when the prices go down.
To alert customers about price drops or new deals on their favorite items, online stores make use of email campaigns. Email marketing is so popular among e-commerce players because of its unbeatable open and conversion rates.
A Moz study revealed that the rate for email retargeting conversions rate can be as much as 41%. Which is much better than the average open rate of 15-25% for industries like SaaS products and medicine.
Example: Here’s an example from Amazon India. When looking for smartphones, we browsed through some top models but didn’t buy anything. Later, we found an email from Amazon telling us about the price drop on the most popular phones.
For Users with Account: The given user had an account with Amazon and they were browsing through products after logging in the account, it was easier for Amazon to identify the user and send accurate recommendation or news about the price drop.
For Non-logged in Users: Users who were window shopping on Amazon and weren’t logged in will not be able to receive such product recommendations or news about the price drop. To ensure users signup and never miss out on exciting deals, online stores offer a sign-up discount.
Here’s an example from Old Spice’s online store, the newsletter subscription copy is urging users to sign up and get a 15% discount on their first order.
Later, the browsing history is used by online stores for alerting customers about the deals or price drop on products they viewed in the recent past. Amazon has taken this activity to the next level, you can share birthday dates with them and they will send you a personalized list of deals when the birthday is round the corner.
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Push notification facility is now available for both phones as well as desktop devices. Now online stores are sending push notification on desk computers through a browser, which was earlier only possible on mobile devices through mobile applications.
These push notifications can do wonders when used effectively. Media and news outlets use to keep users updated with the latest update on the stock market, politics, and entertainment industry. Online stores can use it to keep their users updated about the
- Upcoming sales
- Specific discount on a particular product
- Alerting them about renewal dates of privilege accounts
Online stores are also using artificial intelligence to harness the shopping pattern of customers and offer them deals at an incomparable price. Recently, Flipkart sent a push notification to users about the savings they did by shopping on Big Billion Day in 2019, the push notification was aimed at creating a fear of missing out among customers. Such campaigns work because of pricing. By making products available at dirt-cheap pricing and creating awareness, online stores generate billions in revenue.
More Discount for Subscribed Users
Online stores are now coming up with a subscription-based discount, this is where users can avail of extra discount on a product only if they agree to buy it for 2 or more consecutive months. Through these subscriptions, customers can receive the mentioned product on a specified date of every month till the time subscription is active.
Refer to the attached image for an example, the product here is Harpic flushmatic toilet cleaner. This is one of those products that needs to be refilled monthly hence a lot of users will be looking forward to subscribing to it. The product is priced at 177INR but if the customer decides to subscribe to it, they can receive it for an effective price of 168.15 INR. Customers often opt for these subscriptions because when compounded such deals can save them a lot of money.
Almost every e-commerce platform is focusing on offer an incredible experience to acquire and retain customers. While these stores are generating impressive traction, heavily funded start-ups are creating a parallel ecosystem that offers incredible products at unbelievable prices. These stores are focusing on razor-blade syndrome, where the razor comes for almost free, and then they charge for the blade.
E-commerce platforms that offer customer experience while keeping prices under control are the ones that are going to last long and create a legacy. All successful online stores have used price as a tool to reach more customers first and then increased prices but by then customers were addicted to the exceptional user experience to leave the platform.
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