#MonCon Casey CareyVP Marketing, Monsoon Commerce ccarey@monsooncommerce.com @caseycarey ...
Why should you strategicallyleverage pricing?Pricing economics and the roleof irrationalityMost common pricing strategiesu...
let’s take a look atTHE IMPORTANCE OF PRICING
PRICING IS, WITHOUT QUESTION, ONE OF YOUR MOST IMPORTANT STRATEGIC LEVERS. WHEN PROPERLY APPLIED, PRICINGSTRATEGY...
What is YourPricing Strategy?
What is the Best Pricing Strategy?
A Set of Strategies, that Over Time, Allow You to Make the MOST Money Possible!
successful pricing strategy is a Price Quantity Velocity ...
markets are seldom in a Equilibrium is upset if: • Supply changes ...
#MonConWhy should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common prici...
How Much Money do You Make on aProduct or Inventory Group?
start by calculating Product cost + Shipping + Customs = Total Landed Cost + Risk + Overhead ...
then calculate Picking & Packing Shipping & + Shipping = Handling C...
then calculate Sales Commissions Sales & Marketing + Marketing = Expense...
and finally, calculate Office Expenses + Administrative + Miscellaneous = Overhead + F...
understand your Net Profit (free cash) Contributi...
understand your Contribution $3.42 (13.7%) ...
then What is my base price? This is your initial target price What is my price floor? The lowest price I will s...
economists like to talk about For every purchase, the consumer computes the relative net...
but often, purchase behavior is…
irrationality Which middle circle is larger?
 Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles...
two-thirds don’tVALUE THE ADDITION OF PRINT Economist.com subscription – US $59.00 One-year subscription to Economist.c...
 Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles...
by adding a decoy, theRESULTS ARE RADICALLY DIFFERENT Economist.com subscription – US $59.00 One-year subscription to E...
irrationality
why is the price of black pearls
anchor price points $1.49 $1.96
for many products, anchor price points
irrationality “ ”
irrationality $0.15 $0.01 73% 27% Source: Predictably Irrational, 2010.
irrationality“ ” $0.14 $0.00
irrationality“ ” $0.14 $0.00 31% 69% Source: Predictably Irrational, 20...
Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing stra...
1. Use of Ending Digits 9 60.7% ...
2.Typically 2.5 to 3.0 multiple for webstores andretail stores. $10.50 *2.5 = $26.25 $4.68 (18...
3.Used to capture market-share or create demandin early-stage products. Level is usually slightlyabove break-even – typica...
4.Used to maximize revenue when marketconditions allow, low or no competition orspikes in demand – typically the price cei...
5.Ideally, at or near your target price. Positionsyou within +/- a couple of percentage points ofthe average price. ...
6.Priced at or below break-even with the intent tocross-sell or up-sell customers to moreprofitable products. ...
7.Providing price considerations for multiplepurchases; consumers are trained to expect adiscount. $46.99 = $...
8.Combining multiple products into a singlepurchase providing differentiation and greaterperceived value. $3...
9.Priced below break-even with the intent tomove inventory, free up space, and make capitalavailable for other investments...
10.Time limited price strategies designed toincrease demand, move inventory, and matchcompetitors pricing/promotions. ...
Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing stra...
establishing a Product Life- Stage ...
consider the product life-stage Introduction ...
within each stage manage both Establish maximum age by stage Establish channel pricing strategy: and product category...
Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing stra...
how do 1. The pricing engine captures available pricing for your item(s) on your home market (AMZN) 2. Automatically...
1.1. Is shipping included or separate?2. Relative to the competition, where do I want to be and for how long? • Averag...
2.1. Which competitors should be excluded? • Minimum quantity-on-hand • Minimum rating • Price is low-ball (outlier)...
3.1. Specific products2. Inventory Groups based on a combination of: • Category • Condition • Fulfillment Type • Q...
pricing rules 1. Item-level rules 2. Inventory Groups in priority order 3. Default rules 4. By marketplace inc...
Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing stra...
five steps to leveraging pricing Understand your business economics to inform pricing strategies C...
KEEP IT SIMPLE – NO MORECOMPLEX THAN IT NEEDS TO BE
ccarey@monsooncommerce.comcaseykcareycaseycarey
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Pricing Strategies for Online Merchants

A review of the more common pricing strategies used by online retialers and multi-channel merchants to grow their business. Includes a framework for the application of pricing strategices based on product life-cycle and inventory aging to create a competitive advantage and sustained growth.
Published on: Mar 4, 2016
Published in: Business      
Source: www.slideshare.net


Transcripts - Pricing Strategies for Online Merchants

  • 1. #MonCon Casey CareyVP Marketing, Monsoon Commerce ccarey@monsooncommerce.com @caseycarey MonCon EAST | May 18–20, 2012
  • 2. Why should you strategicallyleverage pricing?Pricing economics and the roleof irrationalityMost common pricing strategiesused by ecommerce merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies
  • 3. let’s take a look atTHE IMPORTANCE OF PRICING
  • 4. PRICING IS, WITHOUT QUESTION, ONE OF YOUR MOST IMPORTANT STRATEGIC LEVERS. WHEN PROPERLY APPLIED, PRICINGSTRATEGY CAN SIGNIFICANTLY IMPACT THE GROWTH, PROFITABILITY, AND SUSTAINABILITY OF YOUR BUSINESS.
  • 5. What is YourPricing Strategy?
  • 6. What is the Best Pricing Strategy?
  • 7. A Set of Strategies, that Over Time, Allow You to Make the MOST Money Possible!
  • 8. successful pricing strategy is a Price Quantity Velocity Available Demand
  • 9. markets are seldom in a Equilibrium is upset if: • Supply changes • Demand changes • Price changes When these events occur, the curves are redrawn to reflect the new reality. There is also a velocity component, i.e. how fast are the changes occurring?
  • 10. #MonConWhy should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing strategiesused by merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies MonCon EAST | May 18–20, 2012
  • 11. How Much Money do You Make on aProduct or Inventory Group?
  • 12. start by calculating Product cost + Shipping + Customs = Total Landed Cost + Risk + Overhead Shipping: Costs associated with crating, packing, handling, and Landed freight Customs: Duties, taxes, tariffs, VAT, brokers fees, harbor fees Product Risk: Compliance, quality, safety stock Cost Overhead: Purchasing staff, due diligence cost, travel, currency fees
  • 13. then calculate Picking & Packing Shipping & + Shipping = Handling Cost + Carrying Picking and Packing: Costs associated with picking, packing, and S&H handling orders Cost Shipping: Out-bound shipping and surcharge fees Carrying: Facilities and insurance
  • 14. then calculate Sales Commissions Sales & Marketing + Marketing = Expense Sales Commissions: Costs associated with marketplaces, affiliates, Sales & CSEs, and other CPA services Mktg Marketing: Paid search, advertising, email marketing, etc.
  • 15. and finally, calculate Office Expenses + Administrative + Miscellaneous = Overhead + Financing Office Expenses: Office space, rent, insurance, supplies Over- Administrative: Indirect labor and management salaries head Miscellaneous: Other indirect expenses Financing: Interest and other finance charges
  • 16. understand your Net Profit (free cash) Contribution Over- head Sales & Mktg Sales S&H Break-Even Landed Product Cost
  • 17. understand your Contribution $3.42 (13.7%) $2.82 $8.25 $24.99 Bashful Monkey 12” by Jellycat 4 x 4 x 12 inches Break-Even 1.0 lbs $21.57 UPC: 0670983045598 $10.50 #4,292 in Toys & Games #15 in Baby & Toddler Toys > Stuffed Animals & Toys #64 in Preschool > Toddler Toys > Stuffed Animals & Toys
  • 18. then What is my base price? This is your initial target price What is my price floor? The lowest price I will sell it for What is my price ceiling? The highest price I will sell it for This might create a price anchor Is there a MSRP? point Are there any price MAP, contractual, regulatory constraints?
  • 19. economists like to talk about For every purchase, the consumer computes the relative net benefit of the choices: 1. Product benefits (pleasure points) • Size • Softness • Brand • Style • Quality 2. Price (displeasure points) 3. Intangible benefits (mitigate potential displeasure points) • Risk • Service • Timeframe
  • 20. but often, purchase behavior is…
  • 21. irrationality Which middle circle is larger?
  • 22.  Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles from The Economist since 1997. Print and online subscription – US $125.00 One-year subscription to the print edition The Economist and online access to all articles from The Economist since 1997.
  • 23. two-thirds don’tVALUE THE ADDITION OF PRINT Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles from The Economist since 1997. Online Only 68% Print and online subscription – US $125.00 One-year subscription to the print edition The Economist and online access to all articles from The Economist since 1997. Combo 32% Source: Predictably Irrational, 2010.
  • 24.  Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles from The Economist since 1997. Print subscription – US $125.00US $125.00 and online subscription – One-year subscription to the print edition of The Economist since 1997. The Economist and online access to all articles from The Economist since 1997. Print and online subscription – US $125.00 One-year subscription to the print edition The Economist and online access to all articles from The Economist since 1997.
  • 25. by adding a decoy, theRESULTS ARE RADICALLY DIFFERENT Economist.com subscription – US $59.00 One-year subscription to Economist.com Includes online access to all articles from Online Only 16% The Economist since 1997. Print subscription – US $125.00 One-year subscription to the print edition of The Economist since 1997. Print Only 0% Print and online subscription – US $125.00 One-year subscription to the print edition The Economist and online access to all articles from The Economist since 1997. Combo 84% Source: Predictably Irrational, 2010.
  • 26. irrationality
  • 27. why is the price of black pearls
  • 28. anchor price points $1.49 $1.96
  • 29. for many products, anchor price points
  • 30. irrationality “ ”
  • 31. irrationality $0.15 $0.01 73% 27% Source: Predictably Irrational, 2010.
  • 32. irrationality“ ” $0.14 $0.00
  • 33. irrationality“ ” $0.14 $0.00 31% 69% Source: Predictably Irrational, 2010.
  • 34. Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing strategiesused by merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies
  • 35. 1. Use of Ending Digits 9 60.7% 5 28.6% 0 7.5% Other 3.2%$3.00 - $1.99 = $2.01 Marketing Bulletin Study, 1997.
  • 36. 2.Typically 2.5 to 3.0 multiple for webstores andretail stores. $10.50 *2.5 = $26.25 $4.68 (18%) contribution
  • 37. 3.Used to capture market-share or create demandin early-stage products. Level is usually slightlyabove break-even – typically your price floor. $22.99 = $1.42 (6%) contribution
  • 38. 4.Used to maximize revenue when marketconditions allow, low or no competition orspikes in demand – typically the price ceiling. $29.99 = $9.42 (31%) contribution
  • 39. 5.Ideally, at or near your target price. Positionsyou within +/- a couple of percentage points ofthe average price. $24.99 = $3.42 (14%) contribution
  • 40. 6.Priced at or below break-even with the intent tocross-sell or up-sell customers to moreprofitable products. $17.99 = $3.58 (20%) loss
  • 41. 7.Providing price considerations for multiplepurchases; consumers are trained to expect adiscount. $46.99 = $3.85 (9%) contribution
  • 42. 8.Combining multiple products into a singlepurchase providing differentiation and greaterperceived value. $36.99 = $7.40 (20%) contribution
  • 43. 9.Priced below break-even with the intent tomove inventory, free up space, and make capitalavailable for other investments. $18.75 = Cost recovery of Inventory and S&H
  • 44. 10.Time limited price strategies designed toincrease demand, move inventory, and matchcompetitors pricing/promotions. Free Shipping = $18.75
  • 45. Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing strategiesused by merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies
  • 46. establishing a Product Life- Stage Pricing Strategy Inventory Channel Age
  • 47. consider the product life-stage Introduction • Skimming Growth • Competitive matching • Penetration Development IntroductionSales Volume Maturity Maturity Growth Decline • Competitive matching • Volume • Bundling • Promotions & Discounts Decline • Liquidation • Skimming Time
  • 48. within each stage manage both Establish maximum age by stage Establish channel pricing strategy: and product category: Introduction: Webstore and catalogs • Long shelf-life • Usually higher than Growth marketplaces • Short shelf-life Marketplaces Maturity • Greatest price • Medium shelf-life competition, usually lowest Decline price offered • Longest shelf-life • May be different by marketplace and fulfillment Make adjustments in price level method (discounts) and/or QOH as Physical store needed • Usually same as or more expensive than webstore
  • 49. Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing strategiesused by merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies
  • 50. how do 1. The pricing engine captures available pricing for your item(s) on your home market (AMZN) 2. Automatically re-prices items according to your pricing rules 3. Continually updates prices as the competitive prices, quantities, and sales change 4. Can be used as the basis for pricing other marketplaces and webstores
  • 51. 1.1. Is shipping included or separate?2. Relative to the competition, where do I want to be and for how long? • Average of lowest 5 • 2% above lowest FBA • $0.50 below lowest4. What is your price floor?5. What is your price ceiling? • Fixed, relative or none • What to do when no competitive listings?
  • 52. 2.1. Which competitors should be excluded? • Minimum quantity-on-hand • Minimum rating • Price is low-ball (outlier)2. Who are the specific listings you want to compete against? • Amazon • Featured merchants • FBA, merchant fulfilled or both • Specific seller IDs
  • 53. 3.1. Specific products2. Inventory Groups based on a combination of: • Category • Condition • Fulfillment Type • Quantities • Weight • Sales Rank • Age - Since Last Sold/Since First Received • Supplier/Source • Seasonal/Clearance/Sale
  • 54. pricing rules 1. Item-level rules 2. Inventory Groups in priority order 3. Default rules 4. By marketplace including International
  • 55. Why should you strategicallyleverage pricing?The economics of pricing and therole of irrationalityMost common pricing strategiesused by merchantsA framework for applyingpricing strategies to yourbusinessLeveraging pricing engines toexecute your pricing strategies
  • 56. five steps to leveraging pricing Understand your business economics to inform pricing strategies Consider the nature of irrational buying behavior to maximize opportunities Apply a pricing framework based on life-stage and inventory aging to develop strategies Implement strategies in a pricing engine to automate and scale application Continue to monitor, adjust, and test as market and business conditions change
  • 57. KEEP IT SIMPLE – NO MORECOMPLEX THAN IT NEEDS TO BE
  • 58. ccarey@monsooncommerce.comcaseykcareycaseycarey

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