It would be an understatement to say the coronavirus pandemic has upended the retail industry. In the first quarter of 2020 alone, U.S. e-commerce showed 10 years worth of growth, according to McKinsey & Co.
As e-commerce continues to rapidly replace physical channels, it may be time for online sellers to examine their position and competitiveness in the marketplace. Here are a few useful tips.
Strengthen your online positions. If you have been keeping up to date about the recent e-commerce trends for the last few months, this tip won’t be a surprise to you. A significant number of retailers were forced to move online due to the impetuous and firm growth of the digital economy.
However, many retailers were counting on brick-and-mortars as their main sales channel despite opening an online store. The recent crisis has proved that the offline-only model of business doesn’t work anymore. Yet, it doesn’t mean that providing customers with a website that contains the same proposal as an offline store is enough.
The first step to remaining efficient under the difficult circumstances for the majority of the digital stores is to redefine their online positioning. There’s a huge variety of strategic and tactical tools on your disposal and which ones to use will depend on the type of the store and your target customers. The growth engine components will vary based on whether the store is a multi-brand marketplace selling products for extensive groups of customers or it is targeting mostly those buyers who are seeking the best price on the market. If a store is specialized in the exclusive range products, the tools to use will differ as well.
Anyway, it should be clear that moving the store online doesn’t mean becoming a successful e-commerce player. But, there are very specific effective steps that can help different types of sellers to stay efficient. Most importantly, these steps include things like finding true competitors, optimizing operational and pricing costs, shifting to portfolio-based pricing, and others. Let’s get into details.
Provide a consistent experience. The increase of e-commerce was one of the two biggest industry trends dominating during the last ten years. The other one was the broadening importance of personalized shopping experience. Put it together and you’ll find that it’s not sufficient just to provide the demanded product at the best price. The experience that the buyer gets during shopping is something that truly matters.
"Consistent customer experience" includes the whole cycle — from the moment a customer begins looking for a particular product to the point it ends up in the customer’s hands. This implies that the online retailers ought to hold the right amount of the demanded products and at the same time ensure that the purchases will be delivered to the buyers with no problems at the best terms possible.
Even though it may sound simple, in reality, it’s not. Because of the recent pandemic, the entire chain cycle across the industries, a lot of sellers aren’t able to provide their customers with the products needed. So, how to manage to maintain the consistency of customer experience in the given circumstances? These are two things that could help:
Optimize your pricing. If you’re wondering why pricing is a priority when it comes to cost optimization, here’s a piece of information that will answer your question: Nearly 30% of all the pricing decisions that companies make fail to deliver the best price. And we shouldn't forget that the price is a primary factor for customers while making purchases. Therefore, cutting down pricing costs in order to get better efficacy is fundamental for taking your competitiveness in e-commerce to a higher level.
A lot of retailers will first think of competitor monitoring once they hear of pricing costs. And it could be the right thing to do, especially if your store is specialized in selling best-price-guarantee (BPG) products. But as the pandemic forced businesses to launch their online stores, competitor monitoring became more complex and expensive. So, is there any way to reduce monitoring costs without disservice efficiency?
To begin with, you can split your competitors across different product groups. Sellers barely compete with each other in every product category so it’s meaningless to monitor every single competitor’s price for all the products.
Another way to split the monitoring frequency is based on the product role. For instance, there is no reason to monitor prices for exclusive or long-tail products with the same frequency as you would do for key-value or BPG products.
You should strengthen your competitive monitoring costs with comprehensive pricing automation. Nowadays, the market-driven pricing based on automated decision trees is more and more often used by many retailers in order to ensure the algorithm develops the best prices based on the custom logic.
Determine your true competitors. We’ve already pointed out in a previous tip how splitting competitors across various groups can save you a significant amount of money. But to get the best results out of it, you have to define which retailers are your true competitors.
Statistics show that the average range of variety intersection amongst the competing retailers doesn’t overstep the point of 35%. This implies the probability of the huge risk of mistreating the rest of the players as ones that actually compete with you within a particular category.
So, how to determine which competitors should be monitored? For this task, the implementation of advanced pricing software is indispensable. The algorithms powered by the newest AI and ML technologies allow the third-wave pricing solutions to promptly and precisely determine the exact influence every player has on particular product sales. The results are obtained by analyzing both competitive and historical sales data.
Switch to portfolio-based pricing. Since pricing is one of the most important factors behind every purchase, we should look into SKU-based and portfolio-level pricing. The first way is a quite risky strategy that can damage a retailer’s price perception and harm customer loyalty.
SKU-based pricing indicates that a seller is craving to increase the sales of products that seem to generate more value than the rest. Even though this way of pricing may bring immediate financial benefits, in reality, it has nothing to do with truly sustainable pricing. The cannibalization effect is just one of the negative impacts that SKU-based pricing can cause to your business.
But the use of advanced technology can help retailers to segment all products in the portfolio into different groups, such as:
Right after the role of each product is determined, the algorithm can come up with the best price for each group taking into account all the cross-dependencies within the portfolio. This means that the financial metrics and the seller’s brand perception are protected. Your gross profit can be increased by 4,5% with the help of portfolio-based pricing.
Invest in technology. We can’t deny the importance of this point in the post-crisis world as it is retrieved from all the tips mentioned above. Many industry observers stated that after the 2009 global economic downturn the retailers didn’t have any other choice rather than innovate or die. In nowadays reality, this claim seems to be even more relevant than it used to be 10 years ago.
The market offers plenty of tech solutions at disposal of online retailers to invest in. However, there are reasonable justifications for considering investing in pricing as a top priority. The explanation for that is that it can generate more profit in a short period of time right after the first investment without interfering with customer experience or long-term strategic goals.
If you really want to become successful in post-crisis e-commerce sales, you should definitely consider using advanced pricing software. The market is full of different solutions that are more or less complex. Your choice depends on your needs, but you will get more precise results with a more complex one. Nowadays, just partnering with a price scraper won’t do all the job, it’s simply not enough.
The method that definitely works involves the development of a comprehensive automated pricing mechanism that will make the collected data work efficiently for you.
To break through the recent challenges and withstand the pressure of the crisis, it is necessary to make the online position stronger, provide the customers with what they really want, optimize operational and pricing costs, determine the true competitors, switch to portfolio-based pricing, and consider investing more in advanced tech solutions.
Yulia Beregovaya is pricing solutions architect at Competera.
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