How to Tell if Your Pricing Strategy is Working | eCommerce Matters Ep. 009
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What are the benchmarks of a good pricing strategy, how to align your strategy with business objectives, and steps you can take to adapt your pricing strategy to market changes.
Hosts: Philip Huthwaite (CEO & Founder of BlackCurve) and Rob Horton (Product Director at BlackCurve).
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Full Episode
Podcast Summary
Introduction
In this discussion, Philip Huthwaite and Rob Horton explore the topic of assessing the effectiveness of pricing strategies. They delve into the importance of aligning pricing decisions with business objectives and how it impacts overall business performance.
Importance of Goal Setting
Setting clear goals is crucial for a successful pricing strategy. Businesses need to define their objectives and ensure that pricing decisions support those goals. By doing so, they can measure the impact of pricing strategies on profitability and growth.
Visibility of the Marketplace
Understanding the competitive landscape is essential. Businesses should strive to gain visibility into the marketplace, including competitor products and their corresponding prices. This knowledge helps identify areas for improvement and assesses the business's competitiveness in the market.
Automated Pricing Decisions
Transitioning from manual analysis to automated pricing decisions can streamline the pricing process. By leveraging competitor data, businesses can set rules and parameters for minimum margins and parity with competitors. This enables dynamic pricing adjustments, ensuring competitiveness and optimising profitability.
Incorporating Additional Data Sets
Making informed pricing decisions requires considering additional data sets beyond competitor data. Analysing sales transactions, stock levels, and other relevant data sources provides valuable insights. It allows businesses to optimise pricing based on performance, demand, and other factors, rather than solely relying on competitor pricing.
Pricing Maturity Model
The concept of a pricing maturity model is introduced, outlining the stages of pricing strategy development. These stages include:
Stage 1: Gaining visibility into the marketplace and understanding competitor products and prices.
Stage 2: Implementing automated pricing decisions based on competitor data.
Stage 3: Incorporating additional data sets and refining pricing strategies for non-competitor products and optimal pricing decisions.
Measuring Effectiveness with KPIs
Key Performance Indicators (KPIs) play a vital role in assessing pricing strategy effectiveness. Some relevant KPIs discussed are:
Frequency of price changes: Comparing the number of price changes per product against industry benchmarks to evaluate competitiveness and responsiveness to market dynamics.
Profitability at the product level: Maximising profitability becomes a core KPI to gauge the impact of pricing decisions on overall business performance.
Avoiding Over-Optimisation
While continuous analysis and optimisation are important, businesses should be cautious not to over-optimise their pricing strategies. Striking a balance between necessary adjustments and minimising unnecessary price changes is crucial. The focus should be on maximising profitability rather than excessive fine-tuning.
Conclusion
The key takeaways from the discussion include the importance of aligning pricing strategies with business goals, leveraging competitor data and additional data sets for optimisation, and measuring effectiveness through relevant KPIs. Businesses should aim to avoid over-optimisation and ensure their pricing strategies are in line with their overall business objectives.