The Importance of Pricing Optimization for Online Retailers

Looking back at the last decade, it’s almost impossible to comprehend the shift in commerce and consumerism that the internet has ushered in. From both sides of the isle, the rules of engagement have completely changed.

But progress hasn’t stopped there. The e-commerce world is continuing to evolve constantly, playing catch with technology. Online retailers that wish to stay competitive in a fast-paced market must adapt quickly to new trends and tools.

One such tool is pricing optimization. It has completely changed pricing conventions.

Importance of Pricing Optimization for Online Retailers

What Is Pricing Optimization?

Pricing optimization is the practice of conducting analysis to determine what is the optimal price for a certain product by evaluating how consumers will respond to a range of prices.

The purpose is twofold. One, to maximize operating profits. Second, to create a competitive pricing strategy to thwart competitors’ attempts to present attractive prices.

There are a multitude of solutions available for online retailers, large and small. Some of the solutions offer a manual solution where “rules” need to be set while other companies, such as UpstreamCommerce offer predictive and dynamic price optimization software that is automated with more advanced features.

The Long Tail Affect Presents Unique Challenges and Opportunities

Pricing optimization software has been around for a while and adoption of it has widened from mega online retailers as Amazon and Target to SMB’s with more targeted audiences that operate in niche markets.

One of the main results of the proliferation of online shopping is the long tail affect. If in the previous century Big Box retailers dictated the taste for the mass market, these days the mass market is broken down to larger and larger number of niches as consumers’ tastes vary greatly.

This creates unique challenges for online retailers in a fractured market, but with that also unique opportunities to focus and specialize and thus provide more refined and mature products.

The Next Frontier is Dynamic Pricing and Predictive Pricing

As mentioned before, the e-commerce landscape is evolving rapidly, as new tools are constantly introduced, offering early adopters to race ahead of the competition. Two such tools are Dynamic Pricing and Predictive Pricing.

Dynamic pricing means that there is not fixed price for a product, but rather a flexible one that adjusts according to market fluctuations, consumer data and supply and demand. It is the next step in maximizing operating profits. By using an algorithm, retailers can ensure that the optimal price is suggested to consumers, case by case.

Predictive pricing uses complex analytics to determine future pricing of products. It takes into account past product and pricing data and applying statistical methods predicts the best price, allowing the retailers to be one step ahead of the completion.

Looking at the Big Picture of Online Presence

Being competitive in pricing is not enough anymore in the very crowded e-commerce market. The fight for the consumer starts way before they arrive at the web shop. The task online retailers face is to grab the attention of potential consumers wherever they are online, and hook them.

Online retailers need to increase their web presence, across various channels – organic, paid, social and content. It’s not an easy task, and the best way to go about it to use dedicated agencies such as eTraffic to increase your online presence.

The online world demands of its retailers to be multidisciplinary. It’s not just about having winning products, it’s about winning on multitude of fronts.