The Psychology of Competitive Pricing for E-commerce

Most customers expect lower prices in online stores than in brick & mortar stores. They also do price comparisons before shopping, all of which increase the need to design the right competitive pricing strategies for your online shop.

Psychological Tactics in Pricing

There are many psychological triggers that can be used to influence a potential customer to accept the price offered. You need to stay competitive in your pricing, but that doesn’t mean you have to incur losses to get more sales.

Brand Value Pricing

An established brand that has positioned itself in the premier category might cost more, but because of the perceived higher value, many customers will be willing to pay that price. Build a Unique Value Proposition for your brand, show customers what sets your products apart. In fact, studies have shown that customers link higher prices with higher quality.

Bundle Pricing

Many products can be sold as a bundle. For example, baby lotions, baby soaps, baby oils, etc can be sold as a bundle, at a discounted price that will be lesser than if each of the items were bought individually. This also applies to gadgets like cameras. Shops often bundle them with tripods, an additional lens, camera bags, etc. Bundling also helps you sell slow-moving products when you group them with more popular items.

Loss Leader Pricing

This competitive pricing strategy is used to lure customers by offering a product at a very low cost and then making a profit off selling related products. For example, with Gillette cartridge razors, the razors themselves are priced low and often come bundled with disposable cartridges. Gillette actually makes money off these disposable cartridges because users would have to replace them frequently.

Decoy Pricing

This is an effective competitive pricing strategy. When users are given two choices, they tend to go for the lower-priced one. However, present just one more choice (the decoy), you can convince them to choose the higher-priced option. A prime example is how The Economist presented their subscription choices. They offered an online subscription for $59, print edition for $125, and the online and print bundle for $125.

The trick was the listing of the price for the print only subscription in the middle, that convinced readers that they were getting a bargain if they subscribed for both versions together.

Scarcity Pricing

When someone wants to buy something, if the seller introduces a sense of scarcity, it makes the person feel that he has to buy it soon or lose out, regardless of price. Many shops do this for certain items, listing the low number in-stock. eBay also shows the number of people currently watching that offer.

Dynamic Pricing

This is making price adjustments in response to marketplace factors. You can now use sophisticated tools to watch market movements and make price adjustments within the parameters you define, like minimum and maximum prices for each item. This competitive pricing software, like Intelligence Node’s 360°Pricing tool, also spot opportunities to increase prices and respond accordingly. For instance, if a competitor runs out-of-stock for a certain item, they can increase the price for that item until that scarcity exists.

Feedbacks and reports from these tools can also help you increase your margins. For instance, if you are offering the lowest price on a particular product, and the difference between your price and the second-lowest price is big, you can increase your price a little, still staying below your competitor’s price and yet increase your profit margin.

There is much software available in the market to help retailers make informed, intelligent, timely competitive pricing decisions. Intelligence Node’s In competitor and Inoptimizer analyze competitor moves and provide you deep insights to help you come up with optimal merchandising and pricing strategies. These are AI-led solutions that keep learning with each use and each result.

Author Bio: My name is Frida and I have been working as a retail researcher for about 5 years at Intelligence Node. http://www.intelligencenode.com

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Originally published at https://adzis.com on January 14, 2019.