Pricing processes in e-commerce

Purchase and sale price

Once dealing with a product, the purchase price includes all the costs for us of buying that product. The relevant accounting legislation describes in detail the composition of the purchase price. It mainly has three components: the net purchase price, logistics costs, and duties directly related to the purchase of the product, as well as preferences and disparities related to the purchase. The margin is the difference between the net purchase price and the net selling price, from which the trader's profit is formed after deducting additional costs.

For certain product groups, the state or the European Union sets a minimum selling price below which the product cannot be placed on the market. A classic example of this is alcoholic beverages where the level of alcohol sets the price, other examples are dairy products and grain. There is another interpretation of the term that goes against the competition law although it is quite used: the manufacturer sets to the reseller the lowest price at which the product can be resold. It is important to know that this is illegal in all EU Member States, in 2018 the European Commission fined Asus, Philips, Pioneer, and Denon & Marantz electronic corporations a total of € 111 million for setting a minimum selling price for their resellers.

The retail list price and the end-user price

To put it simply: retail list price means the price of the product without any discounts, that is used in retail. It is not a resale price. Includes wholesale price and business margin, as well as sales and various other taxes. The end-user price means the same in principle, as end-users buy the products in retail, but in practice, they are often lower than the list price because customers receive different discounts compared to the list price that at the end of the day reduces the price margin.

The recommended end-user price means the price at which the product is recommended for retail sale by its manufacturer, distributor, or wholesaler. This is usually used by the brand of the imported products when for example on the Hungarian webshop of the brand - where there is no reselling - shows an estimated price for the products for example based on the currency change. 

The concept of a suggested advertising price can mean two different things. On one hand for example, at what price an apartment with specific parameters (size, location, orientation, etc.) should be offered for sale on the real estate market in order to increase the likelihood of a successful sale. The price is an advertising medium in itself, and it reveals a lot about the product and the seller. On the other hand, as a less used meaning, suggested advertising price can also mean the amount of money worth spending on marketing and advertising costs to sell that product

The pricing frequency

The frequency of pricing means its temporality and can be interpreted in several ways. Most traders audit and adjust their selling prices at certain predetermined intervals. Frequency is connected to these timeframes showing how often the product’s price changes. This method is called periodic pricing and is commonly used nowadays in web sales although it is nowhere near being the only one. There is a so-called dynamic pricing method, which means that prices are constantly changing depending on the data available. A practical example of this is when the employees of a web store are monitoring the competitions’ prices and adjust their own accordingly on a daily basis, Amazon’s automated pricing works like this. Fortunately, there are software solutions that analyze the competition’s price and stock changes in real-time showing the opportunities given by the market at the same time and proposing which product prices should be adjusted.  

The different kinds of discounts

In today’s web sales the discounts have specific importance given the fact that most of the customers are purchasing online because it is more economic, they want to buy the products at the best price possible. In practice we can see that all the internet is covered in discounts, every product is in constant sale, we can get a freeby, coupon or a special, personalized offer with everything.

The customers’ need for discounts is met by the sellers in different ways. Personalized offers are specifically addressed to a customer, other buyers cannot use them, cannot be transferred. It can take many forms, including a banded discount based on the number of previous purchases, a points card, a coupon code given at the time of purchase, and more. A service discount, on the other hand, is an offer that is not linked to the person of the customer but to the use of a service. Typical examples are the monthly fee reductions offered by the internet service providers in the first half or even in all the first year, mobile service providers offering higher monthly fees in long-term contracts with the possibility of buying devices much cheaper. The type when the customer gets a better fee when subscribing for a year instead of paying monthly also belongs to this group.

The bundle type discount can be given when the customer purchases products in a pre-assembled package instead of buying them one by one. A classic example of this is 2-for-3 frequently used with books or video games when from the three products one is for free. Here the buyer can choose the three products from a list of discounted ones, not from all the portfolios. The same discount can be offered for a specified number of purchased products or giving a bait product much cheaper along with the already purchased ones. Obviously, the combination of these types can also be used.

The fourth main type goes to channel discounts: here the base is the channel of sales and not the customer or the product type/quantity. An example of this is when a trader has a brick-and-mortar and also a web store, promoting purchases from one channel to the other one. They start to promote in their store the products available on the web-store, at a cheaper price thus, they can not only divert traffic but also increase it effectively, for example by applying a channel discount to different products at the same time, so it is worth it for the customer to buy certain goods in the web store and others in the store.