The current challenges of pricing - do you take the fight or run away?

Pricing has always been an essential part of the e-commerce business, but due to the high inflation, it is more important now than ever. What are the issues that an e-trader faces nowadays, and what is the solution? We will cover this topic in our article with the head of business development of PriceKit, Fruzsina Donáth.

In the world of e-commerce - even if we do not look at the current situation - pricing has been among the priorities and the reason for that is the requirement of reasonable online prices from the customers. This preconception about online shopping is very difficult to eradicate from public opinion. Fortunately, in recent years, quality and delivery time has come to the fore as important factors, but a reasonable price is still the most decisive factor, and this basically results in a serious challenge. Nowadays, the economic news is the leading topic on every platform, which is not a surprise, since the issue of inflation is simply unavoidable. This phenomenon now affects everyone in the world and has a global impact. It affects consumers, as everything becomes more expensive, and the inflationary pressure naturally affects the entire market, from traders to manufacturers to logistic companies.

Growing market

The e-commerce market has shown very significant growth in recent years, and the reason is that more and more people are entering the online world from the offline space, as they also want a share in the already mentioned large-scale growth. Not to mention the fact that the pandemic situation has become an outsider force that made many participants enter the online market. One should also consider the growing number of foreign participants entering the national markets, which has pressure as well. It can therefore be said that the market is constantly growing, the number of webshops is increasing, more and more products are being offered - and more and more products naturally mean higher prices. More prices are available on different channels: for example on comparison sites, which are very powerful, but we can also mention marketplaces, Google Shopping, and social media platforms that have become a place to sell things easily and quickly. 

All these factors result in price competition, which challenges the e-traders in many ways.

Cancellation of supply chains

During the pandemic, the cancellation of supply chains happened. In the past, Europe imported an incredible amount of goods from China - however, during and since the epidemic, these lines were broken or became very fragmented: on the one hand, the raw material does not come as before, it is less predictable when and which product will arrive to the dealer, and the container deliveries have also become very difficult. As a result, a strong rise in prices came, i.e. products are now more expensive from China than before the pandemic - if they arrive at all. Therefore, it is difficult for an e-retailer to set a price because its sources of supply are not certain, plus prices are constantly changing due to inflation. While previously - say three years ago - they reserved a container with specific products at a specific price, then had it delivered and sold. Nowadays they can rarely reserve a fixed price, and it is not even certain that the product will arrive. If the product will make it to the ship, the price will rise constantly, until it arrives. The traders have to accept that they have no idea at which price the product will arrive. The above implies that instead of the previous, roughly predictable purchase prices, a dynamic purchase price must be calculated, making logistics and pricing a very difficult task. 

Increased delivery fees

The third factor, which is very strong and affects all levels, is the increased cost of transportation. Both the transport costs of purchasing the goods and – due to the increase in fuel prices – the costs of delivery from dealers to consumers have become significantly more expensive. There is extremely strong price pressure on both courier companies and fulfillment companies, with no exceptions.

General pricing challenges

The three global effects listed above have a very strong influence on pricing, but in addition to these, there are other important factors.

– The most important thing is to have a developed business plan and strategy. 

– You also need to determine who your competitors are – this is also an important pricing challenge, as you need to be aware of whose prices you are taking into account when setting your own prices.

– It is important to know what price strategy you want to follow (e.g. lowest price, price compared to market average price, given price position, etc.). On the other hand, it is a misconception that the same price policy must be followed for the entire webshop, so you can use different strategies for different product groups.

– The timing of repricing your products/product categories is also an essential factor

The already mentioned strong competitive situation also means that there is a great number of products on the market, and more models and variants of each product are available. In this regard, the challenge is how to find the pair of products from your competitor that actually matches your product, and not an earlier model or a different size, color, etc. 

The main goal is to operate your e-commerce business in a sustainable way, so you can stay competitive, and offer a good price without being forced to sell at a loss.

What is the solution?

One of the keys to "survival" in such difficult times is if you adapt to the situation and switch to a new operating model, and it is also very important to be able to think creatively. A creative solution, for example, is to find the bases - not one, but several! – that you can rely on. Through a specific example: those who previously only relied on China for the procurement of goods, are now recommended to contract with several suppliers on the domestic market as well, to stand on several feet. That way, if one of your partners falls, you won't be completely dependent on them.

In the current period, how smoothly the company operates also plays a huge role. What do we mean by that? During the pandemic, there were industry players - just look at FMCG - who had to face an extremely strong increase in demand. Only those who were professionally run were able to take the challenge. You can only price well if the entire company works in harmony and can deliver, communicate with customers, solve problems, and so on in a professional manner, covering the entire back office.

Increasing efficiency is extremely important, so it is definitely worth automating as many things as possible, especially if useful data can be extracted. After all, trends can be deduced from the data, even in such a strange situation. 

So grab all tools that do not depend on human factors and can be easily integrated into business operations. This can be, for example, an online invoicing software, a CMR system, a conversion optimization tool, or pricing automation such as PriceKit!

PriceKit carries monitors the market for you and gives you guidance on pricing issues. As an automatic pricing support application, it constantly monitors your products and your competitors and makes up-to-date price proposals for you based on the data it receives. You can export the prices and connect the PriceKit interface to your online store, so the prices are automatically updated there as well.