In e-commerce, pricing is more than just a number—it's a crucial lever to make or break a business's profitability.

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According to the Global Retail E-commerce Forecast 2023, worldwide retail e-commerce sales will grow by 8.9% in 2023, with only slight improvements in the coming years. This suggests that the major growth surge for e-commerce has ended, and slower growth is now the norm.

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This brings us to emphasise more on pricing strategies than ever before for e-commerce brands. Meaning, pricing for profits while maintaining customer satisfaction. In this blog let’s discuss how e-commerce can increase profits sustainably.

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The Recent Problem of Profitability in E-Commerce

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As online sales skyrocket, so do the associated costs, leaving many e-commerce businesses struggling to maintain healthy profit margins.

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According to McKinsey & Company,

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"For the majority, skyrocketing online sales have been accompanied by costs that have risen just as fast. Fulfillment costs, for example, can account for 12 to 20 percent of e-commerce revenues, squeezing margins and making profitability a mirage."

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This quote highlights a pressing challenge for e-commerce companies: balancing the need for competitive pricing with the reality of rising costs. Against this backdrop, it becomes pivotal to incorporate realistic pricing strategies that focus on the sweet spot of profitability and customers' willingness to pay.

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Setting optimal pricing strategies relevant to your business model and your market helps you scale your business sustainably. When correctly applied, you can:

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• Optimise your profit margins: Proper pricing ensures you are not leaving money on the table while still attracting customers.
• Managing your operating costs: Helps in covering rising costs, such as fulfilment and shipping, without eroding profitability.
• Improve customer perception: Prices that reflect value can enhance customer loyalty and perceived product value.
• Provide a competitive edge: Strategic pricing can help you stand out in a crowded market and attract more customers.

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In this blog, we will explore techniques like price elasticity, Key Value Item strategy, Basket Analysis and inventory-based pricing. This will provide actionable insights that can transform pricing from a simple number game into a strategic tool for driving growth and profitability.

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How are the Current Factors & Pricing Strategies Affecting E-Commerce Profitability?

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Here is what most e-commerce companies are doing that is getting in their way of being profitable. When it comes to their pricing approach, there are only two primary strategies they swear by. The cost-plus and competitive pricing strategy. Let’s have a closer look:

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1. Logistics and digital ads increase e-commerce costs:

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While offline promotional allowances are usually higher, other costs, like on-site advertising and logistics, are typically greater online than in physical stores. On-site advertising refers to the ads that appear on e-commerce platforms. These ads are costly for consumer packaged goods (CPG) companies because they spend a lot to ensure their products are prominently displayed.

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Shipping and warehousing costs are higher online for several reasons:

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• Choppy ordering patterns: Orders, especially from Amazon, are generated by algorithms and aren't coordinated, making it harder to predict demand.
• Lower order quantities: Online orders often involve mixed-pallet instead of full-pallet shipments and less-than-truckload deliveries.
• Higher penalties from online retailers: For instance, Amazon charges fines for not meeting their packaging guidelines.
• Repackaging needs: Products may need to be reconfigured or repackaged for food items for e-commerce.

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2. Cost-Plus Pricing:

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Cost-plus pricing is a straightforward approach where businesses determine the price of a product by adding a fixed percentage (markup) to its total cost of production or acquisition. This ensures that all costs are covered and a profit margin is secured.

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Drawbacks of Cost-Plus Pricing:

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• Ignores Market Demand: This method doesn't consider how much customers are willing to pay. A product priced purely based on cost might not match market expectations, potentially leading to lost sales or reduced profitability.
• Misses Competitive Insights: It fails to account for competitors' pricing strategies, which can make a product less attractive if competitors offer better prices.
• Encourages Inefficiency: Higher costs result in higher prices, reducing the incentive for businesses to control costs and improve efficiency.

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3. Competitive Pricing:

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Competitive pricing involves setting prices based on what competitors are charging. This strategy is designed to attract price-sensitive customers by offering lower or comparable prices.

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Drawbacks of Competitive Pricing:

• Price Wars: Over-reliance on competitive pricing can lead to price wars, where businesses continuously lower prices to outdo each other, ultimately eroding profit margins.
• Lack of Differentiation: Aligning prices with competitors can prevent businesses from differentiating their products based on unique value propositions, quality, or features.
• Reactive Strategy: This method is reactive, not proactive, as it relies on competitors' actions rather than a company's own value and market positioning.

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3 Limitations of Current Pricing Strategies Used in E-Commerce

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While traditional pricing strategies like cost-plus and competitive pricing are still widely used, e-commerce businesses face several significant challenges and limitations in today's dynamic market. Many of these challenges stem from outdated practices and a lack of focus on more sophisticated pricing strategies that take into account customer behaviour and market dynamics.

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1. Manual Scraping of Competitors

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One major challenge e-commerce companies face is the reliance on manual scraping of competitors' prices. This process involves manually checking competitors' websites to gather pricing data, which is both time-consuming and prone to errors.

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Manual scraping has several drawbacks, including inefficiency, as manually collecting data is labour-intensive and slow, making it difficult to respond quickly to market changes. Inaccuracy is another issue, as human errors in data collection can lead to incorrect pricing decisions. Additionally, manual methods have a limited scope, covering only a limited number of competitors and products, which means missing out on a comprehensive view of the market.

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2. Manual Price Optimisation

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Another limitation is the manual adjustment of prices to optimise sales and profitability. This approach often relies on static rules or intuition rather than data-driven insights.

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Manual price optimization suffers from several drawbacks. It lacks the precision and granularity needed to fully optimise for different market segments and customer behaviours, often resulting in suboptimal pricing decisions. Additionally, this approach is typically reactive, lagging behind market changes and competitor moves. As a product catalogue grows, managing and optimizing prices manually becomes increasingly difficult, leading to scalability issues and inefficiencies.

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3. Overemphasis on Competition

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Many e-commerce businesses focus too much on their competitors' pricing strategies rather than their profitability and customers' willingness to pay. This competitive focus can lead to several problems:

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1. Price Wars: Constantly trying to undercut competitors can trigger price wars, which erode profit margins and can harm the perceived value of products.
2. Neglecting Profitability: Focusing on matching or beating competitors' prices can lead to overlooking the company's own cost structure and profitability goals.
3. Ignoring Customer Value: By concentrating on competitors, businesses may neglect what their own customers value and are willing to pay, missing opportunities to set prices based on value rather than just cost or competition.

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How Leading E-Commerce Players Use Pricing Strategies

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Leading e-commerce companies like CoolBlue, Amazon, and Bol.com have moved beyond traditional pricing methods to embrace more sophisticated and data-driven strategies. By focusing on price elasticity, customer willingness to pay, and innovative techniques such as Key Value Item (KVI) strategies, smart basket analysis, and stock-based pricing, these players optimise their prices to enhance profitability and stay competitive.

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1. CoolBlue

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CoolBlue, a prominent e-commerce player, leverages several advanced pricing strategies to meet customer expectations and maximise profits.

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• Price Elasticity and Willingness to Pay:

CoolBlue extensively uses data analytics to understand how sensitive its customers are to price changes. By identifying the optimal price points customers are willing to pay without significantly reducing demand, they can set prices that maximise revenue and profit margins.

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• Key Value Item (KVI) Strategy:

CoolBlue identifies key products that significantly influence customer perceptions and purchasing decisions. By competitively pricing these KVIs, they attract customers to their platform, who may then purchase additional items at higher margins.

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• Smart Basket Analysis:

As McKinsey & Company says about basket analysis,

“Higher item value and basket size in categories such as home, sporting goods, and electronics incur lower shipping costs as a percentage of sales.“

CoolBlue runs basket analysis to understand the relationships between products and optimise cross-selling opportunities. By adjusting prices on complementary products, they increase the overall basket value and enhance customer satisfaction.

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Also Read: Business Benefits of Orders or Basket Analysis in B2B

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2. Amazon

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Amazon is a pioneer in dynamic and data-driven pricing strategies, employing various innovative techniques to maintain its competitive edge.

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• Dynamic Pricing: Amazon uses sophisticated algorithms to adjust prices in real-time based on factors such as demand, competition, and inventory levels. This ensures they remain competitive while maximizing profits.

• Stock-Based Pricing: Amazon adjusts prices based on inventory levels, using stock-based pricing strategies. When inventory is high, prices may be lowered to stimulate sales, whereas low inventory can lead to price increases to manage demand and extend product availability.

• Customer Segmentation and Personalization: Amazon segments its customer base and personalizes pricing based on purchasing history, preferences, and behaviour. This tailored approach enhances customer loyalty and maximizes willingness to pay.

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3. Bol.com

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Another major player in the e-commerce sector employs a mix of advanced pricing strategies to optimise its market position and profitability.

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• Elasticity and Willingness to Pay

Bol.com uses extensive market research and data analysis to determine how price changes affect demand. By setting prices that customers are willing to pay, they ensure a balance between sales volume and profitability.

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Bol uses sophisticated algorithms to understand how price changes affect demand. By analyzing customer behaviour and purchase patterns, they can set prices that optimise revenue without alienating customers.

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• KVI Strategy

Bol.com identifies and focuses on pricing key value items competitively to draw customers to their platform. By doing so, they enhance customer perception of overall value. This also encourages additional purchases while maintaining higher margins on less price-sensitive products.

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• Stock-Based and Demand-Driven Pricing

Bol adjusts prices based on stock levels and demand trends. This dynamic approach helps manage inventory efficiently and respond to market changes swiftly. This strategy helps them smartly manage their stock. Prices may increase for low-stock items to optimise profits; or reduced for overstocked items to clear inventory.

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Also Read: How Stock-based Pricing Works in Decathlon

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How Smart Pricing Technology Helps Set Profitable Pricing Strategies for E-Commerce Businesses

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In a research by McKinsey & Company,

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“Retailers that overemphasize e-commerce revenues could actually be damaging their prospects. Indeed, digital growth is not enough; only profitable digital growth will create value.“

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To keep your e-commerce business profits growing sustainably, let’s understand the pricing strategies that would matter. Understanding the nature of the products like price elasticity, and how much is customer willing to pay for it can help you find the pricing’s sweet spot.

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What gets in the way is that many businesses may lack the resources to hire a team of data scientists, engineers, and pricing experts. But in the age of advanced AI, this shouldn’t be a roadblock to business growth.

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This is where smart algorithm-based pricing software comes into play. It allows companies to use advanced pricing techniques without the need for extensive human resources expertise.

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1. Automate your price monitoring process

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Smart software, such as Symson, can automatically monitor competitors' prices in real time, providing accurate and up-to-date data. This eliminates any inefficiency and inaccuracy associated with manual scraping. As a result, it allows businesses to respond quickly to market changes and maintain competitive pricing. Symson’s Price Engine optimises prices automatically ensuring profitability at all times.

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2. Dynamic Pricing Algorithms

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Advanced algorithms can dynamically adjust prices based on a variety of factors, including demand, inventory levels, and competitor prices. These dynamic pricing systems ensure that prices are optimised in real-time, growing sales volume and profit margins without the need for constant manual adjustments. Symson’s Genius Dynamic Pricing capabilities adjust prices based on multiple factors, ensuring maximum value from every sale.

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3. Data-Driven Insights

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Smart pricing software can analyse vast amounts of data to provide insights into customer behaviour, price elasticity, and willingness to pay. These insights enable businesses to make informed pricing decisions that align with market conditions and customer preferences, enhancing profitability and customer satisfaction.

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With Symson’s insights, you gain access to powerful analytics that offer actionable insights into customer behaviour, price sensitivity, and market trends, enabling data-driven pricing decisions.

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4. Customer Segmentation and Personalisation

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Technology can help businesses segment their customer base and personalise pricing based on purchasing history, preferences, and behaviour. This targeted approach ensures that prices reflect the value perceived by different customer segments, optimising revenue and building customer loyalty.

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Symson helps you segment your customer base and tailor prices to different groups, optimising revenue and enhancing customer loyalty.

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5. Stock-Based Pricing

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Software solutions can adjust prices based on inventory levels, using stock-based pricing strategies to manage supply and demand effectively. For example, prices can be lowered to clear excess inventory or raised when stock is low to maximise profit margins. Symson’s software adjusts prices based on inventory levels, helping you manage stock efficiently and optimise profit margins.

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6. Key Value Item (KVI) Strategy Implementation

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Advanced software can help identify key value items and ensure they are priced competitively to attract customers. By strategically pricing these influential products, businesses can enhance customer perception of value and drive additional sales of higher-margin items. Symson identifies key value items and ensures they are competitively priced to attract and retain customers.

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7. Smart Basket Analysis

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Smart software can analyse shopping baskets to understand the relationships between products and optimise cross-selling opportunities. By adjusting prices on complementary products, businesses can increase the overall basket value, enhancing customer satisfaction and driving higher sales. Symson’s software analyses customer baskets to identify product relationships and optimise cross-selling opportunities, increasing overall basket value and customer satisfaction.

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Also Read: Best Practices to Implement Basket Analysis for Optimal Pricing

By adopting Symson’s smart pricing software, e-commerce businesses can implement advanced pricing strategies, optimise their prices, and enhance profitability—all without the need for a large team of specialists. In the next section, we will explore how to get started with Symson and integrate these technologies into your e-commerce platform seamlessly.

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Take a Look at SYMSON’s Customer Stories: How we Heped with E-Commerce Profitability

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1. IGM

IGM, a leading bathroom fittings wholesaler in the Netherlands, struggled with complex pricing due to their vast product range. SYMSON's flexible, rule-based pricing solution enabled IGM to automate and customize their pricing strategy across products, categories, regions, and sales channels. By leveraging SYMSON's price elasticity algorithm, IGM increased their margins by 11%, identified and mitigated margin leakages, and integrated costs like advertising into their pricing.

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2. Smartphonehoesjes

Smartphonehoesjes, a top Dutch web shop for phone accessories, faced challenges with pricing on third-party platforms and optimizing margins amidst high platform fees. SYMSON provided clear market positioning insights and advanced pricing analysis, enabling competitive and profitable strategies. By implementing dynamic couponing, optimized promotions, and effective third-party platform usage, Smartphonehoesjes maximised revenue and incentivised customers to buy on their own webshop.

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