The Art of the eCommerce Price War

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Online shoppers know that they don’t have to hunt for the best deal in eCommerce, they just expect them. Cost comparison tools and market saturation means that cost is the point of difference that eCommerce clients care about most.

In turn, profit margins continue to shrink as the eCommerce businesses compete for the best price to secure shoppers. When the online shopping experience between e-retailers are the same, price becomes the sticking point.

Price wars aren’t a long-term solution to eCommerce retailers, with a battle to the lowest cost contributing to a poorer market over time. eCommerce outlets are fighting for the purchaser by extending deals, increasing incentive prices and usually competing on cost – and that certainly gives the customer the upper hand in the transaction.

Online shopping costs are largely cheaper than those located in brick-and-mortar outlets, and that is even before you factor in online savings codes, deals of the day, no-taxes-charged and free shipping offers.

Then there are the online tricks of the trade which throttle costs even further. Price comparison services such as Google Shopping also empower the customer of today to shop smarter and compare eCommerce shop listings. The platform contrasts product prices across several stores as well as user reviews to assist the purchase decision.

Not only are retailers lowering their costs, but technology add-ons are comparing and contrasting the accessible outlets for the client to make it even simpler. All in all, competing on price to attract low-value clients doesn’t bring about a strong market in the long run.

The result of this cost pressure is lower profit margins in an ever-more-expensive playing area. It’s simple math: Low cost translates into less money per unit. This implies eCommerce retailers will need to sell more to make the same gain before they slashed prices.

Pitting stores against each other with cost the only differentiator creates an industry which loses value. On top of the struggle for rock-bottom prices, retailers are competing in an online marketing environment that is more aggressive each year.

Interestingly enough, the cost problem is one retailers seemingly inflict on retailers.

Price wars happen only when cost is the deciding factor in the purchase – and the simple fact of the matter is that stores with cookie-cutter purchase processes and internet experiences create this problem.

Here are a few ideas on how to come out on top in the on-going battle over eCommerce price-setting:

eCommerce Product Copy Must Disarm Alternatives

Simply put, your product copy needs to position the product as superior to a customer’s alternatives.

All this is supposed to target the”Reference price effect”, which states that cost sensitivity increases as a product’s price increases relative to perceived choices.

Create a New Product Type/Category Instead of making a product seem better than its alternatives, reposition the item so it is in a brand new class or class so that it does not have any alternatives.

This is meant to solve price sensitivity with the”Difficult comparison effect” where buyers are sensitive to the cost of a product when they have trouble comparing it to possible options.

Premium Pricing – When Possible

That is a no-brainer, but understanding the psychology behind this is vital.

That is where buyers are less sensitive to cost when a higher price can signal increased product quality.

Remember that this will not work for most products, but when it can work higher pricing can actually help with price sensitivity.

The $100 price tag indicates that there’s higher quality, and a safer hop, even though there might be no difference at all.

In this situation, customers are more price sensitive and are likely to choose the $4 leap, as there is no premium pricing to signify quality.

Bundling

Packaging items together is an excellent way to deal with the “price proportion cost” factor. The cost proportion cost factor essentially states that customers assess the purchase price of an item based on its proportion of the total overall cost of the benefit they’re trying to achieve.

If a customer is attempting to buy a suit they will be less price sensitive to the cost of a pocket square than a suit coat since the suit jacket contributes more to the overall cost of what they’re looking for.

The purchase price of a pocket square is only a small fraction of what the complete package costs, so that they will spend less time assessing its price. The goal is to package products together so that lower cost items can make up for the price sensitivity consumers have for higher cost items.

Be More Than A Vending Machine

A vending machine is only a product and a price. If all you need to offer is a product and price, then you’re no better than a vending machine.

The above-mentioned tactics are amazing ways to help lower a client’s existing cost sensitivity, but the most effective way to take care of price sensitivity would be to remove it from your clients altogether. Offer your clients a great customer experience, a loyalty program, and status-based perks which benefit their ongoing patronage.

When your customers don’t even consider alternatives or competitions, you have eliminated the majority of their price sensitivity – and created stable, predictable sales.