Offering the lowest price: should you do it or not?

March 5, 2020

prijsstrategie

“Do I always have to offer the lowest price or not?”

We are asked this question daily and I will answer this question in this article. You will also receive tips, based on 10 years of experience in e-commerce, on how you determine your prices and why which strategy is good for you.

Major players and price fighters such as Amazon and Alibaba are becoming increasingly dominant. Small, local players often do not have the buffers and capacity to participate in this price war. But despite this there are ways and strategies to deal with these major e-commerce players. Offering the lowest price is not always necessary to compete with them.

Yet the first reflex of many web store owners is often to go along with the price war. My competitor drops, I’ll do the same. After all, if I don’t do that, I won’t sell anything anymore, the consumer naturally wants the lowest price.

That statement is partly correct. Studies by Capterra and Motivation show that online shoppers see the price as an important consideration when purchasing. But it is not the only thing one looks at. This means there are other opportunities to consider.

Back to the question, do I always have to have the lowest price? My answer is always:

“You need a pricing strategy because that is your ultimate weapon to compete and bring customers to purchase.”

Let’s zoom in on that.

Sometimes the lowest price offer is the best option. But that is certainly not the case for everyone. Because the price is only a part, you need to know what the other “buying reasons” are. The purchase decision is made based on several and different criteria:

  1. What are the experiences of other customers? (reviews)
  2. Are there multiple images with the products? (product photos)
  3. Is there a filter function? (ease of searching)
  4. Is the webshop mobile friendly? (extensive use of mobile)
  5. How long does it take to load the webshop? (website speed)
  6. How certain is it that the product will arrive on time? (delivery conditions and stock)
  7. How easy is the ordering process? (check out)
  8. How quickly does the visitor find a good answer to his question? (knowledge base, FAQ, chat?)
  9. Are the required accessories available? (depth range)
  10. What are the delivery terms? (conditions)
  11. What are the payment options? (postpay?)
  12. What are the delivery options? (delivery options)
  13. Etc.

How much impact can a good strategy have?

To set a clear example, I want to make a trip to a different market. Namely to the transportation market. Here is a specific player who has positioned its strategy so differently and everyone knows the company. I’m talking about Uber of course.

Uber has strongly disrupted the taxi market. Taxi drivers around the world are mad at Uber drivers, but thousands of people get into an Uber every day with a good feeling. How did Uber do this?

Every time I order an Uber ride, I experience a sense of certainty.

Certainty about the price. In a conventional taxi, I quickly get the feeling that there is too much being charged, especially when I am in an unknown environment.

Certainty about the time. Because you can see exactly where your taxi is on the application, you know exactly what time you need to be there and when you will arrive at your destination.

Certainty about the fact that the driver will do his best to get me from A to B safely and pleasantly. After all, he knows that he gets a bad review on a bad turn and too many bad reviews make his income uncertain. Which means he can lose his job.

Is this certainty 100% justified?

No: even an Uber taxi driver can be unfriendly or cause an accident. But it’s about perception. I get in the Uber taxi with peace of mind because I feel that I am in control. I believe I have control, and with that Uber succeeded in their design.

How did Uber do this and why is this interesting for you as a web retailer?

Uber has radically changed the customer experience on a number of points compared to what people were used to. They have mapped all “touch points” and “jobs”: what do you do when you order a taxi, what actions do you perform? What expectations do you have as a customer? What exactly happens when you ordered a taxi? (Unfortunately) I have not been involved in this process, but I can imagine that it looked like this (strongly simplified of course):

 

JobTraditional taxiUber
Order a taxi– An online search for telephone numbers (getting lost in Google Ads, websites, etc.)

– Calls to taxi centers (long wait, choice menus, language barrier, etc.)

– Open the app> pass on location> choose Uber
Waiting for a taxi– Have no idea where the taxi is

– Have the feeling of uncertainty about where the taxi is exactly

– See where the taxi is

– The driver sees your location, you can simply wait where you are

Sit in a taxi– Still do not know what the ride will cost you

– Anti-social driver

– Is this the fastest route?

– You know what it costs

– Driver behaves because he receives a review

– You can watch the route via the Uber app

to pay– Oops; this is way too expensive

– Pin machine has broken

– No cash

– Price is fair and known

– Payment goes through the app

Etc.

You can make this list much more comprehensive in many ways, but this is about the point that it’s not just about the price, or about the ease of ordering:

Winners in the economy are companies that help the customer in the best way.

And the annoying news is: the customer decides what he thinks is the best way.

The good news is: you are at the helm of your webshop and you can ensure that your organization focuses on providing the best possible service to your customer, exactly how the customer wants it – or better.

We are going back to your webshop.

The assignment is actually simple. Make an overview of all interaction points (and jobs) that your customer must perform to fulfill his needs. Don’t just think about the actions on your site, but everything around it. Make sure you have an overview of every possible touchpoint of your customer.

Make a list of these and see for each element what you can do to improve that experience. You can then look at:

  • How can this be done faster for the customer?

  • How can this be simpler for the customer?

  • How can this be cheaper for the customer?

  • Etc.

There is a good chance that you will receive a substantial list of points for improvement. Every element can be improved, accelerated or made cheaper.

Prioritize this list and then make a schedule for the next 8 weeks in which you write down each element you are going to optimize.

Possible elements that you can change:

  1. You may have to change the navigation of your website;
  2. Adjust payment methods;
  3. Add more shipping options;
  4. Bundle or unbundle products;
  5. Introduce Whatsapp support;
  6. Make an integration with customers’ ERP systems; (if you sell B2B)
  7. Organize your homepage differently;
  8. Introduce Livechat;
  9. Increase or decrease your assortment;
  10. Adjust the colors of your website or buttons;
  11. Adjust the packaging;
  12. Change your check-out process;
  13. Add a gadget to your orders;
  14. The notifications during the order process change;
  15. Hire other support staff;
  16. Add more product specifications;
  17. Or: lower your prices.

As you can see: lowering your prices might be a very good option. But maybe it’s good to keep your prices higher and to tinker with other variables, which may have even more impact on the results you get with your webshop. This example shows: the price is only part of the total shopping experience.

Then why a price tracker?

Once I have explained all of the above I often get the response: yes, this clarifies a lot, I know where to begin now! And once we’ve talked about this I usually get this next question: but if you have this vision and knowledge, why do you offer a price tracker?

Very simple: a price tracker is a price tracker. A system to monitor the prices of your competitors and/or buyers automatically. It is not a price reducer.

Our price tracker gives you insights into the prices in the market, you can then decide what to do with those insights. And then we are back at the beginning: you need a pricing strategy. For one, this is: always 1% cheaper than the cheapest competitor, for the other it is: exactly the average of the market, rounded down to € 0.05. It varies per strategy that you use with your webshop. Fortunately, you can easily implement your strategy through our Dynamic Pricing tool.

What will your strategy be?

I wish you all the best when you work on the assignment I described above and I promise you: there is a good chance that you will get more out of it than simply reducing your price. So which strategy are you going to use?

It’s not about who is the cheapest, but who uses the best price strategy.