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Why lower prices aren’t always worth it

By Chris Dawson March 19, 2015 - 8:23 am

Wiser is a dynamic pricing and merchandising engine that monitors, analyzes, and reprices retail products in real-time. Wiser enables retailers to boost profit margins and revenue, price with confidence, and improve merchandising through a sound pricing strategy. Today Angelica Valentine from Wiser discusses how to discount intelligently and add value to stand out from the competition.

Why lower prices aren’t always worth it

Repricing WiserIn such a competitive market, if the destination is being competitive, then lowering prices has often seemed to be the route most travelled. But where does it end with retailers like Amazon having no problem with consistently selling certain items at a loss?

Let’s go into the dos and don’ts of lowering prices, because there’s a time and place for it, but it should never lead retailers into an unwanted price war.

What NOT to Do

  • Don’t fall into Amazon’s loss leader antics. Operating at or below cost is not a sustainable business plan. It could push you into a price war with competitors and even if you “win”, you could be losing money on each sale.
  • Don’t condition shoppers with super low prices year-round. After-holiday sales are usually necessary to clear out seasonal items, but if shoppers expected items at 60% off in March just because, you’re bottom line would certainly suffer. Paula Rosenblum, managing partner with RSR Research, summed it up perfectly; “You know you’re in trouble when the biggest shopping day of the year is the day after Christmas.”

What to Do

  • Do discount intelligently. It can help clean out inventory, but be choosey about what and when you discount.
  • Do price in-line with your brand identity. This should always be true, even when discounting.
  • Do reprice to keep up with the market (within reason) because relative price is important. Set a minimum and maximum price for each of your products
  • Do test slightly different prices to find out how price sensitive your customers really are.

How to Add Value to Products

Pricing is one of the main factors that shoppers take into account, but luckily there are a few more that can sweeten the deal.

Reviews and social proof

Since shoppers can’t fully experience your products (even though you might have great 360 view photos and maybe even videos of the product in use), 66% of shoppers read 1-10 reviews before deciding to go forward with an online order. 57% of shoppers prefer ecommerce sites with reviews, but only 42% leave feedback when they make an online purchase. In order to improve these statistics, offer a small discount or free shipping on their next order for customers that leave reviews.

Loyalty programs

Reward loyal customers with perks such as free gifts, postage, and discounts after they spend a certain amount with you. Don’t underestimate the power of “free.” Even if you don’t have the lowest price, let shoppers know that you’ve got a few tricks up your sleeve to make them feel appreciated.

What discount and added value strategies have been successful for your business?

  • Steve
    2 years ago

    Excellent article but I expect few will truly understand it.

    I just came out of a 2 year “price war” and despite total stupidity on the others parts I’m still in business whilst one went bankrupt and the other closed with a mountain of debt.

    My advice is if you get into a price war situation then contact your competitors and discuss prices. This may be cartel tactics but undercutting each other to the nth is pointless. Selling for little profit is not a good strategy. Communicate and agree a way that all can make money. Sadly these two would not talk so it was all out war to the point that I would sell some items for a small profit knowing they had massive overheads and could not match without working for nothing.

    They still undercut but I also knew that I would survive and their strategy was slowly putting THEM out of business and from my perspective a customer gained is worth more than just todays sale value so I figured it would only be a matter of time but I didn’t expect it to take two years!. Fortunately my margins allowed an agressive pricing strategy.

    This won’t work for everyone so I advise you talk to your competitors as the only people who benefit from a price war are the customers.

    Long live The Revolution!!

    • Well said.

      Very little point in entering into a price war! Compromise is the best strategy and if compromise cannot be reached then it is time to rethink! :)

    • Simon M
      2 years ago

      Be careful following the advice of contacting competitors – looks like price fixing to me, which is anti-competitive, and potentially illegal, I think.

      https://www.gov.uk/competition-law-unfair-pricing-agreements

      Having said that, I agree with your other points. Several of my competitors sell at prices 20-40% below me, and they seem to get by only on the profits of selling multiple items in the same order (the advantage of free p&p from a seller’s perspective).

      I refuse to take that approach, and price the bulk of my stock at a decent profit. The stock still sells, even at a higher price. Crucially, I make a profit even if I only sell one item.

      Ultimately, in my situation, I’m processing less than half of their volume, and likely making the same profit, if not more.

      The moral – Price does matter, of course – but don’t always assume only the cheapest price will sell!

      S.

    • Steve
      2 years ago

      FACT: Cheapect price with good service and reputation ALWAYS sells best.

      This is because most buyers are savvy and know how to compare prices and will nearly always buy from the cheapest supplier, sadly even China.. Seller reputation and service is important but on eBay most buyers know they are protected by eBay & PayPal buyer protection.

      Don’t kid yourself, if you want to move stock fast then be the cheapest. Sell it quick, reinvest in more , and flip it again. I have tested various pricing strategies and hands down CHEAPEST WORKS!!

      Price fixing? I am not suggesting that as it would be illegal so not advised. I am simply suggesting communicate with your competitors and discuss all issues and hopefully form a partnership or alliance. What you discuss is up to you but one option is to buy/sell stock to each other and within such an arrangement some conditions can be set. I advise you run any such agreements past a Solicitor to ensure you are not breaking any laws. It is then up to the buyer to decide who to buy from. What is stupid is when prices are slashed to the point of no profit as your going out of business is also not good for the buyer.

      I won my 2 year “price war” by being so stupidly cheap that ofton I lost a very small amount on an item – but I won a customer and in addition to my competitors not liquidating their stock and stagnating, I was maintaing turnover/cash flow, and paying the bills, whilst my competitors were selling little, not paying bills and going further into debt.

      In addition many customers would buy further item(s) which I would make some profit on. Plus the customers ofton come back or tell their friends.

      The true value of a sale ofton exceeds the immediate profit.

      Long live The Revolution!!

    • Bigtimetrader
      2 years ago

      No way, very bad advice. What u going to do when someone comes along with lower overheads than u? What game u playing where u take a loss per sale? Dear oh dear, I agree with being agressive but u want to make sur the other from makes a loss not ur self.

    • Steve
      2 years ago

      Maybe you should read my two comments carefully as you clearly missed something. I didn’t say it would work for everyone. It worked for me because I am in a neich area and my overheads were much lower than my competitors. Also, I only lost on a few items in my inventory, I made profit on the others. Also, many people who purchassed the losing items also bought something that has a profit.

      I work to a 400% ROI. A 200% ROI is a bad day, I can easily lose a few pence on a few items. Price wars suck.

      The “game” as you call it was putting them out of business. I won.

      Long live The Revolution!! :)

  • Mac
    2 years ago

    Hi
    I am watching three competitors in a price war at the moment on Amazon, I assume they are all using an auto re-pricer. They are presently losing 50p to £1.00 on each sale. It does not seem much but it soon adds up. One is a new seller and that has caused it, and yes their sales have gone up, but the end game is going bust, with the suppliers and taxpayers picking up the bill. I have decided to concentrate on my website and customers until they realise that it does not work.
    Great article and I hope it is read by alot more sellers in the e-commerce world.

    • Rai
      2 years ago

      A new seller may just be doing it to gain volume on Amazon, so that they aren’t crucified the moment they get their second A-Z

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